In Thomas' post regarding the international financial crisis and its impact on development he mentioned the micro finance initiative www.myc4.com. I agree with Thomas that the financial crisis will have impact on the development in developing countries. It is difficult to predict how much but nonetheless micro initiatives can be a way to help circumvent some of the problems that can arise.
MyC4 raises capital for African entrepreneurs, and in doing so strives to become a significant tool in the fight to end extreme poverty. The goal is to create sustainable prosperity in Africa via the Internet, and the mission is to remove barriers such as excessive interest rates that keep people in poverty.
MyC4 was inspired by the Nobel Prize winner, Professor Mohammad Yunus, the founder of Grameen Bank in Bangladesh. Grameen Bank provides credit to the poorest of the poor in rural Bangladesh without any collateral. Since 1983 the bank has provided micro credit to 7.45 million borrowers, 97% of whom are women, covering more than 97% of all villages in Bangladesh.
Jonas Toppenberg, Thomas and I worked with micro finance and used MyC4 as a case study during the "IT, Institutions and Development" course last fall. We analysed different aspects of it and what is important to remember is that their approach is business and not charity. But business for both parties in a reasonable fashion also referred to as social business. In my opinion this also makes the initiative sustainable. Too often you see of course well-meaning NGO's go in and do charity work but when they leave again everything falls apart, sometimes even for the worse. Sustainability is the keyword when you strive for development.
I've been actively investing on MyC4 since January 2008 and have gained a average interest at 12.4%. This is much more than you get on domestic inbound loans in Denmark. This means it is good business for me. For the African entrepreneur it is also good business. Local loaning in Africa sometimes reach an interest at 50 or 60%. This seem crazy for us Westerners but you have to consider the risk about loans. So giving the African entrepreneur a loan at the current average interest rate at 12.8& p.a. is good business for everybody (Please notice that some start up cost is not included here and the annual percentage rate becomes higher, but everything is very transparent if you look at the investment opportunities on their website).
As of today 8,025 investors from 74 countries have invested €4,750,061 in 2,859 businesses in 6 African countries. 90.2% of these businesses are successfully repaying their loans on time.
Personally I've gotten all repayments so far, not always in time, but eventually. I'm definitely not a large investor (I'm still a student you know) but even small amounts can do a difference.
Now some would say that saving up money like this will not help on the domestic situation at home in Denmark since we need to keep the wheels turning domestically first of all. Spend money here to keep employment up and so on. I agree on that but still you can do some reasonable business and help African entrepreneurs also. Everything is not black or white.
Others would say that people living in rural districts of Africa will not gain from this, only urban entrepreneurs that already have a business going. Rural poor people will be excluded and the divide will become larger. I don't pretend that MyC4 is the perfect and only solution to fight poverty and I think their mission of ending poverty with 2015 is a bit to optimistic. But we also have to remember that entrepreneurs needs employees and when they expand, they create more opportunities for others. Bangalore in India is a good example of this. The contrasts are tremendous but still they have somehow succeeded in integrating the global and the local networks and the international and national companies there knows they need the local population for all kinds of supporting jobs so they are heavily investing in improving the situation for the poorest locals. The same pattern can hopefully be seen in Africa and on a larger scale. We are all dependent on each other and we must create sustainable opportunities to fight poverty globally.
If you have any experiences yourself with MyC4 or other micro finance, please bring forward your comments. I know several of you readers are actively investors on MyC4 :-)
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2 comments:
I agree that MyC4 is a very interesting idea, and even pretty well implemented. I have been active as an investor there since November last year and have similar interest rates to Kenneth's. I however have been less fortunate with the entrepreneurs, and currently three out of ~15 seems to have vanished into thin air, never to be seen again. I hope they are all okay.
I don't mind or complain though, as with any other investment, especially with high interest there is a risk. I accept this, unlike the financial institutions of Denmark, and I don't expect the government to put forward a rescue package to save my economy and allow me to do risk-free investments :o)
Thank you Thomas for that great comment.
I should might have emphasized a little more on the risk associated with micro finance such as MyC4. With high interest rates, the risk obviously grows as well. 21 funded loans on MyC4 have currently been defaulted which means the entrepreneur have failed to pay back their loan and the money from the investors are more or less lost. But also keep in mind that 2,889 businesses have loans issued and 91.3% of these businesses are successfully repaying their loans on time.
I too have entrepreneurs that seem to be vanished and currently are not paying back their loans. Higher interest means higher risk. I just hope that if some of my money is lost, they will have provided some opportunities for the Africans.
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