Quick Snapshot Analysis on Kiva

[Guest]

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[wind5001]

Okay, folks,

lemme get back to the chain supply management: I am seeing the advantages, definitely. Kiva could strengthen the key partners they want to strengthen and I see sense in that. This could enhance their standing and thus the need for MFIs to oblige with their policies...this might be a way down though...like Richard, I think that Kiva has a lot to do establishing itself and getting itself organized and more mature. If they can procure the means to sustain themselves in the long range then this could be the next step. It actually OUGHT to be the next step then. But in my eyes, that is still some way...

[RichardF]

Here's some of what Kiva has to say about Kiva's Role in Risk and Due Diligence (pretend it says Supply Chain Management).


Kiva screens, rates and monitors each Field Partner

Kiva Role #1: Initially screen each Field Partner

Kiva Role #2: Assign each Field Partner a Risk Rating

Role #3: Monitor Field Partners and set monthly fundraising limits

The amount of money a Field Partner can raise each month for local entrepreneurs on Kiva.org depends on their Kiva Risk Rating. A well established 5 star Field Partner can post over $100,000 of loan requests to Kiva's website each month while a less established 1 star Field Partner can post less than $10,000 each month. However, as a 1 star Field Partner proves itself over time, its Risk Rating will increase — which in turns increases its monthly fundraising limit. [emphasis added]


I believe this FP Risk Rating approach summarizes Kiva's FP capacity building strategy in a nutshell - Give young and small FPs a chance to prove themselves at a relatively small volume risk exposure to lenders.  Once they have a track record of collecting and paying back loans, their portfolio listings can increase.  This is the niche I believe Kiva is well-suited to fill in the capacity building arena for MFIs in "the long tail" of microfinance.  The five-star MFIs and investors like Unitus actually can help Kiva develop its own capacity, more than the other way around.

[AccountAbility]

I guess I am not stating my issue very clearly. All that you say I agree with.   

My question is different.  I am looking at the selling equation from the point of view of the supplier (the MFI) and wondering if it is sufficiently attractive to them. 

Kiva can't drop the interest rate below 0%, so that maximizes that particular benefit on the MFIs side of the equation. 

But the negative for the MFI is the costs associated with the buyer's specifications (what I have been calling "Kiva Specs"), namely the individual write-ups for retail consumption, posting pictures, writing journals, etc.

If the MFI only has high interest money lenders as the alternative, these "costs" will appear cheap and well worth it to obtain 0% interest monies.  But if the major banks (such as the French Bank mentioned on this forum with 6% monies) become the alternative, then the costs incurred by the MFI to obtain Kiva monies may exceed the costs associated with a major bank loan.

That leaves Kiva with MFIs who are not developed enough to qualify for the better money sources.  Probably the ones with few stars on the rating system.
Unless Kiva monies come connected with something else of value to tip the equation toward Kiva.  That is what I was speculating about--what could Kiva bring to the table along with 0% monies that would add value from an MFIs point of view.

Dan

[RichardF]

My question is different.  I am looking at the selling equation from the point of view of the supplier (the MFI) and wondering if it is sufficiently attractive to them. 

Dan, I understood your point originally, and I still agree with it.  I guess I'm just not addressing it directly.  I agree the cost of money from Kiva is not free, it's just buried in the overhead calculations for the MFIs.  I'm sure some of those UNCDF break-even interest rate calculations could ferret this out, but I really don't believe Kiva or anyone else has actually run the numbers. 

What we're obviously seeing is Kiva and the MFIs routinely violating the stated model in the high overhead areas.  MFIs don't post journal entries as promised and Kiva doesn't call then on it.  We're also seeing group postings starting to creep in over individual postings.  If you can't increase value, then you cut costs.  So far, so good?...

[Natasha]

We are back to Supply Chain Management... Something that I understand

Ok, one of my previous positions was working for an industry that had predominantly HUGE monopoly suppliers. One of the tasks of our organisation was to always ensure that it was high up on the foodchain queue, so that it did not have to wait for supply. Sure there were contingency strategies... could we build capability with another (smaller) supplier to source that particular line or could we make it ourselves? But essentially, the policy was to build ultra strong partnerships and relationships with our major suppliers so that we became a customer of choice. Suppliers wanted to be in partnership with us due to our reputation and high quality standards (higher than every other global competitor).  This concept could be applied to Kiva.

