GLOSSARY

Below you can find an explanation of some of the terms used on this website. If you wish to translate all of www.MYC4.com into your local language - you can choose a online tool such as Google Translate.

The glossary is divided into six different categories. The different categories also contain practical examples which can be downloaded.

Loan terminology
Total amount
Wanted interest rate
Current Interest Rate
Transaction Cost
APR and Total cost for Business
Payback Period
Date of loan disbursement to Business
Currency of loan contract
Initial loan amount
Initial exchange rate
Initial loan amount in currency of loan contract
MYC4 closing fee
Administrator closing fee
Provider closing fee
Net amount disbursed to Business
Net amount disbursed to Business in currency of loan contract
Accumulated gains/losses on exchange rate
MYC4 interest commission
Administrator interest commission
Provider interest commission
Loan schedule
Repayment Status

Business terminology
Open
Pending
Funded
Repaid
Canceled
Defaulted
Background
Loan Details
Bids
Business Blog
Resources

Provider terminology
Total Portfolio at Risk (PAR)
Default equivalent risk
Businesses funded
Repayments received
Defaults

My Account terminology
Amount uploaded less amount withdrawn
Available on My Account, end of period
Pending bids, end of period
Outstanding principal, end of period
Interest earned after taxes
Taxes paid on interest
Defaulted principal
Recovered Principal
Adjustments
Total Gains/Losses on Currency Exchange, Country
Total Gains/Losses on Currency Exchange
Total Currency Exchange Gains/Losses on Principal
Total Currency Exchange Gains/Losses on Interest

General terminology
Provider
Administrator
Average interest rate
Withholding tax
Dutch auction
Microfinance
Meso Finance
MYC4 approach and general


Country terminology
Population
Income per capita
Life expectancy at birth
Businesses Funded
Repayments Received
Defaults
Average annual currency change against EUR in the past 3 years

Loan terminology

Total amount
It is the loan amount in Euro requested by the entrepreneur.

Wanted interest rate
It is the maximum weighted average interest rate that the entrepreneur can accept from the investor. It can be considered as the reserve minimum acceptable interest rate in the Dutch auction.

Current Interest Rate
It is the weighted average interest rate bid by investors.
[B1 * I1 + B2 * I2 + Bn * In] / [B1 + B2 + Bn]

B = Bid
I = Interest rate

Example
B1 = 100 Euro I1 = 10.00 %
B2 = 50 Euro I2 = 12.00 %
Current interest rate = [100 * 0.10 + 50 * 0.12] / [100 + 50] = 10.67 %

Transaction Cost
It is the cost of the loan for the borrower expressed in percentage. It sums up all the costs incurred by the borrower excluding the investor interest rate. Transaction costs comprehend MYC4, partner and administrator closing fees, their interest commissions and do not comprehend facultative insurances (e.g. life or default insurance).

Transaction cost= [APRCurrent Interest Rate]


APR and Total cost for Business
APR stands for Annual Percentage Rate and is an expression of the effective interest rate that a Business pays on a loan annually. The APR counts for loan closing fees (one-time) and interest payments (monthly).

We are showing the APR on each Business separately in order to create as much transparency about the actual costs for the Business as possible. The APR is comparable whether the loan period is 9, 12 or 24 months and gives you a good picture of the loan terms seen from the Business’ point of view.

The APR lies typically between 30 and 50 percent. To some, this may appear to be a high APR. You can compare APRs on MYC4 with market standards using mftransparency.

The total cost is expressed in two ways:
  • The annual percentage rate (APR) is an annual effective rate the borrower pays to obtain the loan. It is the unique interest rate to discount all the cash flows that the borrower incurs on (sum received and repayments made). It is a measure generally used by borrowers to easily compare different credit possibilities available on the financial market. Therefore the APR helps the borrower to identify the costs of the loan expressed as a percentage. The higher the APR is, the more costly the loan becomes. APR considers the interest amounts paid every month and the compulsory closing fees. Following APR standards, facultative insurances are not taken into account for the APR calculation.
  • Sum of the closing fees and the interest part of the repayments as scheduled expressed in Euro.
Payback Period
It represents the length of the loan period.

Date of loan disbursement to Business
It is the date when the borrower receives the loan amount deducted of the closing fees.

Currency of loan contract
It is the currency used for the signed loan.

Initial loan amount
It is the gross amount of the loan expressed in Euro. It is generally not the currency of the loan contract and it gives the investor a good idea of the amount required by the borrower.

Initial exchange rate
It is the exchange rate at the date of loan disbursement and used to convert the loan amount in Euro to local currency.

Initial loan amount in currency of loan contract
It is the gross amount of the loan expressed in the currency of the loan contract.

