When is a loan in default?

[Guest]

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[multimutts]

Hi

I have one loan which has not posted a payment since January.  The loan is:

http://www.kiva.org/app.php?page=businesses&action=about&id=1086

and the last journal entry seemed to indicate that business was going well, so there's no explanation that I'm aware of for the lack of payments.   

One thing that I did notice, yesterday when I checked, was that the MFI seems to be in some sort of trouble (even to my non-trained financial eye) with 297 loans (out of a total of 304) currently behind in payment.   

They still say there are no defaults ... but I'm wondering how long without any payment would define a default? 

patti

[michael]

Good question.  There is no definition I can find in the FAQs. 

I'm sure someone with a better answer will pipe up.  But I suspect that, just as the "credit standards" for microlending must be quite broad to accommodate the nature of small businesses in the developing world, so too might be the definition of "default."  It could well be that loans are considered in default by some qualitative determination that the MFI is not going to be able to get the borrower to pay anything more.

In this case, I'm more concerned with the MFI's portfolio than the individual loan.  But as a newbie, I do not know if this lag in either collections -- or possibly just in reporting -- is normal or not.

[Ari]

hey michael!  Did your Kiva situation clear up ?

[jaribilen]

The last post in that loan is posted by Shelby Clark, she has her own blog with excellent pictures and stories:
http://kivafieldrep.blogspot.com/

I guess you could contact her and see how it's working out.

[Ramón]

The situation there at WITEP is indeed a little scary if I read the KivaEffect blog at http://kivafieldrep.blogspot.com/2007/04/greetings-from-kenya.html. To quote a few things from his post:

One thing I was really happy about was that I showed WITEP that we had the budget to at least double all the employee’s salaries, which were extremely low. Previously, all repayments happened at the office where the cash was haphazardly thrown into an unlocked drawer and the payments were poorly recorded. Now, clients deposit their repayments directly into our bank account, which gives us flawless records of the repayments, and eliminates the risk of robbery

...

Surprisingly, Janet asked me to be the chairman of the board, and after about a week of consideration I decided to accept.

I would be a little hesitant to loan anymore to them until they get their act together. I think that this is one of the earlier MFIs that signed up with Kiva, and I am not sure that their due diligence was followed that well for them. Still, if you look at the Partner website (http://www.kiva.org/about/aboutPartner&id=11), you can see that almost all of their collections are overdue. Now the way that Kiva works (as far as I understand) is that if the MFI does NOT report a payment, it will automatically be entered as "made". For missed payments, someone needs to go in and actually report the non-payment.

I am going to email Shelby, now he is the Chairman of the Board, if you would be interested in taking on some remote technical advisors on his board. I can imagine a few people of professional, well-run MFIs that aren't competing in the same region that could help him very much in this. I'll keep you updated on the results.

--Ramon

[michael]

hey michael!  Did your Kiva situation clear up ?

Nope.  More on that in my "problem" thread on Tuesday or Wednesday.  I'll hold my tongue until then.

[chris]

Defaulting is definitely something that should be covered in the FAQ.  These small business owners don't have a credit rating, but it would be good for the microfinance institutions doing the servicing to have some sort of rating.  Even a simple ratio of paid off vs. outstanding loans would be a good indicator for Kiva to show.  Or perhaps an on-time repayment percentage.

For the record, I've never had a loan go past the length of the loan term.  Some borrowers repay in equal monthly payments, other pay a little at the start and then pay it all off in one shot later on. 

I also have a borrower who hasn't made a payment since January.  But the loan term is less than half over; I'm not worried.

[jcn50]

http://www.kiva.org/app.php?page=businesses&action=about&id=1086

To me, this loan couldn't be declared default until July 2008... (6 months after the "due date" seems a fair definition for me~).

Anyway, the situation of WITEP is worring me...