Cautious with MYC4

Back in March I pointed out in the MYC4 forum that both my class and I felt that many of the loans offered by Ebony on MC4 were unreal.  Three Loans for a DJ of over 10,000 Euro each have a) Nothing to do with Microfinance b) Cannot be real. A number of myc4 users shared my views  while others thought that there was nothing wrong with it.

Recently MYC4 announced that all the investments on Ebony projects are at risk this is very sad but at the same dangerous to the development of MYC4. In other circumstances providers defaulted (Cote d’Ivoire and a provider in Senegal seems very late with repayments too) .

The whole MYC4 differentiation is that, in theory, investors will receive interests on their loan. In practice (it looks like the statistics have just been updated) “The average successful bid rate has been 13.2% whereas the net interest earnings have been

-3.2% per annum encompassing defaults, currency losses and gain, late repayments and idle times for transactions.”

so in practice everyone is losing money on MyC4. Defaults and delays are not just in Ebony where, in my opinion, it will be tough to recover the principal but also in Uganda and virtually every provider.

For example this this and this are delaying loans outside Kenya where I did “invest”.  Echoing what Marie wrote in the forum the big issue is not helping a small entrepreneur and losing some money in the process but “The turning point for me was clearly when I realised that my money is in some/many(?) instances NOT ending up in the pockets of African entrepreneurs (I have no idea how many, but hope the auditors soon gain access to Ebonys files so we can get some information). And I have to be true to myself and my objectives of investing on MyC4. I will NOT give away money to the MyC4 providers – I need to have some kind of guarantee/trust/reassurance that my investments are reaching the small and medium enterprises.”

What I see as the main problem is loan size and due diligence. In Microfinance you simply can’t open the doors to providers and say “we are just an intermediary” but you need to conduct extensive due diligence and limit loans to the Microfinance size – 500 Euro/Dollars as an example. This is what Kiva is doing and what made Kiva successful. I feel that, for the time being, it is not safe nor proper to invest in microfinance through MYC4.

I recommend every investor interest in “investing” on myc4 to be extremely cautious as the money you invest might a) be lost forever b) not help anyone in the microfinance world.

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