How to invest in Africa, really quickly

Our Center for International Development launched its new Empowerment Lab with a conference yesterday, and one of the most interesting new social entrepreneurship initiatives I learned about is something called MyC4.com.  This is a web-based platform that allows you to look up a list of African entrepreneurs who need funding for their projects (described briefly on the site) and to offer them loans.  You bid a certain interest rate, which is accepted as long as it is below the maximum the entrepreneur is willing to accept and as long as others have not bid below you.  You can lend as little as 5 euros.  The average interest rate accepted is 12.8 percent per year, and I am told that the rate of default has been so far in the low single digits.

So here is a chance to make money while you contribute to Africa's development.

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the web and the idea are both very interesting,...so much that i had registered...but after reading all the info, and the risks that i was assuming on lending money on africans entrepreneurs, i thought....what if this page disappears tomorrow? ... the page doesn´t say to whom claim the money under this situation ... the only risk that you are told is the one related to the default of African´s entrepreneurs in paying their debts ... anyone really knows whether the bigger risk is the one related with the web page going off, rather than debtors who do not honor their debts?..what instruments of claim would i have under this situation if i live in south america...any one knows?
see you.

[J]

Professor,

MyC4 sounds very similar to Kiva (kiva.org), which is based in San Francisco. On its website, Kiva claims to have facilitated more than $45 million worth of loans, with a repayment rate of 98.57%. It may worth a shoutout on your blog post as well.

[Alexak]

Another page that have been doing the same type of business for a while is http://kiva.org/!

But as Andres, its a risk to take. The thing I am unsure about is what kind of network is distributing the money because surely not everyone of these entrpenurs have internet?

[Rupert Simons]

MyC4 is great because it makes money for everyone - including me the investor who can't put all his savings into Kiva with 0% interest. Just for clarification, though: the money doesn't go to entrepreneurs directly. It goes to local microfinance outfits who pass it onto entrepreneurs.

So far I've invested in Kenya, Uganda and Côte d'Ivoire and all the repayments have come in as scheduled. What I'd like to see next is SME loans that create new jobs. Too many of the MyC4 loans (and Kiva even more so) are just working capital for small businesses - market traders, snack bars and so on. These are precisely the businesses that LaPorta and Shleifer (see your post from the Brookings symposium) argue are stuck in a low human capital-low productivity trap.

So which market failure is preventing small businesses from growing? Is it a capital market failure, in which case MyC4 will help? Or is it something deepper?

[Jon]

Here's a slight catch:

"INFORMATION FOR INVESTORS FROM NORTH AMERICA

Legally it has not yet been solved how North American Investors can withdraw money from their MyC4 accounts. So if you agree that you do not withdraw any money at any time from Myc4,you are most welcome aboard."

[David]

It's also worth noting that myC4 is a for-profit company, whereas Kiva is a non-profit. According to the founder of Kiva, they plan to introduce interest down the road as well. I think they're facing legal hurdles that they don't have in the EU.

[buermann]

Ebay's similar microplace.com is offering much lower rates of return, presumably reflecting lower rate business loans in the process. If I thought of this as contributing to Africa's development I'm not sure I'd be entirely comfortable taking 12% on the loan, but then Grameen Bank apparently runs their microfinance at rates upward of 20%, so what do I know.

[Pedro Forquesato]

Dani,

very interesting. But I suppose that answers your "Financial Innovation"'s question.

[VanStokkom]

Kiva is great and I am still a (small) investor there. Due to regulatory issues it decided not to pay interest to people who offer a loan. But that means Kiva is still close to a form of classic 'charity'. MyC4 is a business and run by a businessman. Mads Kjaer has more than 25 years experience of doing business in Africa and in quite a lot of countries in sub sahara Africa. That makes him and his team stand out.
P2P will be the next level of doing business. Funny enough the p2p platforms will be fueled by the current financial crisis.

Who wants the 'classic' (investment) bank in between nowadays ?

I'd rather loose money in a deal with an African entrepreneur than loosing money by some option and bonus driven guy in mansion somewhere in the U.S. (or Holland for that matter).

See my post on this topic as well at: http://vanstokkom.blogspot.com/2008/03/for-those-who-do-not-believe.html

For more platforms lik MYC4, KIVA and Microplace look here:
http://vanstokkom.blogspot.com/2008/09/p2p-global-platforms.html

[mads kjaer]

Great reflections.

MYC4 is focused on Arica's micro- and SME's and the financial investment in growth for same will have to be suported by capacity- business and soial development.

MYC4 investors are private, workplaces and institutional investors - from 15 euro to millions.

Maybe a new way to do ODA?

Target in 2009 is 100m euro in loans funded and 100,000 investors.

You can also see more on http://www.youtube.com/watch?v=V005L3PWhSE

Mads
CEO & Co-founder
MYC4

[tim.vang]

hi dani,

i just want to thank you for kicking off with your post! it has resulted in several contacts of high calibre that we can track back to you - i have posted about it here http://www.myc4.com/Portal/WebForms/Users/DisplayUserBlogPost.aspx?PostId=6524

great to meet you at harvard last week (are you up running with your myc4 account) - keep in touch!

tim
co-founder
www.myc4.com

[tim]

based on your post here, "the times" has just made the following great article:

http://women.timesonline.co.uk/tol/life_and_style/women/the_way_we_live/article5191911.ece

cheers,

tim

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Chance to make money huh. This does not really help in the devolopment of Africa, I mean in America we have a massive failure rate in new buisness's starting up. They are unable to generate the enough to keep them floating, and one main reason is the need to cover the loan cost for starting the buisness. I think it might be better to partner up and own a specific portion of the buisness and gain money throught the success rather then ensuring someone is enslaved with your cash. But that's if you were looking to develope Africa.

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[Uzair]

The website says the average successful bid rate is ~13%, but the net earnings is -3% -- ie, you're losing 3% a year by giving MyC4 your money. Am I misunderstanding this? Or are the people who like this over Kiva for how attractive it is to both lenders and borrowers misunderstanding? (Not trolling.)

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