When a borrower defaults, he or she is reported to the Ecuadorian rating agencies and downgraded. Unlike some MFIs, Mifex accurately reports the rate of default of its borrowers. Whereas some banks record default rates as low as 2-3%, Mifex does not write-off bad loans or conceal them in another part of its balance sheet. That being said, industry-wide default levels are realistically in the 5-7% range, depending on the banking institution providing the loan. If a Mifex borrower defaults, he or she will never receive a loan from us again, and they will be downgraded. For entrepreneurs who have no alternative sources of capital, defaulting on their Mifex loan is highly undesirable. Furthermore, if a borrower has purchased loan insurance, he or she can exercise that protection and avoid default. Lenders assume the risk just like they would with investments in subordinated or high yield debt.
Since Mifex operates solely in Ecuador, a dollarized economy, there is no foreign exchange risk. However, our lenders and borrowers are still susceptible to rising interest rates which make loans more costly.
Borrowers can improve their credit score by paying regularly and on time. If clients do not have a credit history, which is very common among Mifex borrowers, we use both qualitative and quantitative methods to distinguish between a AA-rated client and a D-rated borrower. For example, if a borrower does not have many personal assets like a TV or car, but has been a small business owner for 10 years, Mifex will analyze the client's wholistic situation. Our statistical analysis weighs some regressors more heavily than others; in other words, being a member of the business community has more to do with creditworthiness than owning a car, and we take that into consideration.
In the rare occasions when microentrepreneurs have personal access to the internet, potential borrowers can visit www.mifex.org to find out about getting approved for small business loans. Mifex recently opened two training centers in Guayaquil, Ecuador where potential borrowers can sign up for classes in various subjects: introduction to finance, sales, and marketing, to name a few. Mifex gives loan quotes at these training centers, opening up endless possibilities for entrepreneurs to grow their small business. Lastly, Mifex has a dedicated staff of loan officers who work in the city of Guayaquil. They spread information about our financial products and services when they make loan visits. Word of mouth is still a powerful tool for evangelizing our innovative solutions.
Mifex charges the most competitive rates for small loans in Ecuador. Clients with top ratings pay an annualized rate of 14% or 7% for a 6 month loan. When we target customers with higher risk profiles, we charge higher interest, as all banks do. However, Mifex gives clients to opportunity to lower their risk profile and increase their credit score by attending one of our courses in financial management, skills training, or marketing.