MYC4 a p2p lending platform for micro-loans to entrepreneurs in Africa, today released a new layout. 10 months after the last change the new layout looks more clearly structured. The changes only impact the appearance, there were nearly no functional changes in this release.
“This is a great opportunity for us to champion the notion of an African Company helping fellow Africans instead of the common perception that Aid should always come from “Abroad”” said Mr. Van Veen during the announcement and launch of the partnership at the Sheraton Kampala Hotel. The capital investment guidelines require that MTN’s loan contribution must constitute a minimum of 33 percent of the total loan required.
Under the agreement, $50,000 would be invested immediately in a six months pilot phase which is expected to shed light on how best to administer the funding. “The learning after the pilot phase will guide us on how to manage the capital repayments and their re-investment over the three year period”.
Let’s have a look, if these microfinance models can fit under the definition of peer to peer lending. One aspect of p2p lending is, that the lender can select individual borrowers, which he wants to lend money to. Kiva and MyC4 offer this choice. A p2p lending platform usually allows search parameters to narrow the search for matching borrowers (e.g. by credit grade). Both have this function allowing to search by country, gender, industry and more.
A possible argument against classifying MyC4 and Kiva as p2p lending companies is the fact that they use local microfinance institutions as intermediaries acting between lender and borrower and charging fees. That is true, but several other p2p lending services (e.g. Prosper, Lending Club and Smava) use banks as intermediaries (for legal reasons).
So where exactly is the divide seperating MyC4 and Kiva from other p2p lending services. They differ especially on the factor that:
- Borrowers can not sign up themselves (so one side is really offline); borrowers are selected and screened by the MFIs
- Business model
- Lenders receive no interest at Kiva
- Lenders and borrowers do not reside in the same country.
I still think that MyC4 and Kiva can be defined as p2p lending services. With Microplace the case is different, because no individual borrowers can be identified; therefore Microplace could be excluded form p2p lending (Microplace states that it is not a p2p lending site).
(Photo credit: Stig Nygaard)
MyC4.com has a great concept with an ambitious goal: ‘Let’s end poverty by 2015’. Lenders can invest in African businesses of small entrepreneurs. MyC4 gained a lot of positive media coverage and received awards.
The realization of this concept is an enormous task, facing many hurdles. Since MyC4 is transparent and lenders earn interest problems do impact the user experience. Current user discussions deal with issues like defaults, currency risks, transaction costs, pending time, information accuracy and communication.
While I am sure that Kiva has to overcome similar problems, the difference is that on Kiva these issues are more dealt with in the background and the average user is not or less aware of them.
Like Kiva, MyC4 partners with local microfinance institutions (called ‘providers’ on MyC4 – see overview of provider results) that screen loan applicants. These partners are trying hard to validate the business of the applicant as good as possible, but conditions and environment complicate the task.
Furthermore the partners are on a learning curve – a process that MyC4 supports. Data accuracy of the loan details listed by the provider sometimes is questionable – this was one of the causes MyC4 cancelled some Ivory Coast loans earlier.
Example: an active listing that raises questions
Alima Thiam, retail shopkeeper in Senegal, seeks a 13,873 Euro loan.
: About :
Married and a mother of 2 children, Alima has been trading items for 8 years. Her business grew so fast that in April 2007, she was able to open her first store. Her business is still growing at a fast pace and she needs additional working capital to increase her inventory of goods and add new items.
Objective of the opportunity:
With a loan of â‚¬13873, Alima seeks to increase her stock provided that it would guarantee more interesting sales. She wants to buy her goods early to avoid paying higher prices, hence keeping her costs down. She will use the increased margin to introduce new items.
The information provided in the listing raises the following plausibility questions:
- The relation of the loan amount to the yearly income seems very high
- The listed collateral – an Audi 80 – is given with a value ofÂ 9,711 Euro. This seems a very high value for a very old car model. (independent of issues whether the collateral could really be secured in case of default)
- The location pictured does not look like it is in proportion to the amount of goods that could be bought for the loan value.
What reasons could have caused possible inaccuracy of information in this loan listing?
Githa Kurdahl, doing an internship with Ivoire Credit has described her findings regarding inaccurate descriptions in an excellent post on Oct. 21st. In summary she pointed out the following causes:
- mistakes due to manual calculations
- mistakes in translation
- lack of business records
- exaggerated projections
- optimistic borrowers
- mismatch between European and African business context.
The Industrialisation Fund for Developing Countries (IFU) and CSR Capital have decided to invest a total of DKK 15 million (approx. EUR 2.2 million) in Africa through MYC4. The Danish Development Minister Ulla TÃ¸rnÃ¦s supports the decision.
“This is an extremely important milestone for MYC4. That IFU and CSR Capital now invest through MYC4 is an endorsement of our initiative as a serious tool in the fight to eradicate poverty in Africa through the marketplace myc4.com,” says CEO of MYC4 Mads KjÃ¦r and continues:
“We hope this will inspire financial institutions, pension funds and companies to invest in Africa through MYC4. We are already well under way, but to make a significant difference for the development in Africa, this kind of investors play an important role.â€
Danish Development Minister Ulla TÃ¸rnÃ¦s warmly welcomes IFUâ€™s initiative to invest in Africa through MYC4.
“Danida has been the facilitator for MYC4. Through the Public Private Partnerships, Danida has supported the development of MYC4. I am glad to see the interest and support for the new marketplace. It shows the economic potential for investments in Africa,” says TÃ¸rnÃ¦s.
DKK 10 million from IFU, 5 from CSR Capital
IFU is an independent fund under the Danish Foreign Ministry. IFUâ€™s purpose is to promote economic development in developing countries in partnership with the Danish industry, and now the fund invests DKK ten million in Africa through MYC4.
“With the investment IFU wants to contribute to poverty reduction and business development of small and medium enterprises in Africa,” says Investment Manager Kasper Svarrer from IFU.
In addition, the private investment firm CSR Capital invests DKK five million through MYC4. CSR Capital focuses specifically on social and environmentally sustainable investments:
â€œGood investments and development can and must go hand in hand in order to create the basis for sustainable economic, environmental and social growth and welfare in any society”, says CEO of CSR Capital Sven RiskÃ¦r.