Danish firm stops Kenya SME funding after fraud claims

What you need to know:

The Copenhagen-based company said that the partner stopped lending and collecting loans in May 2014 following detection of internal fraud.
MYC4 said that it has since been unable to recover the cash and could not payback investors or justify raising additional funds.
MYC4 is also seeking €74,000 (Sh8.4 million) from Mombasa-based Milango Financial Services.

Danish investment company MYC4 has stopped lending to small businesses because a local partner is yet to pay back close to Sh100 million that the firm claims was fraudulently lost.

The company said it has stopped lending money to SMEs and is instead focus on recovering €836,000 (Sh98 million) from Kenya Entrepreneurship Empowerment Foundation (KEEF), a Kiambu-based micro financier.

The firm sources funds through crowd-funding; an online method of raising money from a large number of investors who make small contributions.

MYC4 lends small enterprises the money through microfinance companies which act as its agents.

The Copenhagen-based company, which started local operations in 2010, said that the partner stopped lending and collecting loans in May 2014 following detection of internal fraud. MYC4 said that it has since been unable to recover the cash and could not payback investors or justify raising additional funds.

“These defaults are so serious for our business that we have decided to take timeout for uploads of new loans and have disabled the possibility for investors to upload more money to the MYC4.COM platform.

Solving disputes

‘‘Our focus in 2015 will be on solving disputes and collecting as much as possible out of the outstanding loan portfolio to secure the best interest of investors on MYC4.COM,” said the firm’s 2014 annual report released this month.

MYC4 is also seeking €74,000 (Sh8.4 million) from Mombasa-based Milango Financial Services.

The matter has since gone for arbitration, but in a late June notice MYC4 said its efforts to recover the money were being frustrated.

“Upon appointment as arbitrator of the MYC4/KEEF dispute, the arbitrator invited both parties for a meeting on June 25, 2015 to take direction on how to proceed with the process.

‘‘KEEF did not appear for the first arbitration meeting. MYC4 expressed their concern about the delaying tactics of the other party,” said a notice by MYC4.

The fallout between the two comes at a time when more investors are showing interest in Kenya’s microfinance industry which has been growing in double-digits.

The industry’s total assets stood at Sh317.5 billion as at the end of 2013 from Sh275 billion a year earlier, a 15 per cent increase.