Scoring the field offices

[Guest]

.

[mccoy]

I noticed that Kiva added more information for the field offices--I really like that. I think it'd be great to add a one pager with statistics for all the field offices. Also a list of all the field office loans (active and completed) in the field office info would be good too.

But how about adding a score beside each field office name in the main list so the lenders have a bit of history on the field office without having to click the link and read through all the details (which is probably unlikely for most people).

It would be a ebay-like scoring system. Maybe +1 for any paid-off loans, -0.5 for any loans in default, and -1 for any loans that fully default (I'm not sure how Kiva is recognising full defaults).

I think this would give lenders more information about the risk they are taking. Scores that are negative are more likely to default. This way, the field offices have a reason to make sure they don't send extremely high risks to Kiva. Making it harder for them to raise cash if they have been constantly loaning to people who are defaulting, without having any successes to counteract them.

It was only after I spent some time going through the field office statistics that I saw some weird things like Ebony Foundation, who have an *average* loan size that is over 100% of the GDP of Kenya, while the average loan period is only 15 months. They already have 15% of their loans with late payments in the first 4 months as a partner. There are other partners in Kenya who seem to have a better success rate and more controlled lending. (I hope that Kiva is not planning to issue more loans to Ebony until they clean their portfolio up).

Or if Kiva at least offered a scoring system, the loaners can choose how much risk they want to take in supporting their cause. In this case, Ebony Foundation would have a score of -15. Higher risk.

I think right now, people are just lending money assuming that Kiva and the field offices are acting as a middleman and doing all the due diligence. That's fine for now, but once Kiva has been in business long enough for loans to start defaulting, people may get disenchanted and Kiva's reputation may be tarnished. A scoring system for the field offices would at least give the lenders a small way to show the credit risk they are taking.

I know this might be limiting funds to those who need it the most. But I just thought I'd throw an idea out for discussion.

[Phil]

Hi McCoy,

As I was recently studying microfinance at uni, I came across this website which I thought you might find useful:

http://www.mixmarket.org/

It lists different microfinance institutions, ranging from small, new ones to well established ones like Grameen Bank. It provides a range of information, including some of the information you were talking about.

[mccoy]

And I was thinking that to set up this sort of microfinancing you would need to travel by bush plane to some dusty corner of the world and figure out who you trust the most. And then just cross your fingers.

But I guess there's a lot more information out there than I thought. Thanks for the eye-opener!

[Pondering Pig]

McCoy, you make an important point.   In my innocence, I tend to assume that Kiva does the due diligence and won't contract with local microfinance orgs that don't meet its standards. I believe Ramon Kolb has been trying to get a Peruvian MFO on board but they don't want to go through the hassle of signing up with Kiva - lots of paperwork. (Am I right about this, Ramon?).

As Kiva goes along and the MFOs build a track record with them, I agree that a rating system such as you suggest would be very helpful.  Especially, since it would not be based simply on people's personal opinions, but on objective data.

[Ramón]

Hi Ponderer,

The case with the Peruvian MFI wasn't so much the paperwork, but the fact that they'd have to change their existing procedures. Many MFI's have well-established procedures that feed into their operational cost structures, even though they are most times not optimal and quite bureaucratic.

Kiva is growing so fast, that they don't have time to approach individual MFIs. They want the MFIs to come to them, and roll on board that way. I think that we, lenders, can help in that sense to promote Kiva to the MFIs and get them to take the initial step. And that was exactly what I tried in Perú.

I also have been communicating with someone that was interested to do the same thing in Brazil, but after talking to Kiva, the biggest barrier right now appears to be the restrictions on international financial transactions in that country.

[Julia]

I think that we, lenders, can help in that sense to promote Kiva to the MFIs and get them to take the initial step.

When I come across MFI on the web I send them an email about Kiva and tell them they should look into it.   

I'm thinking an email telling them where they might get funding would be very effective in at least having them look at the site.  I send them to this page http://www.kiva.org/about/partners/

Perhaps us KivaFriends should start this as a campaign.  We could post who we contact to try to avoid too much duplicate, and to keep track to see if it works.

[Fred]

McCoy,

I agree, a simple rating system would be helpful. Your mention of the Ebony Foundation as a risky loan hit home. I made 3 loans to Kenya through the Ebony Foundation. All 3 are over 3 months past due. No repayments, or even token repayments. Not even the courtesy of a comment as to what might be going on. 

[BPorojo]

There is a lot money changing hands and at $200K in five months for Ebony Kiva should be very care in the groups it partners with. Kiva might not have the resources to carry out a through evaluation of the groups so the lenders should exercise judgement in who they lend to.

[Marley]

