P2P-Banking.com

MYC4 will change its fee structure for borrowers for new loans starting in July. One main point of criticism had been that MYC4 by charging origination fees profited from any loan, regardless whether it was paid back or defaulted.

MYC4 has reacted. In future there will be no origination fees and only fees on the interest of the repayments. This uis a step in the right direction as the interests of MYC4 are now more aligned with the interests of the lenders. To make or increase profit MYC4 has to avoid and decrease defaults.

Quote of the announcement:

We have made a strategic decision with regards to the way MYC4 earns money by removing “closing fees” and only charging “interest fees” on the loans, when they are being repaid. That means that we put ourselves on the same side as the Investors on MYC4 only earning money when the Borrowers repay their loans.

With this change we want to signal that we believe strongly in the viability of the Businesses, and to align MYC4 earning with the earning of the investors and similar to investors be affected by any defaults and currency fluctuation.

Concretely, MYC4 will change the current income structure, where the Borrower is charged a flat fee of 2% of the loan amount, payable only when the loan is actually disbursed, and an additional fee of 2% (interest spread) when the loan is repaid on the basis of a declining balance. This corresponds to a total fee to MYC4 of approx. 3 percent of the total loan amount.

Instead, we will charge 6% interest commission. Considering a 12-month loan time, this 6% charge matches the 2% on initial balance plus the 2% on outstanding balance fees. The change will in most cases be neutral for the borrower.

In the same line, MYC4 encourages our Partners to shift their income from closing fees to repayment (interest) fees to show their belief in the quality of their portfolio towards investors. However, our Partners are not obligated to change their income structure, so it is up to each of them if and when they will change due to for instance their cash-flow situation.

The site Prosper.com shows only a maintenance note today saying “… We expect the site to be down both Saturday (4/25/2009) and Sunday (4/26/2009).”.

Speculation: Maybe Prosper will end its quiet period and resume its full p2p lending service on Monday?

Acting on problems that came about when an insurance scheme, that was supposed to cover over 200 loans in Ivory Coast, failed (see previous coverage), MYC4.com announced it will reimburse all lenders on these loans, if the loans default.

Mads Kjaer, CEO of MYC4, announced:

We have in previous update informed that we will intervene and take on the obligation towards the Investors and cover defaults on loans. MYC4 will cover all defaults on MISCOCI covered loans. In actual numbers this could amount to a total cost of EUR 388,000. This will put financial strains on our company, yet we believe it’s the right thing to do.

Now, what does it mean that MYC4 covers MISCOCI included loans? As noted, 242 loans in Cote d’Ivoire were supposed to be covered by MISCOCI insurance. These 242 are very likely to default within the near future - some are already defaulted (cf. MYC4’s default policy) and therefore MYC4 will cover Investors’ loss on their principal.

This means covering the spread between what has already been paid back and Investor’s principal or in other words: MYC4 will step in to reimburse Investors whatever amount they still have not received of their original investment. Meaning the original bid value minus total received repayments over time. We are currently working how we technically can do this in the system and will revert back with an update in two weeks time.

Loans without MISCOCI:
With regards to the not MISCOCI-covered Cote d’Ivoire loans, we are aiming at a solution that will create the best possible chances for Investors to get some of their money back by ensuring that Notre Nation and Ivoire Credit will continue to collect repayments also after the technical default on the platform.

Lenders welcomed this decision in forum feedback.

Other MYC4 news:

• MYC4 wins prize as “best financial e-commerce” by FDIH, the Danish Association of Internet and Distance Trade
• The first bid by IFU and CSR was made on MYC4 in their aim to invest 2.2 million EUR on MYC4 (see earlier coverage)

Peer to peer lending is innovative and new. New users usually have lots of questions when grasping the marketplace mechanisms. Beyond the FAQ of the p2p lending service, a great place to learn is usually a forum, where users (mostly lenders) exchange experiences and post and answer questions.

There are “official” forums provided by the lending services and independent ones. One of the first ones, the official Prosper forum, became one of the most notorious ones. After Prosper “moderated” negative and critical posts it later deleted the initial forum in total. When a copied version of the forum’s archive was made available on seperate internet site Prosper tried to  shut the site down, but failed.

But this is an extreme example. I found that on nearly all other forums a very helpful and supportive attitude rules.

List of p2p lending forums

General

• P2P lending forum at Wiseclerk.com
• Soclen.pl (polish language, focus on Polish p2p lending services)
• P2P-Kredite.com forum (german language, focus on Smava, Auxmoney, MYC4)

Focus on one p2p lending service

• Zopa UK (official)
• Smava (official, german language)
• Kivafriends.org (on Kiva and microfinance in general)
• MYC4 (official, mainly english, some danish)
• Lendingclubstats (on Lending Club)
• Booberwatch (dutch language, on Boober)
• Prosper (official)
• Prospers.org (on Prosper, prosper critic)
• PPdai (official, chinese language)

If I have missed any great p2p lending forum, please comment with the URL and I will add it to the above list. Thank you.

