Lowest bid wins

Investors throughout the world can offer loans to African entrepreneurs via the website myc4.com. At an auction, the investors underbid each other on interest rates.

The Danish company MYC4 was inspired by the UN’s 2015 goals of which one of the goals is to halve the number of people living in extreme poverty by 2015.

On the whole, progress is being made with regard to achieving the goals, particularly in East and Southeast Asia. However, it looks unlikely that the goals for Africa will be achieved. In fact, the number of poor people in Africa has risen by some 90 million since the 1990s.

International loan of 200 dollars
One of the reasons for this is the lack of capital. Only two per cent of all international investments in the world go to countries in Africa. It is therefore MYC4’s goal to increase the cash flow to the continent. Mads Kjær, the founder and director of MYC4, explains that the company wishes to create a platform on which an active difference can be made by securing investments in small and medium-sized enterprises in Africa. As yet, MYC4 has not generated a profit, but the company expects to break even in 2013.

MYC4 puts international investors in contact with small African entrepreneurs who need money to run or develop their enterprises, via the Internet. On MYC4’s online market place, loans as low as EUR200 are arranged. The largest loans are at around EUR35,000.

Back-to-front auction
The African enterprises that qualify for loans via MYC4 are identified by a local network of partners. When the enterprises are presented on MYC4's website, investors can choose to provide part of the loan and set the level of interest they expect to receive in return. When enough investors have been found to cover the entire loan, MYC4 initiates a back-to-front auction. New investors can now submit a bid for a loan with a lower interest rate than the most expensive one. In this way, the loan becomes cheaper and cheaper as the investors underbid each other.

MYC4 was founded in Denmark in 2006 by two entrepreneurs, Mads Kjær and Tim Vang. They both did extensive research before realising their business idea. Besides talking to countless experts on microfinancing and entrepreneurship, they travelled to Africa and made their own observations.

Though MYC4 is unique, the company is not the only player in this field. There are other players who work on the basis of the same model, e.g. kiva.org and betterplace.com. Yet, MYC4 are still the only ones making it possible to invest and at the same time make a return on the investments.