I also think that this is a good idea. Clearly, some investors are more concerned about repayment. Having a better sense of the operational track record of the MFI listing the loan could help lenders match themselves with thier comfortable risk levels. And repayments are the heart of loan programs. There is something amiss when they get too far in arrears. This isn't good for the program,  the clients, or the borrowers waiting in the wings. Matt Flannery, one of the co-founders of Kiva has a blog. He recently posted a letter that arrived in their offices from a Kiva friend that visited Kenya and sought out Ebony to see what they were doing. It puts any failings in an arresting context. Here's the link: http://www.socialedge.org/blogs/kiva-chronicles/archive/2006/11
Shelby Clark is presently volunteering as a field rep for Kiva with an MFI in Uganda that has temporarily suspended making new loans until they can improve the repayment rate on the present ones. (He has a blog, too.) Here's one of the clients he described meeting: "Also, I met a guy, and when I went to shake his hand he gave me a hug instead. This guy is HIV positive, and I strongly believe that without his loan he would have died by now. When he first got the loan last June, he was incredibly sick (started at ~130 lbs before getting sick, and dropped to 80 lbs !!!!!! after getting sick), and could barely walk. All of his money went to his medication, transport to health care, and feeding his 9 children (8 of his own and an orphan of his brother's, who died of AIDS). Once he got the loan he was able to spend some money on goods to sell (supplies for an Ox plow), and now has enough income to take care of his illness, eat properly, support his kids, and even send some of them to school. He's since regained weight and weighs about 115 lbs, and can now walk with the help of a cane. He attributes most of the improvements in his life to his microloan."
When I read stories likes these, I understand why some borrowers may be struggling with repayment schedules. I'm certain there is a significant portion of lenders who would be willing to loan anyway, if the conditions were made clear, up front.
But letting lenders have resonable expectations would serve Kiva. Should there be a special class of loans for borrows in extraordinarily difficult circumstances, like those suffering from AIDS if a ranking system is adopted? I'd hate to think MFI's became reluctant to lend to these people to protect thier rating.
Perhaps that's why there isn't a rating system. I think I've just talked (typed?) myself out of this idea.

[Ramón]

Yes, I understand the reluctance to put up a real rating system for MFIs. However, all the data is already there, right at Kiva's partner pages. It wouldn't be too hard to rank them for yourself.

To give you an example, I put together a spreadsheet for the Latin American partners which scrapes the Kiva partner pages for relevant data, and then puts it together in a summary table. To give you an example:



This allows me to see at a glance where "my" MFIs stand, which is in this case the MFIs in which I have loans.

Indeed, some of the MFIs (Fundacion Adelante in Honduras and WITEP in Uganda) appear to be well behind. It would be good to understand how Kiva deals with this. (Ben E., are you reading this???)

--Ramón

[Fred]

When I started lending to Kiva in November, I didn't pay much attention to the MFI's. I assumed Kiva was doing their due diligence. For the 3 loans to the MFI that I haven't received any payment in over three months, there wasn't any track record with Kiva back then to examine. I'm looking harder at the MFI's now before lending, although I've still made more loans to new MFI's.

It's not that I need the money in a big hurry. But I'd appreciate getting it back so I can reloan it to help out someone else also.   

[BenElberger]

Hey Guys,

Fiona Ramsey, a Kiva staff member, is best to respond here and her response is below.

Ben



All:

Thanks for using the Kiva Friends site as a place to discuss microfinance, Kiva.org and your personal lending experiences.  This website was created by a Kiva Lender for Kiva Lenders and we are so encouraged to see the interesting discussions taking place here.

To answer the question “When is a loan in default?”:
Kiva.org gives two term dates for each loan, a short-term and a long-term date.  The short-term date is the date by which the Field Partner, together with the entrepreneur, expect the loan to be repaid.  However Kiva.org provides soft loans and so we add an additional 4 months to every loan, which becomes the long-term date.  Therefore a loan which has passed the short-term date is considered to be delinquent, and a loan which has passed the long-term date is considered to be in default.

Ultimately, Kiva.org wants the entrepreneurs on our site to be successful  - which includes repaying the loan in full in addition to running a successful business.  We understand that small businesses can encounter set-backs which is why we provide the delinquency cushion before a default has been determined.  When a loan becomes delinquent we discuss the situation with the Field Partner to determine if the entrepreneur simply needs more time or if they have experienced a difficulty from which they will not be able to recover.  Ultimately we want to see these loans succeed and will provide what assistance we reasonably can (such as Kiva Field Reps like Shelby) to assist.

We've been in close contact with WITEP about their repayment difficulties for some time, and Shelby's work has in fact focused on addressing this situation.  Matt Flannery, Kiva's CEO, is also currently visiting WITEP while on a partner visit, and has recruited some local microfinance experts to offer their expertise and get WITEP back on track.  This has really shown us how important it is to have someone on the ground in certain situations, and you can be sure we are 100% focused on taking the appropriate steps to uncover the problems and deal with them appropriately.

Why have we not reported these loans as being defaulted?  Because we want to give both Field Partners and Entrepreneurs the greatest chance at success before doing so, and in this situation that included offering some local support on the ground.  We are doing that right now, and we hope to have some updates on these businesses within the next few weeks as Matt, Shelby and the microfinance experts arrive at some decisions with the WITEP staff. 

Thanks again for being so engaged in your Kiva Loans.  We will always keep information about our partners and businesses as transparent as possible – as you’ve already noticed! 

Finally – we want to give you a heads up that we are working on developing our new Partner Pages for the site which will feature much more information about each partner to encourage more lenders to be as attentive as you have been.  We will be inputting more financial data on each partner and offering analyses to help you make more informed decisions as to who you choose to loan through next.  We encourage you to consider each loan an “investment” and we are working on creating more of an “investment portfolio” feel to the site, making our Partner Pages feel more like a mini prospectus.  Currently our engineers have been working on re-architecting the entire site to handle the traffic increase we’ve been experiencing, which is why we’ve had some feature release delays.

Hope this information cleared up some of your questions!

Fiona Ramsey
Community and Operations Manager

[Ramón]

Ben and Fiona:

Thanks a lot for your answers and clarifications. I especially agree with your remarks about giving Kiva more of an "investment tool" look and feel, as this will instill more confidence in Kiva by the lenders.

--Ramon