(Photo credit: wili_hybrid)

Over the last months it became clear that MYC4.com loans default at a much higher percentage then expected. MYC4 management states several growth and quality problems that led to the situation. Better training of the local providers, partner ratings, spot audits and a license system are measures that shall improve the quality in loan selection and management in the future.

Currently one challenge is to deal with the failing loans issued in the past. The earlier problems with Ivory coast loans continue. About half of the issued loans were insured by the organisation MISCOCI against defaults. MISCOCI failed today and is reported to be bankrupt. MYC4 has announced a few minutes ago, that they will publish until March 20th, what this means for the lenders on the defaulted Ivory Coast loans (MISCOCI covered 242 loans with an outstanding balance of 388,644 Euro).

NotreNation, one of the providers in Ivory Coast, yesterday named poor selection of borrowers by inexperienced credit agents and the difficult economic situation in Ivory Coast as reasons for high default rates.

GrowthAfrica, a provider in Kenya with a high portfolio at risk rate (PAR) has announced yesterday that it will buy back 65 very poorly performing loans at 95 percent of the balance from the lenders. This step was taken as GrowthAfrica felt they share responsibility for the poorly performing loan portfolio. GrowthAfrica expects to buy back loans for more then 125,000 Euro in total.

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.

MTN Uganda, a telecommunication company with 3.5 million customers, will invest 250,000 US$ to fund loans to small and medium scale enterprises via MyC4.

“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”.

When analysing numbers on p2p lending activity, users can rely on independent third party sites gathering statistics for many p2p lending services. These services either obtain the raw data via an interface provided by the service or they do parse the web pages of the service to collect the data.

Most of the statistic sites offer reports and tools to analyse and graph the overall development of the marketplace as well as the status of an individual lender’s investments.

The majority of the users are lenders, as the borrower usually needs the information only once - before applying for a loan - to determine what interest rate is appropriate.

Tools for Prosper:

• Lendingstats.com
• Ericscc.com

Tools for Lending Club:

• Lendingclubstats.com

Tools for MyC4:

• MyC4stats.com by Wiseclerk
• MyC4watch.com
• Gladkristen (danish)

Tools for Zopa UK:

• Ljay

Tools for Smava:

• Wiseclerk (german)
• Beobach (german)
• Verchow (german)

Tools for Auxmoney:

• Wiseclerk (german)

Tools for Boober NL:

• Booberwatch (dutch)

Feel free to copy this list, but please do set a link citing this page as source. If you know another social lending / p2p lending stats site, please let me know.

Long term readers may remember that the Wiseclerk.com domain initially started as a report site on Prosper.com. It was in fact together with Savagenumber.com the first service of this kind.

(Photo credit: ArtemFinland)

As last year I’ll again attempt some predictions on what trends and developments can be expected in peer-to-peer lending 2009.

More competition and entering more national markets (probability 100%)
In many markets multiple p2p lending services will compete for the attention of lenders and borrowers. In other markets, where there is no national p2p lending service active yet (e.g. Canada, New Zealand), p2p lending will be introduced by the launch of a service. Possible candidates include Communitylend and Nexx.
It is hard to predict when the dormant US players (e.g. Prosper, Loanio) will overcome the regulatory hurdles and if that step is lasting.
The British market which has (compared to other markets) rather low regulatory barriers so far is dominated by a single player -  Zopa. I wonder if we’ll see the launch of a competitor there.

Boom of social lending services/p2p microfinance (probability 100%)
2008 saw the launch of Babyloan, Veecus and Wokai. Kiva funded more the 1 million US$ new loans in a single week in the end of December. The steep growth of Kiva, MyC4 and other services will continue and new p2p microfinance platforms will launch.

First Banks experiment with own p2p lending applications (probability 50%)
While p2p lending volumes are far from being a business threat to banks - banks do watch the developments. Possibly in 2009 a bank will launch its own p2p lending application. The principal aim will not be to generate revenue, but rather to collect experience and to gauge acceptance by the bank’s customers. It will be interesting to see banks testing the water on their path to implement a p2p lending concept that supplements their core business.

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MyC4 has the first three Tanzania loans online. I bid a small amount on the loan requestof Eliamin Eliakimu Swai who runs a car spare parts repair shop in Dar es Salaam. Local provider in Tanzania is Growth Africa Capital, which also serves Kenya.