MYC4
1705 Repaid loans
1220 Defaulted loans (not sure if this includes Ebony);

So we have a very high percentage of defaults 41.70%

Kiva
74486 Paid Back
3369 Ended with Loss (many of which are Ebony)
4.3%  defaults/ended with loss

Obviously, given the data, Kiva is a much better (and simplier) option.

I have just made some more loans on Kiva – my updated lender page is here

I have always been a firm supporter of Kiva and I introduced their case study to my classes. This is a disappointment. Microfinance, in my opinion, has to stay “micro” and relevant to these under served countries that need it the most. I perfectly understand that many families in the US are navigating in turbulent waters but this is certainly not a good reason to use microfinance – in the case of kiva free credit – to finance 5000-10,000+ $ loans. There are a good deal of peer to peer lending platforms like zopa and many other opportunities for Americans or British lenders.  Very little, if any, for people in Samoa, Cambodia etc.

Additionally, some MFI institutions complained that Kiva does restrict their projects: they can only post small loans of less than 500$. This is completely fine but why then open US loans to these “jumbo” loans ? If Kiva wanted to do something in the US it should have focused in entrepreneurial micro projects for the needy and not these type of loans.

Gladly I am doing my with direct microfinance initiatives and trying something out with myc4 too.

On Kiva I have just received my first repayments – it was really quick and I could now re-use some of the capital for other loans. If you are curious you can see my Kiva page here.

True: on Kiva you do not earn any interest. But at least the rules of the game are clear from day 1 and there is no illusion. On Myc4 investors are supposed to receive interests but, if you cut the currency risk and expenses your likehood to make a profit is, to say the least, low.  Additionally, the loan is offered at fairly high rates. I have discussed this on the myc4 forum and I stil can’t figure out why, given that the investors carries both the default and currency risk, is the least paid in this game.

On Kiva the money are offered to the MFI without any interest and this is certainly a plus. Kiva is not making a profit on my investment – nor am I – but we do help the MFI (local partners) to develop their infrastructure. In any case the final entrepreneur is paying and interest but possibly a lower one. Another issue on myc4 is a substantial default of 388,000 Euro in Ivory Coast. This will be paid by Myc4 itself but – in a what if scenario – what if other MFI’s will be in a similar situation ?

What I dislike the most is the loan size: too many are over 10,000 Euro and Myc4 seems to promote the “missing middle”. To me this is not middle: this size is similar to the ones we can find in the development world. It is not microfinance.

On Kiva there is a cap of approximately 1500$ per loan. This is very healthy and appropriate.
To summarize: I feel that on MYC4, given the loan size and confusion, investor are likely to register a loss. The currency risk in countries as Africa is not something trivial. The overall timing of a loan and reporting is done at a fairly slow pace.

Kiva is recommended for these people wishing to make a change with as little as 25$. If you are looking for bigger investments you can visit my microfinance investment page . There you can find excellent opportunity that do not ask to to bear both the default and currency risk with little or no guarantees.

In some recent enquiries I have discovered that some MFIs are not entirely pleased with Kiva’s system. Why so if the money is lent at 0% interest rate?

The MFI is still responsible for repayment charges (that, for small monthly repayments can add up) and find the requirements to keep a borrowers journal resource-intensive. The exchange risk is also entirely on the partner shoulders and this, in certain countries, is a real issue.

Interestingly the journal updates do contribute to the lender “feel good” but isn’t of any help to the borrower. Additionally, Kiva has a limit of 1200$ per borrower and, in some emerging economies, borrowers might need higher amounts.

Personally I was very surprised to hear that some MFI were not very happy about the Kiva model. What was particularly interesting was seeing how cumberstone could the frequent updates and regular payments be.  Apparently some MFI would rather pay interests but enjoy more freedom in operating the loans and serving them to their clients without too many restrictions. Another thing I don’t particularly like about Kiva is that the majority of the loans have been disboursed already. In the case of myc4 the loan is disboursed only after all the bids have been collected and the money effectively delivered.

After reading this post I am getting concerned about myc4 too. Some projects make no sense: 3 aspiring DJ’s (!!) in Kenya were asking for a 12,000 Euro loan each. The pictures look very similar – taken at the same place. Similarly, other projects like this and this do have similar pictures and a somehow dubious amount: 10,000+ Euro. This might not really fit within microcredit. Even in developed countries in the EU a credit of 10,000 Euro is not given that lightly. If you add the currency risk to this you do get the picture.

I) Godfry, Mechanical Services, Uganda
II) Tropical Diagnostic, Ghana
III)Annet, Veterinary Shop, Uganda
IV) Joyce, Retail Store, Uganda
V) Asuma, Tailoring, Uganda

Feel free to click on the links to see the whole project.

On MyC4 you act as a real microlender meaning:

a) you have to charge an interest rate;
b) you are responsible for the currency risk (the loan is disboursed in local currencies and if you do not charge an appropriate interest rate you will almost certainly end up losing money);
c)Defaults exsit but MyC4 is very transparent and gives you all the information to make an appropriate decision like the value at risk for a given MFI,the collateral, and the number of defaults from a given provider;

It works as a dutch auction so the best offer will be included in the final loan.
The profit you make through the interests is subject to the local withholding tax (here things get a bit complicated but myc4 goes to a great length in explaining how this works and calculates/deducts this for you).

From a pure feel good prospective Kiva gives you a more immediate satisfaction. MyC4 has a different learning curve and requires an higher degree of homework. This said the total amount of money invested through their platform is fairly impressive.

What I found very interesting in myc4 is that the lender can gain a better understanding of how coomplex the work of a microbanker can be. Not only you need to make a judgement on a particular project but also take into account currency hedging and taxation. Obviously this is not an issue on Kiva as it is a not for profit. MyC4 does charge fees and so does the local partner (this is however very well explained on the loan information).

Obviously this model can be subject to critics: microplace seems much more straightforward but the comparision isn’t really doable as MYC4 accepts investors from virtually every country (but US) and microplace is active solely in the US.

MYC4 might not be for everyone – but it has an interesting model. More information about myc4 are also available on this Guardian article.

As Kiva is still looking to publish more loans – just a few at the moment – I am experimenting myc4 and other platforms too. ! I will keep you posted.

I am wondering if the current online loan portals are really up to the growing appetite for social loans. Beside Kiva and Microplace (an Ebay subsidiary where you actually earn interest on the money you lend) all the others I have currently reviewed are not there yet. Their platform is often incomplete – one of the great ideas of kiva is offering borrowers updates, groups and much more.

It would be nice to create something useful for companies and educational institutions to “match” loans with their own funds – and/or to be more interesting to investors. Once again microfinance shouldn’t be confused with charity or a donation – at the very leads lenders should be able to receive their money back without interest and loan them to other micro entrepreneurs. All the other portals that consider loans donations (e.g. wokai)are really not as interesting.