MIFEX - concerns, updates

[Guest]

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[waywardcats]

I see now 20 comments on the MIFEX default notice I received...
http://www.kiva.org/app.php?page=businesses&action=comment&id=47294&ent=90464

I find this encouraging so far for Kiva's future...

jan

After reading through the comments on this journal I find it deeply disturbing that the most recent comment uses profanity and then refers tp lenders who have previously commented as "Freaking Hippies" and then directs them to Kiva Friends. This is not the image that I would like to see us put out into the Kiva world, no matter how upset we might be at MIFEX and KIVA.

That being said, Jan, I hope you are right and that these lenders will be of the understanding type and continue to support Kiva.

-Kerry-

[michael]

For the record, the Michael who posted that was most assuredly not me.

[Jan & John]

thanks,Kerry - and Michael, I am sure no one here would dream of you using that kind of language...

however - it is a shame because this guy has really gone off the deep end over this...

I have such a dreadful urge to post there just to bury his last comment... perhaps I will...

I am concerned though - I think that posting is also becoming an addiction I need to curb

jan

edit:  ok good - so Michael went in and posted that it wasn't him... and I went in there and posted - my feelings have been circling around all day but I always come up with the same thoughts each time - I am still very hopeful for the future - and those guys with the foul language can just go play some where else.
I wasn't mad until I read that !!!

[waywardcats]

Michael, the thought never once entered my mind that you might have been the author of that post.

Jan,  I had the same urge, but could not think of what to say....

[Claus-Peter]

Ok, new eperience for me, 33 loans are defaulted and my "official" personal default rate jumped to  more than 2%

In the end I am a still under the rate of a 3% default rate I personally calculated as acceptable 

But of course it is difficult to accept such a kind of fraud ... I hope Kiva will go on with the examinations and also consider legal actions against the responsible people.

No doubt that I personally will proceed with my lending activities ...


Claus-Peter

[TheTatiana]

This is what concerns me.  Given kiva's system of posting the net difference to MFIs each month, as long as any new MFI funds more kiva loans than they receive in repayments each month, they never have to pay back a penny.  This seems like an invitation to MFIs to get in deeper and deeper by posting more and more loans, and when they can't pay, inflating the loan amounts.  It's like a disaster waiting to happen.  Does it seem that way to anyone else?

I'd like to see the growth rate required to be slow enough that the MFI has to actually make payments on some sort of regular basis.  How else can we know they're not just borrowing more and more to cover the payments on the earlier loans?  Now I'm looking at my portfolio and wondering how many more MFIs will come to an eventual collapse.  I didn't lose anything on MIFEX, since my loans to them were all early ones, and have been paid back in full already, but now I'm rather worried about some of my other loans. 

I'm also worried about what to say to the many people I've urged to lend on kiva?  They will be asking me what's going on.  How do I explain it?  Won't they get the idea that it's all a big fraud and be upset and want their money back?  I gave one gift certificate, and my niece used it to fund a loan through WEEC that defaulted.  My jatraqueros group has a loan to Ebony Foundation.  What do I say to them about the likelihood of getting repayment on that one?  I think the most terrible thing about it is the bad light it casts over the entire microfinance sector.  I still have faith myself, but I have a hard time asking others to.

[mejane]

For the record, the Michael who posted that was most assuredly not me.

Michael, I never doubted that post was not from you.... but good that you cleared that up.  Not everyone knows the stellar kind of person you are!   
Jane

[P, B and J]

Michael, I never would have thought that post was from you either.


And what's wrong with being a hippy?  Sheesh....

[RichardF]

This is what concerns me.  Given kiva's system of posting the net difference to MFIs each month, as long as any new MFI funds more kiva loans than they receive in repayments each month, they never have to pay back a penny.  This seems like an invitation to MFIs to get in deeper and deeper by posting more and more loans, and when they can't pay, inflating the loan amounts.  It's like a disaster waiting to happen.  Does it seem that way to anyone else?

Tatiana, here's one portion of Matt's comments in the recent chat I think applies to your question.

Edited transcript of Chat with Matt
[RichardF] 7:38 pm: Matt, Please summarize the changes you have made to your Field Partner review processes and Lender Communication processes.
[flann] 7:39 pm: Richard, we signed up MIFEX as a partner in 2006
[flann] 7:39 pm: since that time we have 1) implemented a risk rating system
[flann] 7:39 pm: 2) created an auditing program with Ernst & Young
[flann] 7:39 pm: 3) Limited funding to 30% max
[flann] 7:40 pm: 4) hired staff in nairobi, dakar, lima and manila
[flann] 7:40 pm: we visit all partners before working with them
[flann] 7:40 pm: and operate in pilot phase for several month
[flann] 7:40 pm: s
[flann] 7:40 pm: before scaling to large numbers like we did with MIFEX
[flann] 7:40 pm: these efforts have helped us keep the default rate above 95%
[flann] 7:41 pm: I mean, the repayment rate is above 95%
[flann] 7:41 pm: however, we are not perfect
[flann] 7:41 pm: certainly, there will be more situations like this

In effect, you're raising the question about whether Kiva continues to be susceptible to a modified version of a Ponzi scheme - paying off previous lender debts with new loan funds until the house of cards eventually collapses on itself from its own weight.

Based on what Matt and others have said Kiva now does differently - especially the pilot face-to-face verifications and the independent audits - I'm more confident Kiva is less likely to get fooled again. 

However, Matt does continue to hedge his bets with wiggle-word comments like, "certainly, there will be more situations like this."

What remains to be seen, IMHO, is how well Kiva performs the next time such a certainty shows itself (if it hasn't already).

[cpbailey]

Kiva has always done a net payment monthly.  It doesn't make sense to pay to transfer funds every month both ways.

The other aspect is that they are working toward having $25,000 maximum funds in a one star partner and $1,000,000 in a five star partner.  It wasn't mentioned for the middle two rankings. 

I think having a maximum will encourage partners to weigh making lots of very long term loans or even loans which are likely to go south.  If a group of loans for a partner with $100,000 limit goes bad, then the entire time that say $10k is on the books as a loan on Kiva it counts toward that $100k.  Hopefully, there will be a ramp up toward the maximums.

Colette