MYC4 closing fee
It is the fee, if any, applied to the Business by MYC4 at loan disbursement which is retained from the initial loan amount. It is indicated both in Euro and as a percentage of the total amount borrowed.

Administrator closing fee
It is the fee applied to the Business by the Administrator at loan disbursement which is retained by the initial loan amount. It is indicated both in Euro and as a percentage of the total amount borrowed.

Provider closing fee
It is the fee applied to the Business by the Provider at loan disbursement which is retained by the initial loan amount. It is indicated both in Euro and as a percentage of the total amount borrowed.

Net amount disbursed to Business
It is the loan amount disbursed to the Business expressed in Euro after the deduction of closing fees.

Net amount disbursed to Business in currency of loan contract
It is the loan amount disbursed to business expressed in currency of the loan contract after the deduction of closing fees.

Accumulated gains/losses on exchange rate
It represents the sum of the gain or loss on the exchange rate of all the repayments made to date.

MYC4 interest commission
It is the spread applied to the Business by MYC4 on top of the interest rate asked by investors. It is calculated on the outstanding principal of a loan and it is paid as part of a loan repayment by a Business.

Administrator interest commission
It is the spread applied to the Business by the Provider on top of the interest rate asked by investors. It is calculated on the outstanding principal of a loan and it is paid as part of a loan repayment by a Business.

Provider interest commission
It is the spread applied to the Business by the Administrator on top of the interest rate asked by investors. It is calculated on the outstanding principal of a loan and it is paid as part of a loan repayment by a Business.

Loan schedule

Principal
It is the amount borrowed to be paid back according to a declining balance. In the repayment schedule it represents the part of the monthly repayment that pays off the principal. The other part of the monthly repayment is the interest part.

Interest
The interest part is calculated on the principal borrowed. In the repayment schedule it indicates the part of the monthly repayment that the borrower pays in interest.

Monthly Total
In the repayment plan, it indicates the expected monthly repayment that the borrower should pay back every month. It comprehends principal and interest. In the actual repayment plan it indicates the actual repayment amount that the borrower paid in a given month.

Outstanding balance
It is the total amount that the borrower has to pay yet. It comprehends both the interest and the principal part.

Repayment Status


Pending Validation
Upon receipt of a repayment (cash or cheque) from the Business, the Administrator enters the amount in the MYC4 system. The repayment amount is now listed on the Business’s loan details page as Pending Validation.

Pending Grouping
The Administrator validates the repayments that have already been entered in the MYC4 system (i.e. confirms that the amount entered corresponds to the cash in hand or that the cheque has cleared with the bank). Once validated, the repayment amount is listed on the Business’s loan details page as Pending Grouping.

Pending Verification
On an agreed day of the week, the Administrator groups all validated repayments in the MYC4 system in order to create a batch of repayments to be transferred to MYC4. The Administrator has now indicated that they are ready to transfer the funds to MYC4. The actual money transfer should normally take between 3-7 days. During this process, the repayments in the batch will be listed as Pending Verification on the Business’s loan details page.

Pending Fx
After MYC4 verifies receipt of the transferred funds, the repayments need to be converted from local currency (e.g. UGX, KES) to Euro before crediting Investors’ accounts. The received repayments are therefore listed as Pending Fx on the Business’s loan details pages while foreign exchange is traded.

Processed
When the transferred funds have been converted to Euro, the MYC4 system detects that the batched repayments have received an exchange rate and updates the repayment status on the Business’s loan details page to Processed. The respective Investors’ accounts are now credited and emails are sent to Investors informing them that a repayment has been received.

Deleted
The Administrator can delete a repayment either due to a manual error or in the event that a cheque does not clear with the bank. The repayment can only be deleted at Pending Validation status and the Administrator can always enter a new entry as a correction after a deletion is made. When a repayment has been deleted, it will appear on the Business’s loan details page as Deleted.

Business terminology

Open
It is a Business open for bidding.

Pending
It is a Business close for bidding and in process of being disbursed.

Funded
It is a Business whose loan amount has been already disbursed to the borrower but it has not been repaid yet in full.

Repaid
It is a Business whose loan amount has been already disbursed and the borrower has successfully repaid the loan.

Canceled
It is a Business that has not been funded due to: insufficient funding or by the withdrawal of the application by MYC4, the Provider or the applicant.

Defaulted
It is a Business that has been funded and the borrower has failed to pay back the loan. The business is considered defaulted after failing repayments for six months.

Background
It gives investors detailed information on the activity of the borrower.

Loan Details
It contains financial details of the loan included the repayment schedule, closing fees and interest commissions applied.

Bids
This page contains all the accepted bids submitted by investors through the Dutch auction. A bid might be removed according to the Dutch auction principle if a more favourable bid by the same or another investor has been submitted and accepted.

