SEED Development Group - defaults now declared

[Guest]

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[Peter S]

Just bringing this to people's attention..

All the outstanding 184 uncompleted SEED loans were moved to defaulted status yesterday.

The SEED loans affected have a shared journal update which reads as follows:

Special Notice on SEED Development Group from Kiva Staff -- April 23, 2008

The business(es) listed above was posted on Kiva's website by our Kenyan Field Partner, SEED Development Group. Our Field Partners are independent microfinance institutions that lend to the poor for poverty alleviation. The role of a Field Partner is to screen each entrepreneur, post his/her profile on the Kiva website, disburse the loan, and collect loan repayments.

During an audit of SEED, Kiva discovered that SEED was not providing entrepreneurs with the full amount of their loans raised on Kiva. This violates Kiva's policies, so we have terminated our partnership with SEED.

Following this discovery, there was a thorough investigation of the situation. Ultimately, SEED defaulted on its entire loan portfolio with Kiva, which means that no further funds are collectible. To learn more about this particular situation and what Kiva is doing to prevent this in the future, please visit:

http://www.kiva.org/about/aboutPartner?id=32

Any repayment notifications you may have received up until this point are available to you as Kiva Credit. Please visit Kiva to re-lend, withdraw or donate this credit to Kiva.

Please realize that our audit uncovered a true exception to the norm; the vast majority of our Field Partners administer your loans with the highest integrity. Kiva will continue to audit Field Partners to monitor the integrity of your loan and to make our website a model for transparency in international development.

Thank you for your understanding and support of Kiva.
SEED Development Group
Posted by Shelby Clark from Kisumu, Kenya
Apr 23, 2008

There is an extensive write-up about the situation on SEED's Kiva page, with some commendably thorough FAQs
http://www.kiva.org/about/aboutPartner?id=32

One that caught my eye was this:

Q. Was Kiva repaid by SEED?

A. In addition to providing false repayment information, SEED did not send any funds to Kiva for the repayments it noted on the website. However, Kiva management has made the decision to still honor the repayments that SEED had reported. For example, if a lender received notifications that $20 of their loan had been repaid, then Kiva will still provide the $20 in Kiva credit even though Kiva did not receive these funds from SEED. The balance of the loan for which no repayment notices were received is considered defaulted and no Kiva credit is being provided for this portion of the loan. This summer Kiva is implementing a new loan repayment reporting procedures with its Field Partners to prevent this type of occurrence from happening in the future.

I take this to mean that none of the $74,550 issued to SEED was ever repaid, and therefore the $60,585 now reported as repaid is being absorbed by Kiva as "indemnification expense", with the remaining $13,965 treated as a loss to lenders.  I've little doubt that under a strict interpretation of the Kiva Terms of Use, Kiva didn't have to do this, so affected individual lenders will have reason to be glad of that.

There is as expected an impact on Kiva's "all partners" default rate. Before these defaults, it was 0.11% and has today risen to 0.32%.

I'm sure others will have things to say about this, so I'll leave it there.

[Kay]

Thank you, Peter.

While I have received Kiva Credit--and default notices stating the amounts nonetheless redeemable--for the repayments that SEED had reported, I do not see the partially-defaulted loans listed as defaulted loans in my portfolio--nor do I see them listed as either active or paid-back!

That said, it is remarkable the degree to which Kiva has assumed responsibility in this matter.

[cpbailey]

I am glad that Kiva is repaying the amount of credit that was stated.  Many people make loans based upon the reported repayments made, and there needs to be a time limit for how long changes can be made even if incorrect.  Kiva probably nets out the payments monthly now.  Didn't they before?

Guess WEEC will be next to bring forth their defaults...

Colette

[smallpotatoes]

Kay -
When I 'view all of my loans' and select the Defaulted radio button, I do see the defaulted SEED loans.  There is, however, no number next to the Defaulted radio button like there is for the other selections  .

Colette -
My first thought when I read the announcement on the SEED loans was that some resolution on WEEC might not be far behind.  Personally, I hope that the WEEC situation will be resolved one way or another so that we can all put this issue to bed.

[cpbailey]

Spud,

I am looking forward to having whatever money is repaid on WEEC loans so that it can become productive once again.  Two loans gone bad midway means one more shot at a good loan!  Is the loan half paid or half unpaid, that is the question...

Colette

[Kay]

Kay -
When I 'view all of my loans' and select the Defaulted radio button, I do see the defaulted SEED loans.  There is, however, no number next to the Defaulted radio button like there is for the other selections  .

Thank you, smallpotatoes!  Yes, I do see that, now! 

[Henry]

Disappointing

[smallpotatoes]

Colette - so true... I had to run   to a computer to reloan my SEED money when I saw the e-mail on my phone.

I only have one loan unpaid loan with WEEC, however, so my exposure to their problems is minimal (glass half full in this case).

All told, at well less than 1% default rate on my portfolio, I am still well under the default rate I am willing to tolerate on these loans.  Although I am not happy that these loans/MFIs went bad, I knew the risks going in and am very happy with Kiva's handling of the situation and the fact that KIVA paid out what was reported as 'paid back'   (although it is a little wierd thinking that some of my donations to Kiva may have just been returned in the form of a credit for funds that were never recevied from an MFI).

With luck, better due diligence and more established MFI partners, let's hope that these issues with some of the early MFI partners are never repeated  .

[Kay]

Disappointing

If you're disappointed in SEED, Henry, of course I'm disappointed in them. 

But if you're disappointed in Kiva, there is no way I am disappointed in them.

I think Kiva has shown the utmost integrity, and furthermore says it is taking steps to prevent something like this from reoccurring. 

I have no reason to doubt that. 


EDIT:  Actually, I was doubly disappointed about SEED, because their pictures were some of my favorites!

[redstarr]

Was SEED just being non-compliant (and sounds to me like a bit fishy), or was the irregularity a result of the violence in Kenya?