A year ago I learned about MYC4.com, the Danish company that provides a marketplace for microcredit loans to small businesses in African countries. I uploaded some money back then, and have been participating in seventeen loans to taxi drivers, construction contractors, shopkeepers, wholesale retailers, printers, tailors, and farmers in Kenya, Rwanda, Tanzania and Uganda. Whereas microcredit is often for various reasons only given to women, all of my loans except for one have been to men. Five of the loans have already been repaid in full, one has defaulted after repaying just twenty percent, the rest are on track.

I am a bit conflicted about whether the whole system is a good idea. During the year, there have been terrible news about a string of suicides in India where people could not pay back their loans, some of those loans they had been talked into by lenders seeking to boost their portfolios. Muhammad Yunus, probably the inventor of microfinance and recipient of the 2006 Nobel Peace Prize, has come out strongly against the recently booming for-profit microcredit lenders, asserting that they are loan sharks that cause great harm. I have to agree that even when no one is talked into loans they don't need, even when the interest rates are tolerable, even when the loans get repaid and local businesses develop, the fact that in the end money flows from a poor community to a rich community seems like a big flaw. In Yunus' original system, there are no outside investors, lending happens within the community.

I was also a bit shocked about the interest rates involved: On top of the interest paid to investors (usually ten to fifteen percent), the local loan providers (that do the actual work of handling the money) charge in the area of thirty percent, and MYC4 gets another six percent, so that the total cost to the business often adds up to an interest rate between fifty and seventy percent. I suppose the best way to change that is to increase the transaction volume, so that a more efficient banking system can develop in Africa.

Financially, I have lost about 13% of my investment because of the defaulted loan (there may eventually be some principal recovered some day, after all a car was given as collateral). Without that it would have been a 4% profit, even though the average interest on my loans was 14.7%. This gap is due to currency losses. At the time, I was actually looking forward to investing outside of the Euro zone, but it seems that there is still more confidence in the Euro when compared to African currencies.

All in all, I am going to stick with MYC4 and double down for the second year.