About Lending

In this section you can learn more about lending through MYC4. If you seek explanations on some terminology, please refer to our Glossary.

What is the cost of lending through MYC4?
How do I lend?
What countries can I lend to?
Which industries can I lend to?
What is the risk when lending in Africa?
How do I determine my interest rate?
Do I have to ask for a minimum interest rate?
What is the maximum interest rate, I can ask for?
Why is my bid removed from a loan?
Why is the currency risk placed on the Investor?
Am I guaranteed to get my money back?
What is collateral?
Calculation of Net Interest

What is the cost of lending through MYC4?
The only transaction cost investors have is when uploading and withdrawing money to and from MYC4. All other transaction costs are covered by MYC4, read more here. Therefore, there can be a bank fee for the withdrawal transfer dependent on the investor’s country and bank, read more here.

When transferring money to MYC4, you can do so via credit card or bank. Using credit card you will pay a fee to Quickpay, our credit card service provider. The fee is based on the credit card type and is calculated as a percentage of the total amount. However, in general the fee for Danish cards is 1.25% and for non-Danish cards is 3.75%. Read more about rates and fees for credit cards
here on Quickpay's website (in Danish). If you instead choose to use a bank transfer, you can avoid this expense. To know more about how to transfer money via bank you have to login to your MYC4 account and click "Upload money".

How do I lend?

1.     In order to lend, you first need to create a MYC4 account and upload money to this. If you don’t have a MYC4 account, go to ‘sign up’ or read more about how MYC4 works here
    

2.    
When you have an account with funds to lend, you should pick a business to lend to. To see the different loans that you can choose to lend to, click on Lend
in the menu bar. Now you can view a list of all the loans that are open for bids.

In the bar above the open loans, you can choose to sort the loans by status, industry, country, amount, wanted interest rate etc. By clicking on a specific loan, you can read about the business applying for the loan, its targets and goals, plus economic data from the business.

When you have found a loan that matches your criteria, just click the lend button and type in your bid amount and your requested interest rate. Read more about how to determine your interest rate
here
. The bidding is set around the principle of a so-called Dutch Auction. Read more about Dutch Auction here.

Following this you will receive an e-mail confirming your bid. Please note that your requested interest rate must be competitive against other bids during the entire bidding period. Should a more competitive bid than yours enter the auction, your bid will exit the bidding and you will get notified by e-mail (if you wish, it is possible to enter the auction again with a new bid at a lower interest rate). However, if your interest rate is competitive you will “win” the investment, and the loan will be paid out to the business.

3.    
After the loan has been paid out, the business will start paying back, and you will receive repayments on your part of the loan on a monthly basis. If you log in and go to ‘My Account’ -> ‘Investments’ -> ‘Funded’ you will see those loans that are repaying and the date for the next repayment. Note that from the day of the repayment, the borrower has a period of 7 days within which it can make the repayment. Furthermore you should expect up to 10 days for the money to arrive from the provider to your account. This implies that a repayment scheduled for the 1st of the month might not be received till the 17th.

4.    
If a loan fails to pay back, the system will put a repayment of 0.00. This indicates that the borrower hasn’t been able to pay the repayment. This will increase the borrowers debt.

Which countries can I lend to?
For the time being, MYC4 is operating in seven African countries. Click here to see the different countries and know more about them.

Which industries can I lend to?
You can see all loans open for bids by clicking on the lend button
 in the main menu bar.  It is further possible sort the loans by e.g. industry, country and function. We are currently operating with following categories:

  • Arts, Crafts & Culture
  • Construction
  • Consumer Goods
  • Durable Goods
  • Education
  • Energy & Environment
  • Farming & Fishing
  • Finance
  • Catering & Food
  • Healthcare
  • Personal Care
  • Real Estate
  • Telecom & IT
  • Tourism
  • Transportation
  • Other

What is the risk when lending in Africa?
MYC4 does not actively rate the risk of a given business. It is up to the investors to evaluate the information about the businesses/loans/providers and/or ask for guidance from fellow investors by using the MYC4 blog or the MYC4 forum.

However, each business and each loan has been thoroughly screened by the providers in question before being added to MYC4.

MYC4 manages the risk at the provider level. This means, MYC4 does not make judgments on whether a specific business and loan application is a risky one, but instead, we make judgments on the
providers
. We are working with the term PAR (Portfolio at Risk). Read more about PAR here.

There are two elements that help MYC4 manage the risk with providers:  
 

  • Creating the right incentives: The allowed portfolio growth for each provider on the platform is a function of their performance. Providers earn the major part of their income based on successful monthly repayment of the loan.
  • Conducting provider due-diligence: MYC4 ensures that the institution is managed by professionals and has no linkages to unethical practices. Provider’s methodology for business selection and organizational capacity are reviewed and approved by MYC4 in order to ensure acceptable level of quality, just as we team up with third party investigators to rate the performance of the providers. MYC4 involves local auditors to help assess any potential misalignments between the communicated and realized practices.

On of the latest developments within this field is the risk sharing agreement, which has been signed by all of our providers. In the risk sharing agreement our providers guarantee to collectively cover any defaulted loans they have. This substantially decreases the risk of default for you as an investor.