Business Blog
News regarding this Business such as reasons for which a repayment is delayed is posted on this page. As many of the Businesses do not have direct access to the Internet the majority of the posting will be done by the local Provider or Administrator.

Resources
It provides extra materials on the Business if available. It can be more pictures, financial background papers or links to the previous loans.

Provider terminology

Total Portfolio at Risk (PAR) (Learn more)
It represents the total outstanding amount of loans which are late in their repayments at any point in time. It gives an overview of the outstanding value of loans which are 1-30 days late, 31-90 days late and 91-180 days. It is a measure of quality of the portfolio and it differs from the risk of the portfolio. After 6 months of cumulative delay a loan is defaulted and a decision of whether to collect collateral or not is taken by MYC4 and the local partners.

Default Equivalent Risk (Learn more)
It is a risk based on PAR information, whose data are weighted for a percentage that indicates how likely the portfolio is to default.

Businesses Funded
The first figure is the sum of total amounts of "Funded" + "Repaid" + "Defaulted" loans of the Provider expressed in Euro.

The second figure is the sum of businesses of "Funded" + "Repaid" + "Defaulted" of the Provider.

Repayments Received
It represents the sum of principal part of repayments (as shown in the "Actual loan repayment in Euro" under "Loan details") paid back from the start of operations.

Defaults
It is the percentage of the ratio between the defaulted loans and total amount of loan disbursed to date. A loan is defaulted when it is 187 days or 6 months late.
[Total Amount of defaulted loans - Principal repaid of defaulted loans] / [Total loan amount of "Funded" + "Repaid" + "Defaulted" loans] * 100

My Account terminology

Amount uploaded less amount withdrawn
Amount of money in Euro the investor has uploaded on the platform less the amount s/he has withdrawn. MISCOCI covered bids are also added here.

Available on My Account
It is the amount of money in Euro the investor has available for investments on the platform.

Pending bids
It is the total amount bid by the investor in “Open” and “Pending” investments.

Outstanding principal
Total principal part of the investor still to be repaid and not defaulted. It does not comprehend the interest part that the investor receive. There is no currency effect and the repayments already received are converted to Euro at the disbursement exchange rate.

Interest earned after taxes
It is the amount of interest which the investor earned after withholding taxes and currency gain or losses on interest.

Taxes paid on interest
It is the total amount of withholding taxes paid by the investor. This amount might be tax deductible in the country where the investor makes the tax declaration.

Defaulted principal (Learn more)
It expresses the total amount of defaults in Euro. It is calculated in the following way:
[Your total amount of defaulted loans – Your principal repaid of defaulted loans]

Recovered Principal
Amount of principal recovered from defaulted loans.

Adjustments
It might include different types of corrections. At present the only one is the the extra principal repaid or not repaid when a borrower pays back more or less principal than the initial loan amount borrowed (E.g. Loan ID 93 the borrower paid back 19.11 UGX more than expected).

Total Gains/Losses on Currency Exchange, Country
It is the sum of the total investors’ gains or losses in a specific Country from all the investments in such Country.

Total Gains/Losses on Currency Exchange (Learn more)
It is the sum of the total gains or losses in all the countries where the investor has bid.
The single countries’ gains or losses have to add up to this value. The sum can differ due to rounding as the system stores more than two decimal digits (only two decimal digits are displayed).

Total Currency Exchange Gains/Losses on Principal
It is the sum of the total gains or losses on the principal part in all the countries where the investor has bid. The sum of this value and the “Total Currency Exchange Gains/Losses on Interest” adds up to the value Total Gains/Losses on Currency Exchange.

Total Currency Exchange Gains/Losses on Interest
It is the sum of the total gains or losses on the interest part in all the countries where the investor has bid. The sum of this value and the “Total Currency Exchange Gains/Losses on Principal” adds up to the value Total Gains/Losses on Currency Exchange.

General terminology

Provider
It is an authorized and qualified person or entity contracted by MYC4 to identify and screen potential Businesses for submission to the online platform, in accordance with MYC4 terms and conditions.

Administrator
It is an authorized and qualified entity contracted by MYC4 to issue and administers loans with Businesses on its behalf.

Average interest rate
Website (MYC4 frontpage)
It is the average annual interest rate earned by all investors on MYC4. This annual interest rate is calculated before currency gains that increase the return and currency losses and defaults that decrease the return.
This value assumes reinvestments (on different Businesses at the same interest rate) when monthly repayments are received.

My Account
It is the average annual interest rate earned by the single investor on MYC4 before currency gains and losses and defaults.

Withholding tax (Learn more)
Most African countries apply tax on interests earned (withholding tax), which is applied to Investor and MYC4 earnings. The withholding tax paid in an African country should be deductible from the tax you pay in the country where you are a normal taxpayer, and you need to look into this before you declare your taxes.

