Matt Flannery blogs about African failures

[Guest]

.

[Peter S]

new today on socialedge

http://www.socialedge.org/blogs/kiva-chronicles/archive/2008/07/16/farewell-mr-capstick

some useful insight into the failed partnerships in Africa

[...]
It hasn't been easy in Africa for Kiva in the past 1.5 years. The parabolic velocity of lending in late '06 and early '07 caused us to rush into partnerships during that time. Our lack of budget prevented us from visiting before partnerships were initiated. Lenders wanted to send their money to Africans, so they did. They sent a lot. In the majority of cases, this has worked out well. However, there are some notable disasters that took forever to resolve. This below is no shabby (sh**)list of partnerships that closed in bad faith:

WEEC
SEED
AE&I
WITEP
RAFODE

Behind each of these break-ups, there is a story. Usually, there lies a patriarchal figure who viewed his organization as an extension of himself and a Kiva which was way too naive. The abridged stories don't always make it far beyond the inboxes of the lenders and the partner pages deep in our website. But I've arranged them neatly for you here. The extended versions live in my mind.

Am I disillusioned about working in Africa? No, not at all. Do I have a distrust complex. Probably. It's an interesting question, why Kiva had so many early problems in one region relative to others. Here are some possible reasons:

1) Kiva's first partners were in Africa and Kiva was a very small organization during this time
2) There is more corruption in Africa than in the other regions where we work
3) Kiva was over-eager to work in Africa because it felt pressured by the lender demand for African loans
4) The microfinance sector is much less developed in Africa as opposed to other regions

I don't have the time to write an essay about which answer is correct. It's certainly some combination of the above, IMHO
[...]

[wthepoo]

Thanks Peter, very interesting!

Best wishes,
Wolfgang.

[KivanSteven]

A very forthcoming assessment of the Kiva/Africa relationship.

[stubear1012]

When I read this, I remembered one of my favorite quotes which is "It is better to try and fail than not to try and succeed at that".  I would rather that Kiva take some chances and run the risk of these things happening than only work with safe stable institutions.  I agree whole heartedly with Kiva's goal to help the smaller, less know MRI's to grow and develop.  In the long run, development of a number of well managed, well capitalized, lending institutions is critical to development in this region. 

Regards

Stubear1012

[Martha]

You can't make an omelet without breaking some eggs.  I would imagine that Africa is the hardest place to loan to, and yet the need is so great people feel unbearable urgency to get money to the borrowers.  It's just a tough situation.

[AccountAbility]

Matt mentions more corruption as a possible reason for more problems in Africa. 

I think it is more subtle than that.  Although I would defer to a cultural anthropologist who might correct me, I think some cultures more than others have a norm of "follow the rules".  If the norm does not include following the rules, then rule breaking is not perceived as corruption.  This would be a tough place to seek financial commitments and obligations and expect them to be followed.

Dan

[nobodynowhere]

I don't understand why Kiva - even if people wanted to lend to African entrepreneurs - would not conduct due diligence before handing out millions of our money in loans.

That strikes me as very irresponsible on their behalf.

[wthepoo]

I don't understand why Kiva - even if people wanted to lend to African entrepreneurs - would not conduct due diligence before handing out millions of our money in loans.

That strikes me as very irresponsible on their behalf.

Hm, well, maybe to a certain extent... but there are some problems with "conducting due diligence":

1. With which budget? As Matt Flannery mentioned, Kiva did not have the budget even to visit the intended Field Partners beforehand. That may have improved, but Kiva's budget still only comes from donations and interest from monies resting in their accounts.
2. How? Especially since those failures (again according to Matt Flannery) can obviously in many cases be attributed to the death or maybe the dishonesty of one person on whom the organisation rested, I don't see how this development could have been reliably predicted by way of "due diligence".
3. When and how often?
4. Is it worth it? Taking into consideration the 30%-rule that I believe is in place (Kiva supplies max. 30% of each MFI's loan capital) I would guess that the Field Partners must have been vetted by other lenders/capital sources (with a bigger budget) before they even set a foot into Kiva's door (in many cases, for example the results of financial audits are accessible via the MIX profiles). And if those don't get suspicious why should/would Kiva?

I feel that Kiva is quite frank about what they do and what they don't do in terms of due diligence and risk assessment (http://www.kiva.org/about/risk__kivaRole) - and I feel they do significantly more than in those early, lowest-budget, naive days Matt Flannery wrote about - and that it's our decision whether we want to take the remaining risk and trust the Field Partners - or not.

A good way to reduce the risk is the loan-limit for new Field Partners or those with a high-risk-rating so that in case of a default there are not "millions" at stake but far, far less (btw, I estimate that even with the "biggest" Field Partner it would not be more than maybe $ 250,000).

Just my 2 cents,
take care,
Wolfgang.

[mejane]

Wolfgang,

And it was worth more than 2 cents.
Jane

[nobodynowhere]

I like the idea of limiting the loans until they've proven themselves a bit.  That makes a lot of sense. 

I don't know if they necessarily have to visit the field partners, but thinking about basic questions like:
Iis this a new organization? 
Have they been vetted, and by who? 
Is there a high level of corruption in the country, and what kind of corruption?  Is the government actively working on improving?

Perfect?  No.  But if you don't have the funds, and Kiva didn't, it's better than nothing.