You can read more about which risk factors to consider here.

How do I determine my interest rate?
In order to find out how to determine your interest rate, you have to grasp the idea of the Dutch Auction
principle and the fact that most often a loan is being funded by multiple investors, who invest different amounts at different interest rates. The African business will pay an average of the wanted interest rates.

The desired interest rate listed in each loan is set by the business together with the provider, who is responsible for the loan in question, and thus expresses a rate, which he or she is perfectly willing to accept. However, if you are keen to ensure that you get a share in the investment, you may want to bid lower. You may also want to lower your bid, because you would be content with a lower interest rate on your investment – this is up to you. To learn more about what your net interest will be
click here.

Do I have to ask for a minimum interest rate?
The bidding process is set around the Dutch Auction 
principle, meaning that those who offer the most favorable interest rates “win” the investment.

As an investor, you are free to set the interest rate on your bid at any level, even at a level that is higher than the level requested by the business. However, the loan will not be finalized unless the average interest rate of the offered bids is at or below the ceiling requested by the business.

So, in principle, you can ask for an interest rate of 0 percent. Just note that the business will pay an average of the interest rates asked for by the investors, so asking for 0 percent will not necessarily mean a lower interest rate for the business. 

What is the maximum interest rate, I can ask for?

In principle, you can ask any interest rate you want to up to 50 percent. You can also ask for a rate, which is higher than the desired interest rate expressed on the Loan. However, your interest rate must be competitive compared to the other investor’s interest rates in order for you to “win” the loan. Read more about the Dutch Auction principle here.

A loan will only be finalized, if the average of the offered interest rates from potential investors meet or fall below the desired interest rate. In the end, the market powers will determine the interest.

Why is my bid removed from a business?
Since the bidding on MYC4 is set up around the principle of a
Dutch Auction, there is a possibility that your bid will be removed if another investor outbids you.

If an investor chooses to make a lower bid on a business, which already has enough bidders at a higher interest rate, he or she will outbid the highest bidder and “win” the loan. We have implemented this variable interest rate in order to make sure that the loans will get funded at the best and lowest possible interest rate.

Why is the currency risk placed on the investor?
Borrowers in Africa have little or no insight into currency fluctuations and there is nothing they can do to compensate for unfavorable fluctuations. Therefore, the most fair solution is to place currency risk at the investor level: investors have access to statistical and historic information and can build likely currency losses into the interest rates they ask for on MYC4 (e.g. if you want a 10 percent net return on a given loan, and historic depreciation of the currency in the given country has been 4 percent, you can bid at 14 percent. This is of course no guarantee that future fluctuations will develop exactly the same way, but this is a good rule of thumb). For related questions about risk factors please click here.

Am I guaranteed to get my money back?
All lending has risks attached, and there is no guarantee that you will make a return on your loan. However, MYC4 providers will go to great lengths to ensure that the businesses are solid and have good prospects in terms of return on investment. If you wish to learn more about what risks you have to consider click here
.

What is collateral?
Collateral means a security that is put up for a loan in case the borrower is not able to repay. MYC4 administrators are responsible for screening the businesses that are approved for applying for a loan at the MYC4 marketplace. Hereunder a comprehensive due diligence process, determination of loan objectives and loan size, maximum interest rate and in many cases the collateral that the business is able to put forward to secure the loan. It is therefore MYC4’s Administrator alone, who determine the collateral together with the borrower. The collateral can for instance be a car, a piece of land, livestock, pledged household items or production machinery. It is important to underline that collateral does not mean a guarantee against potential default. The collateral should be seen as an ongoing motivation for the borrower to continue to repay his/her loan, since MYC4’s administrator will claim the collateral in question at any point in time, where the borrower is unable to repay. This means that late repayments are sometimes covered by claimed collateral.

Investor Guide is our guide on how to get started as investor on MYC4. To find the guide in other language versions, please click here.

Note: If you are more comfortable reading about investing on MYC4 in your own language, you can choose online tools for translating the entire www.MYC4.com. Try
Google Translate.

How is Net Interest calculated? 
When an investor bids on a loan, the investor’s interest rate is determined. This interest rate is not necessarily earned by the investor, because:

  • The loan invested in may default, which means that borrower has delayed payment of the principal of the loan for more than 180 days. Note that some of these losses may have been recovered afterwards.
  • The currency of the loan may change against EUR causing currency losses and gains. This is indicated with the exchange rate difference between disbursement and repayments FX rates.
  • The loan invested in may delay payments. During the delay period, the investor will see an outstanding balance that is not receiving the accrued interest. 
  • During the administration of the repayment, the investor experiences an outstanding balance that is not earning interest for a limited time, usually between 1 day to 2 weeks.

Therefore:
Net Interest Earned = Gross Interest Earned – Principal Defaults +  Principal Recoveries + Currency Gains/Losses

Investors also pay a withholding tax on their earnings, however, since their paid taxes are deductable from their tax declarations in their respective countries, the withholding taxes paid are included as part of their net earnings.

When calculating the net interest earnings, the following formula is used: [Net Interest earned for all investors] / [Average outstanding portfolio of all investors]