After revolutionizing payments in East Africa with it’s M-Pesa service, Safaricom has now introduced M-Kesho. Want a loan? No need to go to a bank. All the 9.8 million M-Pesa users need to show to be eligible for a loan is 6 month history of M-Pesa transactions. Loan amounts go up to equivalents of about 50 US$.
(Source: Businessdailyafrica.com)
As reported in the past MYC4.com has serious operational problems making it an investment with negative ROI for the vast majority of lenders. MYC4 has taken measures to recover as much of the outstanding loan amounts as possible, but progress is very slow.
This is a quick update on the situation
Kenya / Provider Ebony:
The receivership has been in place for two months now, but has recovered only a small amount. The court case against Ebony Capital Ltd. is ongoing still awaiting a ruling. (see details)
Ivory Coast / Former providers Ivoire Credit and Notre Nation
The responsibility for collecting these loans has been turned over to TRIUM International in September 2009. In the 5 months since then TRIUM International collected 17,848 Euro. TRIUM has asked to be relieved of the contract as soon as possible (see details)
Senegal / Provider Birima
Repayments have been delayed. Birima cites technical problems and a bad economic situation in Senegal.
Uganda / Provider FED/CMC
FED seems to have the worst status. MYC4 reports that collections nearly stopped due to a lack of staff and working capital. Borrowers are said towithhold repayments in speculation on a collapse of FED/CMC.
MYC4 has defined 10 action steps for March and April. (see details)
Last week I published a short overview on the new p2p microfinance service Zidisha.org. Now Julia Kurnia, Director and Founder of Zidisha.org answers my questions.
P2P-Banking.com: What is Zidisha about?
Julia Kurnia: Zidisha uses internet and mobile phone technology to connect entrepreneurs in the world’s most isolated, impoverished areas with the international P2P lending market. Zidisha supplies the key services needed to overcome the geographic barrier between lenders and borrowers – local credit history verification, low-cost electronic money transfers, independent tracking of borrower performance history – then gets out of the way and lets lenders and entrepreneurs interact directly. Zidisha’s philosophy is similar to that of eBay, which really advanced the opportunities of small entrepreneurs in the US by supplying a regulated venue in which business growth is limited only by entrepreneurs’ own creativity and track record of responsible conduct.
P2P lending has vast untapped potential to open up better economic opportunities for motivated people in low-income countries. Africa in particular is home to a growing class of entrepreneurs who, while economically disadvantaged, are computer-literate and have verifiable credit histories with local microfinance institutions – all of which can be tapped to supply many of the communication and record-keeping services traditionally performed by local banks and microfinance institutions. Zidisha is designed to serve this type of borrower. In this sense, it is complementary to services such as Kiva and MyC4, which allow more marginalized borrowers without computer access to fund loans via local intermediary microfinance organizations.
P2P-Banking.com: How do African Entrepreneurs react to the possibility of posting a loan application online and getting it funded by strangers?
Julia Kurnia: I think this is best answered by Ms. Ndeye Sarr, a lady in West Africa who single-handedly supports a family of five sewing clothing by hand. She is raising a loan on Zidisha to buy an electronic sewing machine, which will allow her to meet client demand faster and grow her business to where she can support her household comfortably and keep her kids in school through college. Last week Ms. Sarr stopped by a local cybercafé to check on the progress of her loan application and upload some photos of the traditional clothing she produces, and she posted the following comment:
“I have just visited the Zidisha website, and see that the lenders are still continuing to support me, so that I can really start up a proper business activity. I would like to thank all those who are helping to finance my enterprise. I’m so happy to see that people on the other side of the world are willing to lend a hand to those who do not have the resources to earn their own honest living.“ (translated from the original French) Continue reading
Based on her experience in founding SEM Fund, Kiva’s oldest filed partner in Senegal, Julia Kurnia believes there is a vast untapped potential for p2p lending in microfinance.
To tap it she launched Zidisha.org, a non-profit that makes two changes in the process. First: There are no intermediaries. Lenders lend directly to computer literate entrepreneurs in Africa (currently Senegal and Kenya). Second: Only entrepreneurs with a credit history that have in the past paid back a loan by a bank or a financial institution successfully are eligible (this is verified).
Julia Kurnia told P2P-Banking.com:
Lending through local intermediary microfinance organizations creates high costs for borrowers (Kiva borrowers pay an average of 35.25% in interest to Kiva field partners, according to the Kiva website statistics). Outsourcing loan management to local intermediaries also puts P2P platforms at risk of pyramid schemes, in which unscrupulous partners use funds disbursed for new loans to mask embezzlement of repayments due to lenders. Kiva and MyC4 did very well when they operated at small scale, but as time passed and they added large numbers of partners, the cost of controlling intermediary fraud ballooned and may make their models unsustainable at a large scale.
Lenders at Zidisha upload money via Paypal (fees apply) and then can browse listings, written by the entrepreneurs themselves. Lenders do get paid interest, whoever “the principal purpose of Zidisha’s lenders in funding loans is to help finance these entrepreneurs, and not to make a profitable investment.” according to the FAQ. During bidding lenders can underbid each other with the result of the entrepreneur profiting from a sinking interest rate.
I am looking forward to use Zidisha. I plan to publish an interview with Julia Kurnia next week. If you have a question you want asked you are invited to email it to me or post it as comment below.
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.
The unrest after elections in Kenya might also to some degree impact operations of Kiva and MyC4 which are funding p2p loans in Kenya. As Jessica Jackley Flannery of Kiva reports operations of the local MFIs in Kenya have been interrupted:
The situation on the ground appears to vary widely from community to community. However, one consistent report is that business is not operating as usual; most MFI operations have been interrupted or stopped altogether in the last week, whether due to imminent danger in their region or the general disruption in daily life caused by turbulence elsewhere. Thankfully, as far as we know, none of our partner MFI staff have been hurt. Unfortunately, due to the magnitude of the situation, we anticipate that many entrepreneurs will have been displaced, hurt, or otherwise adversely affected.
Please be patient as this situation unfolds. We expect possible disruptions in our Kenya MFI partners’ operations as the staff on the ground recover.
On MyC4.com the local provider Growth Africa Capital writes from Nairobi, Kenya:
It probably hasn't escaped your attention that the Kenyan elections didn't go a smoothly as we had all hoped and has resulted in a lot of unrest, violence, destruction and even deaths.
As I type (noon, 2nd January) things are slowly getting back to normal in Nairobi. The situation is also improving in Mombasa, though we are yet to get the same good news from the central Rift Valley, Western and Nyanza provinces.
We should have a full overview in terms of the wether any of the opportunities funded via MyC4 has been affected by the unrest by Monday (7th January).
Once safe to do so, we will look at the areas in Nairobi affected by the unrest and wether affordable funding will make a difference in the affected people's lives in terms of re-establishing their businesses. So stay tuned for opportunities that will help get Kenya and its enterprising people back to normal – your investment may make a huge difference.
While the situation in Kenya is somewhat unclear, the crisis is already impacting Uganda's economy. MyC4 only recently started in Kenya. The majority of loans are to entrepreneurs in Uganda.
Ronald Isabirye of the local provider in Kampala, Uganda about the consequences: Continue reading