Dutch auction (Learn more)
MYC4 adopts a Dutch auction principle to determine the final interest rate the entrepreneur will pay on her/his loan. This principle only applies to decide the investor interest rate (Current Interest Rate) to which interest commissions by MYC4, Providers and Administrators will be added. Bids made by investors can range from 0% to 25% and they will be filled from the lowest interest rate until the total amount of loan is totally funded. When a bid ends, every investor will lend to the borrower the amount she/he bid.

Every bid is binding and cannot be withdrawn unless other investors will exclude them from the auction due to their too high interest rate. In this case investors will receive their money back on their accounts within few minutes and are allowed to bid again offering a lower interest rate. When the deadline is reached, the bid finishes.

Microfinance

What is microfinance?
Microfinance is a tool supplying people who do not have access to financial services.
In principle in order to have granted financial service an individual needs to be creditworthy according to rules set by financial institutions such as banks. These rules exclude billions of people around the world from the access to these services.

Microfinance challenges these rules and identifies different parameters in order to provide the same services to those who are excluded.

One of the aspects is the access to credit through micro loans for which an individual cannot access through existing banks.
It is generally considered to be microfinance a loan to an individual who:
  • Is not creditworthy according to conventional financial institutions.
  • Is not required a collateral to secure the loan, mostly because he or she cannot provide any.
  • Receives a loan of small amount (which can differ from country to country) for income generating activities.
  • Is a woman
  • Lives in a rural area
However microfinance institutions (MFIs) decide their own parameters according to the specific context of the country they operate in, the guidelines developed and used by MFIs and the country legislation for these institutions.
Many institutions identify themselves as microfinance institutions (MFIs) although the aforementioned characteristics do not always apply. Some institutions might offer larger loan amounts, have urban borrowers as well as rural and require some sort of collateral.
Some microfinance operations might focus on small businesses without necessarily targeting the poorest of the poor.

External definitions:
Asian Development Bank: “Microfinance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households and, their microenterprises”.

GCAP: “Microfinance offers poor people access to basic financial services such as loans, savings, money transfer services and microinsurance. People living in poverty, like everyone else, need a diverse range of financial services to run their businesses, build assets, smooth consumption, and manage risks”.

What is the interest rate of a loan?
The interest rate applied to the loan is generally higher than the one applied from conventional banks. This phenomenon is explained by the higher costs to provide the loan and collect the associated repayments on a per unit basis.
This is the challenge of microfinance: the movement is continuously shaping to find the optimal way to lower operating expenses by e.g. forming group of people to which give the loan and/or create a system of peer pressure to collect repayments.
Another reason is given by funding costs that in some markets might be high. As it has always happened in history, people always borrowed and lent money either from/to a bank or less officially.

Where no financial institutions are present (or borrowers are considered not creditworthy), interest rates charged by so called “loan sharks” are high and very often reach rates of 200%-300% per annum.

What is the microfinance repayment rate?
Microfinance repayment rate has been historically very high. Grameen Bank has a repayment rate of 99%, higher than conventional banking systems. It is very common to find MFIs with a record of at least 95% repayment rate.

Meso Finance
Meso means “middle” and meso finance is an unofficial term that covers the financial needs of small and medium sized businesses in developing countries – or in other words the middle in between individuals or very small companies and larger companies. In that way, meso finance corresponds with the idea of “the missing middle”.


Country terminology

Population
It is the number of inhabitants in the Country in millions.

Income per capita
It is the annual GDP per capita expressed in Euro.

Life expectancy at birth
It is the average life expectancy at birth in years.

Businesses Funded
The first figure is the sum of total amount of "Funded" + "Repaid" + "Defaulted" loans from the Country Providers expressed in Euro.

The second figure is the sum of businesses of "Funded" + "Repaid" + "Defaulted" from the Country Providers expressed in units.

Repayments Received
It represents the sum of repayments (shown as “Monthly Total” in the “Actual loan repayments in Euro” in the “Loan details” page) paid back from the start of operations within the Country and it comprises both principal and interest payments.

Defaults
It is the percentage of the ratio between the defaulted loans and total amount of loan disbursed to date. A loan is defaulted when it is 187 days or 6 months late.
[Total amount of defaulted loans - Principal repaid of defaulted loans] / [Total amount "Funded" + "Repaid" + "Defaulted" loans] * 100
Example: 0.086% for Uganda = [2,650 – 838.62] / 2,096,131 = 1,811.38 / 2,096,131

Average annual currency change against EUR in the past 3 years
It is the annual change of a currency measured taken using the compound annual growth rate.
Examples:
  • Average annual change = [(average value 2008) / (average value 2006)] 1/3 – 1
  • Average annual change UGX (against the Euro) = (2549.43 / 2268.62) 1/3 – 1 = 6.01%