SEED Development Group - defaults now declared

[Guest]

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[Soriak]

They need to change their definition on the help site then, because that'd be a rather unique way to calculate a default rate. (mortgage default statistics, for example, also include open mortgages - not only those already closed)

It's a bad way to predict future defaults regardless of method used. An "expected default rate" would have to consider for each open loan the MFI's history and the regional statistics. For a well diversified portfolio, (diversified by location as well as MFIs in each location) the 3% (I think) microfinance average would probably be the best estimate. But the default rate on the Kiva site says nothing about what one should expect, merely what has occurred already.

[RichardF]

To create consistency for the Kiva Default Rate - define it and calculated it the same way for Field Partners and lenders - Kiva would have to do more than just change a definition on a help page.  As it stands now, Kiva uses the stated definition to calculate the Default Rate for a Field Partner.  They would have to either change the calculation for lenders or change the definition plus the calculation for Field Partners. 

I still vote for changing the calculation for lenders.  I've been searching for a generally accepted calculation method for the microfinance industry, but I haven't been able to come up with anything yet.  Can anyone else post an authoritative source?

[Jonathan]

Hi Everyone,

I can confirm that this was a mistake on our part.  The equation we use for the partners and global default rates is the one we want to use.  This is the equation defined in the help text which uses total ended loans as the denominator and does not include loans which have not completed. This was an oversight during the development of the individual statistics.  I'm working on updating the personal profile stats as we speak.  Once we get the equation fixed, the only difference between the individual stats and the partner/global stats is that we weight the individual stats based on each users ownership percentage of loans.  Thus, if you own $500 of a $1000 loan which defaults, your default rate is influenced more strongly than a user who owns $25 of the same loan.  We'll be adding some help text to make this distinction more clear.

I apologize for the confusion and will post back here to let you all know when the updates are complete.

Thanks for keeping us on our toes!
-Jonathan
Kiva Engineer

[smallpotatoes]

Jonathan - Thanks for the update  .

[RichardF]

Go Jonathan!!!
 

[RichardF]

...if you own $500 of a $1000 loan which defaults, your default rate is influenced more strongly than a user who owns $25 of the same loan.  We'll be adding some help text to make this distinction more clear.

Not quite.  For any given loan, the Default Rate is the same for all lenders on that loan.  For example, the $500 lender would have received half of the repayments made, while the $25 lender would have received 2.5%.  If the borrower had paid back $800 before defaulting, the big lender would have received $400 (losing $100) and the mini-me lender would have received $20 (losing $5).  Default Rate = $100/$500 = $5/$25 = 20%.

What matters is the proportion of a lender's ended loans represented by that default.  If the big cheese had only that loan, the overall lender Default Rate still would be 20%.  If the small change lender also had $500 in ended loans with no other defaults, that overall lender Default Rate would be DR = $5/$500 = 1%.  This also is a good example of why portfolio diversification helps spread out the risk of default for relatively small portfolios.

Edit Note.  Okay, so I can't subtract.     The punch line stays the same! 

[smallpotatoes]

I see that "My Loan Statistics" now displays "Amount Of Ended Loans Not Repaid In Full" just above "Amount Of Ended Loans" making the calculation of "Default Rate" much easier for the average, mathematically challenged Kivan lender  .

Kudos to Jonathan (and all others on the Kiva team that were involved) for the timely action taken to remedy this programming error!

Thanks!!!   

[AccountAbility]

Having just had the opportunity of trying to explain the meaning of "Amount of Ended Loans not Repaid in Full" to another lender, I think the wording could be reworked to make it clearer. 

Tacking on the words "in full" makes one think of the total amount of the loan which wasn't repaid in full, rather than just the portion which wasn't repaid.

Perhaps it should just say "Amount of Ended Loans Not repaid" to be clearer.
Or maybe "Defaulted amount on Ended Loans".

Dan

[wthepoo]

Having just had the opportunity of trying to explain the meaning of "Amount of Ended Loans not Repaid in Full" to another lender, I think the wording could be reworked to make it clearer. 

Tacking on the words "in full" makes one think of the total amount of the loan which wasn't repaid in full, rather than just the portion which wasn't repaid.

Perhaps it should just say "Amount of Ended Loans Not repaid" to be clearer.
Or maybe "Defaulted amount on Ended Loans".

Dan

Dan,
I agree - "Defaulted amount on Ended Loans" sounds perfectly clear for me.

Take care,
Wolfgang.