P2P-Banking.com

About a year ago I started lending money to African entrepreneurs via MyC4.com.  So far it did meet my expectations. The process of uploading money worked without problems, there were always enough loan applications to select from and the offered interest rates were high enough to allow for good returns despite the risks. The only point, where the usability need to be vastly improved is a better status overview for the payment status of all loans in the portfolio. MyC4 does show the payment status in detail for each loan, but its hard to get an aggregate overview.

I invested at 13.8% average nominal interest rate. 194 loans are currently running, 29 are repaid in full, 12 are open/pending (not yet disbursed), 1 defaulted and 4 were cancelled.

To roughly calculate estimate my ROI I looked at my account display at MyC4

About 12-13 months ago I uploaded 1,506.94 Euro. Now my account value is 1,625.24 Euro (9,09 Euro available + 124,62 Euro pending bids + 1.491,93 Euro Outstanding principal). That results in an ROI of 7.9% so far. Naturally it would drop, if the outstanding principal is not repaid in full due to defaults.

The ROI is much lower then the average interest rate, since it does take weeks before an investment in a loan becomes active - and unlend money does not yield interest. A further point is that several late loans affect the ROI.

Read all MyC4 posts from the past months.

Lenders at MyC4.com do not have an easy task, when trying to check which of their loans are late on the repayments. The account page does not offer a comprehensive overview page. If a lender really wanted to check in detail he has to click through to the detail page of each loan he invested into.

Officially only one loan has the status ‘defaulted’ so far. However MyC4 so far has no standard policy when a late loan is to be declared defaulted. MyC4 has stated that there will be a default policy by the end of August.

Researching the situation, there are more than 320 loans that are late (fully or partly) with at least one repayment. Of these 72 loans are 3 payments late, 64 loans are 4 payments late, 30 are 5 payments late and 22 are 6 or more payments late.

Another issue that raised some concerns are the first impacts of the changed rules regarding currency risks.

… as some of you might have noticed already the first repayments are now posted on the investors accounts from Kenian investments where we investors are now taking the risk of currency fluctuations.

Within the first period from disbursement to the first repayment the KES has devalued from 97 to 104.5 = 7.2% already. … (Source: see discussion here)

To help lenders selecting loans to invest in, a column with the information whether a loan open for bidding is issued in local currency or in Euro was added to the wiseclerk MyC4 statistic pages.

(Source: uses information from Status der … MyC4 Kredite)

Since the new release, MyC4.com has encoutered repeated accounting problems, sometimes with wrong interest calculations, sometimes requiring correction of user account balances. 

Examples of incidents: 1, 2, 3, 4, 5

MyC4's staff has been quick to respond to the problems and usually is fixing them fast.
But I believe the issue here is, that p2p lending through a foreign internet startup requires a great amount of trust. And while lenders are used to bugs in new internet application, they do expect a high standard when it comes to accounting. After all no user of online banking would accept that he has to check the interest calculations made by the bank. 

The MyC4 team did a good job developing the platform so far and earned at lot of trust; but if the problems persists this might be an obstacle to further growth. 

I have lend money in over 170 loans on MyC4.com. My average interest rate is 13.8%. There are no defaults yet (not only in my portfolio, but overall). But lately there are several loans that are late (usually up to one month).

In the account balance late loans are recorded as repayments with zero value:

Latest borrower who went late is Sarah Akany, who runs a computer training and internet center in Uganda. I don't really worry, since she went late once before and caught up again.

The provider (CMC) posted the following notice to lenders on the blog:

Dear investors,

We have contacted the client and she has promised to clear the late payment. We shall continue tracking the client and ensure payment.
Thanks.

Today MyC4 presents itself in an all new shiny layout. On MyC4 lenders can give loans to small businesses in Africa. Unlike at Kiva, lenders at MyC4 earn interest. So far 1.8 million Euros (approx. 1.2 million US$) have been invested in loans and there are no defaults yet - only several late payments. With the new release …

… three key elements have been prioritized on the new website; usability, design and communication. We have made it easier to understand what MyC4 is all about, how to join, how to upload money, how to find a Business, which fits your criteria and lastly how you invest and re-invest.

According to MyC4 the changes in today's release are:

• The look of MyC4.com has been updated
• Improved navigation making it easier to find your way around via a top menu and a left hand menu with sub-levels
• “Opportunity” changed to “Business” – to access the overview of Businesses, click on “INVEST” in the top menu
• MyCredits is now changed to EURO (€)
• The Investor now carries the Currency Risk
• Withholding tax

I also noticed that MyC4 is no longer marked as "beta".
The handling of currency risk is a major change. The announcement email says:

At MyC4 we want to offer a sustainable and easy to understand solution for the African Businesses. The currency Risk has until now been carried by the African Business, but this has uncertainty for their loan conditions.

To ensure that MyC4 and the African Businesses are sustainable in the long run a new model for the Currency Risk has been developed. We now transfer the Currency Risk to the Investor, which has to be covered by the size of the interest rate you demand.

As a consequence please be aware that going forward there is a Currency Risk on your new investment when investing in some African countries. MyC4 cannot advise on the daily currency development, but based on the last 3 years currency fluctuation we suggest as a guideline that your add the following percentages to your normal wanted interest rate to cover for the potential Currency Risk;

Uganda 6%
Kenya 2%
Côte d’Ivoire 0%

This means that if you where planning to Bid on a Business in Kenya with an interest of 8% in mind you now add the 2% - so you Bid 10%, but will properly get 8% depending on the currency fluctuation over the period of the loan.

