SEED Development Group - defaults now declared

[Guest]

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[smallpotatoes]

Richard - where did the Kiva definition you gave come from?

[RichardF]

Kiva defines Default Rate as...

http://www.kiva.org/about/app.php?page=help&action=repaymentPerformance#DefaultRate

You can click on "Default Rate" on any Field Partner page to get to their definition.

[smallpotatoes]

OK... now that I've learned that the pop-up help topics do not appear to get indexed and can't be searched...

I agree that the calculation RichardF quoted from Kiva's own help topics does not appear to match the way that Default Rate is actually calculated on the site.

That said (and to prevent any throwing of rotten tomatoes this might cause), I don't believe that this is part of a vast Kiva conspiracy to mis-inform the lender.  This would appear to be a case where Kiva's right hand might not know what the left hand has been doing (or even why it may have been done). 

In my opinion, the method used on the site would, in general, decrease the stated Default Rate in a manner that might be perceived to be in Kiva's advantage.  By using the calculation given in the help topic in question, the default rate would, in general, be higher than reported today.  This statement is true using my portfolio as an example.

(Another disclaimer: your mileage may vary based the total volume of loans made, total amount of loans successfully repaid to date, and the total amount of non-defaulted loans made but not yet paid back)

   Any Kiva Staffers want to shed some light on this?  I see that Fiona, Liz & Premal have all been keeping an eye on this topic - perhaps they can help with some clarification.

[Canadian Here]

I don't know what you would call SEED, but this all took place before the recent violence in Kenya. 

Kay:

I can think of a few things to call SEED, none of which are very nice so I just won't go there. 

Lorna

[Canadian Here]

Yes, I could be wrong, but I have to believe that there were/are some very dedicated people working for SEED, notwithstanding the "financial shenanigans." 

Kay:

I'm sure there were SOME good people in that organization...just not ALL of them!

Unfortunately, to does not take many "bad apples", just two or three, stragetically placed within the company.

Lorna

[Canadian Here]

Hello Everyone:

I understand that KIVA filed criminal charges against SEED and is also pursuing a civil remedy against this former MFI.

Does anyone know what the outcome was concerning KIVA's litigation against SEED? Has either matter come on for trial yet?

Thanks.

Lorna

[Soriak]

The default rate should be calculated as:
"Defaulted amount" / "Total Amount Loaned" * 100%

If I looked at Richard's formula correctly, it'd be:
"Defaulted amount" / ("Total Amount Loaned" - "Total Amount Repaid") * 100%


A simple example: 1 loan of $25 is fully repaid, loaned out again and defaults without making a payment.

With the first formula:
$25 / $50 * 100% = 50%

This is correct in terms of defaults, as exactly half the loaned-out amount defaulted.


The second formula comes to:
$25 / ($50 - $25) * 100% = 100%

Although this correctly shows that you lost 100% of the deposited money, it mistakenly implies that every loan you made defaulted.

The first formula leads to the far more appropriate number and as I understand it, this is exactly how Kiva does it.

[RichardF]

Soriak, I respectfully stand by my definition. The Kiva-defined denominator is...

Amount Of Ended Loans:
Total amount of loans raised and disbursed which are no longer in the process of being paid back by an entrepreneur.

There is no subtraction involved here.  In fact, for my situation, in order for the Kiva calculated amount to work, this Amount of Ended Loans also includes, Refunded loans.

[smallpotatoes]

I just wanted to add that, based on the two calculations discussed so far, I believe that the Kiva definition quoted by RichardF from the pop-up help topics on Kiva should be used to calculate defaults.  Since you do not know the final status of loans that have not been repaid in full (i.e., they may be defaulted at some point in the future, using total loans in the denominator only serves to reduce the calculated Default Rate.

Of course, assuming that Kiva would always return repaid funds to a lender (even when a loan was defaulted), a better denominator might be ('Total Amount Repaid on all loans' + 'Amount Lost due to default').  Essentially, monies that are no longer at risk (i.e, have been returned to the lender or are known to have been defaulted) should be used in the denominator IMHO.

[RichardF]

Here's a concrete example based on my Kiva export file.

Kiva tells me on My Loan Statistics page that my Default Rate is 0.78%.  The total amount of my defaulted funds is $8.20. 

That means the calculation used most likely is: 0.78% = ($8.20 / $1,050.00) * 100%

For me, the sum of $1,050.00 includes all of what I loaned that now is Active, Defaulted, Paid Back, Raised, and Refunded.  I currently don't have anything in Fundraising status, so I don't know if that would be included too.

My understanding of Kiva's own definition for the Default Rate only should include what I loaned that now is ended - in Paid Back and Defaulted status.

That calculation would be 3.64% = ($8.20 / $225.00) * 100%

The second calculation makes much more sense to me.