Our quarterly dive in our Fundkiss Portfolio
23 May 2023
Following our last (One Year of the MCIB), where we gave some key insights about our portfolio and the impact and outcome of being a participant to the MCIB, here are some more interesting findings from the last quarter.
Size does not matter at Fundkiss
As we said before, size does not matter. We finance all businesses, ranging from sole traders to large SMEs. Our current classification of SMEs is as per the below table. However, we will be adopting the new SME classification, as per SME Act, going forward.
Type of SME
|Small SME||< =MUR 10 million|
|Mid-cap SME||MUR 10 million <Revenue < =MUR 50 million|
|Large-cap SME||> MUR 50 million|
As at 31st March 2023 we financed 323 projects for a loan production of MUR255,958,500. Out of same, 197 projects were financed in the pre-MCIB era for a loan production of MUR103,978,500 while 126 projects have been financed so far in the post-MCIB era for a loan production of MUR151,980,000.
Among the active loans at Fundkiss, there are 69 sole traders, 87 small SMEs, 37 mid-cap SMEs and 8 large SMEs. In terms of amounts of exposure, the toppers are small SMEs and mid-cap SMEs being at MUR51.2 million and MUR44.7 million respectively.
The famous default rate 😈
We have made a fundamental change in the methodology of calculating the default rate. It was previously calculated as follows:
Default Rate=(Exposure in Default)/(Total Loan Production)
It is now calculated as follows:
Default Rate=(Exposure in Default)/(Total Active Exposure)
The default rate stands at 9.5% as at March 2023, but split into pre and post MCIB, it is at 7.29% and 2.17% respectively. The loan production of the pre-MCIB era was at MUR103,978,500 out of which MUR99,512,406 has already been repaid to the lenders inclusive of MUR11,808,055 in the form of interests.
The post-MCIB era default rate stands at 2.17% and the loan production for this period is MUR150,480,000. Despite the higher loan production, with most of the active exposures being post MCIB, the controlled default rate indicates the importance of the MCIB credit reports as part of our assessment process criteria. It is also the result of our improved credit process based on data analytics performed in our books.
You may find the 9.46% default rate high. But don’t worry! Most of the projects in default have been financed before us being included as participants to the MCIB. 84% of the projects in default were financed in the pre-MCIB era, some of which have been deeply impacted by Covid.
Now diving into the default rate for the various types of borrowers, we find that sole traders have the highest default rate with 46.4% being in default. A project in default implies over 90 days past due and in such cases, we envisage a series of actions, including legal actions against the defaulters. There are 32 defaulters from which 29 were financed prior to Fundkiss becoming a participant to the MCIB and only 3 from the post-MCIB era, which again shows the efficiency in the credit assessment process.
Small SMEs also carry a relatively high default rate of 9.3%, with only 4 out of 11 projects in default being from the post-MCIB era. We have been able to filter out, during our credit assessment, a significant portion of applicants having a poor credit repayment history.
With a default rate of 2.6% and 0%, mid-cap SMEs and large-cap SMEs are the most performing ones in our portfolio. The 2 mid-cap SMEs projects which are in default were financed prior to Fundkiss being granted access to the MCIB.
And the champion is…..
With a track record of nearly 5 years now, Fundkiss has financed businesses operating in various activity sectors and there is one activity sector which holds the crown in our portfolio. Have a look for yourself!
The businesses financed on Fundkiss operate in many activity sectors and we should now look at the 6 activity sectors with the highest exposures in the Fundkiss portfolio. Wholesale and retail trade stands at the top of the lot with an exposure of MUR54.8 million and construction ranks second with an exposure of MUR10.5 million. The other activity sectors follow with less than MUR10 million as active exposures.
Other service activities comprise of businesses such as car wash, landscaping and distribution of products. Job contractors are mostly related to the construction industry and their business activities are mainly electrical installation in buildings, metal work, the import and sale of wood and many more such related activities.
Despite having such a high exposure, wholesale and retail trade has the lowest default rate at 3.77%. We note some minor delays in repayments since many businesses in this activity sector can have a turnaround time of 30-90 days from their debtors, but regularisation takes place once they receive their funds.
With the construction industry facing downtime, the relatively high default rate of 20.06% can be explained by economic factors such as an increase in the price of materials which have halted the development of many construction projects.
What about growth lending?
Initially, it was our policy to require any businesses have a minimum of 2 years operations to get financed with Fundkiss. However, we do make exceptions on a case-to-case basis, depending on the profile of the client, the business model, business plan, and so on. So far, we financed 22 businesses having less than 2 years of operations.
We financed 22 such projects and so far, only 3 of them are in default with all of them being financed prior to Fundkiss being inducted as a participant of the MCIB. There are 8 of these projects which have fully been repaid and 4 of them have been financed for a second time on the platform with an impeccable repayment track record.
Debt ventures and growth lending have now been made available to startups and entrepreneurs looking to scale up their businesses. There are many advantages of a growth loan. There is no need for dilution of equity and there is only a fixed amount to be repaid every month. Depending on the business model, flexible repayment terms are also made available to the borrowers.
Word from the team
As we always say, the best lending strategy is diversification. Fundkiss finances various businesses operating in various activity sectors which borrow on different loan terms. Build your portfolio by lending to many businesses and spread your risk over a larger number of projects.
You are lending to SMEs and many of them may be offering facility of payment to their customers and sometimes delays in getting paid by their customers impact on the repayment dates which the borrowers are expected to pay their loans. However, we ensure that you are informed promptly when this does happen. Another advantage of lending to many businesses is a regular income despite some delays. Your repayments are being made into your Fundkiss Account, and it is better not to wait too long to reinvest. Remember, the minimum lending ticket is of MUR5,000.
We hope that you find these insights interesting and encouraging. We will be back with another data dive in August. Stay tuned!