 Screenshot of MyC4 in new design
 

MyC4 has just published a quarterly magazine to accompany it's website. The first issue of Change has 20 pages, looks stylish and has lots of information (e.g. Senegal will be the next market, where loans are available to borrowers starting in June). Here is what MyC4 says about it's magazine:

We have just released the very first issue of CHANGE - the magazine that comes all way around MyC4: Vision, business model, partners, supporters, etc.

MyC4 has successfully funded 1000 loans to entrepreneurs in Africa since launch in May 2007. So far none of the loans has defaulted and average interest rate for lenders is 11.7%.
Tim Vang, one of the co-founders of the Danish startup told P2P-Banking.com that the MyC4 will release a new version in May with a new design and better interface. MyC4 also plans to provide loans in additional countries (currently Uganda, Kenya and Cote d'Ivoire).

MyC4's annual report 2007 is available on the Internet (English and Danish). While the company realised a loss of 2.8 million DKK (approx. 0.6 million US$) in 2007, it aims for break even in 2009.

 
(Source: MyC4 loan statistics, Wiseclerk.com, Apr. 19th)

A very interesting study that mainly concentrates on donations covers aspects of social lending too. Among the 24 online philantrophy markets examined are Kiva and MyC4. The study gives great advice what users (donors and lenders) expect from the market (the service) as functionality.

The study comments on Kiva:

Kiva’s entire business model was, from the start, faced with seemingly insurmountable logistical issues. From verifying the legitimacy of entrepreneurs’ claims straight through to delivering repayments to investors. In addition the challenges of distance, cost, and time were considerable. By partnering with carefully-selected microfinance institutions (MFI) already working in a particular area, however, Kiva has been able to overcome all of these hurdles. … And each MFI’s reputation as an accountable, socially responsible organisation must be unimpeachable with Kiva or another highly regarded organisation such as the US Peace Corps. Partnering with MFIs also overcomes the communication issues encountered working with small businesspeople in developing countries. Whereas very few small business owners in developing countries have Internet access or English language skills, all of the MFIs must have these in order to work with Kiva. This compromise enables individual stories from entrepreneurs, relayed by MFIs, to reach investors both before a loan is disbursed and after its effects are felt. Though loan repayments have been generally taken as a ‘proxy for success’ in the MFI industry, it is these personal stories, says Kiva’s Ben Elberger, which are
most important to most of its donors: ‘The lenders are more interested in the qualitative results than the quantitative…They are more interested in learning what happened to the entrepreneur than they are in getting their money back.’ Thus, the information provided by Kiva’s partners in each of their business’s journals is very rarely financially detailed; rather, it tells the story of how the loan will (or has) impacted on the day to day life of the business owner.

What does the future hold for Kiva? One of its primary goals has become strengthening their partner MFIs, helping them reach a more sustainable financial position so that fluctuations in funds received from Kiva will not impact their overall ability to lend. It is also developing an internal reporting system, but identifying common indicators for MFI and businesses has been extremely difficult, and it is unsure that such a framework is even possible. The biggest variable for the future, it says, is to what degree the public’s moral attention to sustainability and development will last.

MyC4 is given as example for the useful integration of Web 2.0 technologies to create an interactive market.

While a long read (over 50 pages without appendix) I believe it to be interesting for all p2p lending services especially the product development and marketing managers.

Download the study

MyC4.com accelerated growth during the past month. This is shown by stats on MyC4Stats.com (provided by Wiseclerk.com) showing the loan volume by origination month. Compared to earlier months the loan volume rose sharply in December and January. In December 150,000 Euro loans and in January 250,000 Euro loans were disbursed to African entrepreneurs.

(Source: MyC4Stats.com)

The new MyC4Stats page offers reports helping lenders to find open MyC4 loan listings with the best rates. At MyC4 - unlike at Prosper - every lender funds a loan at his individual interest rate. In fact 50 different lenders funding one specific loan may each earn different, self-set interest rates. While MyC4 sets a maximum for the weighted average interest rate for each loan, it is still possible for an individual lender to bid higher and earn more after funding.

Example: A 2500 Euro loan to Clementine Gbrou, who exports grains to Europe the maximum weighted Wanted interest rate was 12% (lender interest, not borrower). This loan closed with a weighted average interest rate of 11,64% (lender interest). The individual lenders in this loan earn DIFFERENT selfselected interest rate between 3% and 13.5%. Several lenders thus achieved above average rates.

How to find the best loans?

To select the loans with the best rates for bidding in the listing phase a quick overview of available listings sorted by the maximum possible interest rates that can be bid, is important. Several tables on MyC4Stats help lenders on this. Sample screenshot:

(Source: MyC4Stats.com)

The report presents the listings sorted by maximum interest rate (column Maximum bid) that can be bid and states the Euro amount above this rate that serves as a buffer before being outbid. The buffer is caused by the rule that new bids must always be place at least 0.5% lower then the current high bid.

Today a new MyC4 release went online. The new version allows multiple standing orders which can be targeted by country, provider and/or industry of the borrower. There are several small improvements in usability, e.g. display of borrower APR.

MyC4 users have transfered 507,000 Euro in funds, but so far only 214,000 Euro of those have been loaned. Demand in loan opportunities is lagging behind investor's cash looking for investments. The majority of lenders (investors) still is Danish - MyC4 is located in Denmark, but the number of investors in other countries is rising.

So far I am satisfied with MyC4. I have invested in more than 50 active loans - true microloans - sometimes my share is as low 10 Euro - and so far everything is going smooth. Another 16 bids are on open listing opportunities.