Cost savings... Know all about them too... Great when we are talking warehousing, transport or inventory management, but not great when we are talking about service industry. I was having a discussion with another Logistics Manager the other day regarding a similar issue. We were talking about strategy on tenders for 3rd Party Logistics (for those of you who aren't familiar with that term , it means outsourcing a function such as transport or warehousing to a provider who specialises in that function). We agreed that squeezing your provider too much can actually have detrimental repercussions on your business. For example they may actually charge you inflated prices on another service that isn't built into the contract or the turn time may not be as efficient as it should be. Also in most cases (these were products that get sold to supermarkets), the 3PL provider is actually the one who has face to face contact with their major clients i.e the truck drivers are the ones who deliver it to the supermarket distribution centres so they are the ones who have direct contact with their clients. So if the customer has a bad experience with your 3PL, that will reflect badly on your company too. We agreed that it is important that you find suppliers that align in strategy conceptually with what your organisation is trying to achieve.

I digress, so how can we apply it to Kiva ?

If we take the 3PL example - that to me is like the MFIs. Kiva relies on the MFIs to source loans, present the loans, disburse the loans, collect payments, do journal entries etc.  From your observations, we see services like journal entries slip and deteriorate. So if these services begin to slip, then for us the customer (lender) our experience of the service isn't viewed as meeting expectations, and over the long term it becomes a reflection of our experience with Kiva.  Even though this is NFP and we are more forgiving than supermarket giants are (where companies vie for shelf space and to remain part of the product range), over the longer term some consumers won't be so forgiving (goes back to value exchange and customer retention).

Kiva needs to find suppliers that align to the objectives of what they are trying to achieve... essential to a service organisation. As they are a small organisation, strategic alliances and partnerships are essential to assist them build capability. Deciding to become a boutique player in a "niche" is a good consideration for a smaller player in a big market, but if that is how they want to operate it should be part of their present business strategy and not be because it evolves that way.  They also need to build long term relationships where they become a customer of choice... 

So now how do they do that?.... I leave that to you Guys who have alot more experience with this than I do...

[RichardF]

Great analysis, Natasha! 

So, there's the rub.  Exactly what is Kiva's long-term strategy?  I for one could only guess...beyond putting themselves out of business...as one of those "We're out of listing right now," messages so eloquently conveyed (maybe Diane or Henry or Peter or you will find it).

I get the impression Kiva wants to be a $50 million + per year online person-to-person lender platform for the working poor in developing countries.  That says to me they need 5-star and 1- 2- 3- 4-star MFIs.  So, maybe they have a boutique section, a staples section and a discount section in their storefront.  As long as the risk rating system and/or other posters in the aisles clearly label which is which is which is which, it seems like they could cater to the different specs of different lending customers.

[Dottie b]

I guess I am not stating my issue very clearly. All that you say I agree with.   


But the negative for the MFI is the costs associated with the buyer's specifications (what I have been calling "Kiva Specs"), namely the individual write-ups for retail consumption, posting pictures, writing journals, etc.

If the MFI only has high interest money lenders as the alternative, these "costs" will appear cheap and well worth it to obtain 0% interest monies.  But if the major banks (such as the French Bank mentioned on this forum with 6% monies) become the alternative, then the costs incurred by the MFI to obtain Kiva monies may exceed the costs associated with a major bank loan.

That leaves Kiva with MFIs who are not developed enough to qualify for the better money sources.  Probably the ones with few stars on the rating system.
Unless Kiva monies come connected with something else of value to tip the equation toward Kiva.  That is what I was speculating about--what could Kiva bring to the table along with 0% monies that would add value from an MFIs point of view.

Dan

Um, send them a calendar?

Just joking. But the bank loans probably also have strings attached, in addition to the interest rates. I understand many don't like to make tiny loans, or they may require better "credit ratings" from the borrowers, or they don't bother treking around to collect the loans, and such. Premal said the MFI's like Kiva money because they can then reach the poorer and harder to reach borrowers. If Kiva wants to bring something to the table, they could relax the journal requirement, which seems to be mostly ignored anyway. (I like journals, but not if it means hardship for the MFI's.) Or, Kiva could send more fellows to the MFI's to help them out with write-ups, journals, and photography.

Dottie B