Kiva Community Conference Call with Premal Shah, Dec 17th 2008

[Guest]

.

[Peter S]

The first Kiva Community Conference Call with Kiva staffers was held on Wed. Dec 17th 2008 at 2pm PST / 10pm GMT.  The call was announced by Premal Shah on the KivaFriends website and in the Kiva blog, and attracted roughly 25 lenders on the phone.

Premal introduced himself as president of Kiva, and said who else from Kiva was there in the room and listening in on the call with him: Matt, Fiona, Austin, Liz, and Gerard. Fiona was in the KivaFriends chatroom, relaying questions from people who were not actually connected to the voice call.

Premal kicked things off with a quick run-down of some landmark advances for Kiva in 2008, and an account of "what's keeping him up at night".  .

Four significant advances for Kiva in 2008

• risk has not been eliminated from the website, but risk management is much better than a year or two ago
• Kiva has started hiring internationally, with microfinance professionals now on the staff and in place around the world in Lima (Peru), Dakar (Senegal), Nairobi (Kenya), and Manila (Phillipines), working with the team of microfinance partnership managers back in San Francisco. As a result, Kiva is in a much better position now to do due diligence on its existing and prospective field partners.
• the "community" tab - the lending team functionality built and launched. Around 5% of lenders have joined a team
• released credit resulting in increased liquidity.  As an aside, Premal mentioned that $350K was loaned on the site yesterday and had these stats about annual growth: $2M loaned in '06, $18M in '07, $37M+ in '08

Things that are keeping Premal up at night:

• early on there were not enough resources around due diligence. The first 30 partners are still considered risky based on inadequacy of early vetting procedures; more needs to be done to make sure they're still fit.
• economy: for the first time, there has been a drop in deposits on Kiva, [due to the state of the economy]. Kiva has had to reduce its operating budget for 2009, and generally revisit how much is available to spend on the Kiva program.
• Kiva has grown with "seasoned unseasoned managers" -- but it continues to bring in experienced, seasoned people who can really help -- there's room for further development, and organizational improvement generally.

Then it was onto the questions...

UNUSED CREDIT POLICY
I've listed all the questions that were raised in relation to "unused credit policy" as a single group, because what Premal (and Austin Choi, Kiva's General Counsel) said in response to the various questions on this issue will be easier to read that way, and the notes aren't really detailed enough to break it down.

Questions about unused credit policy

• If 3 years [under CA unclaimed property laws], why are you converting it in one year? When people put money in, it's meant as a loan, so why not make it possible to re-lend rather than make it donation.
• Where's the choice if you are forced to tick the Terms of Use saying you agree, or you cannot touch your account?
• What was the original estimate of the new policy's contribution towards Kiva's operating costs in 2009?
• Would it be feasible to allow users to opt in for escheatment if desired? The default would be to contribute, autolend, etc. If we had the choice, I think few would exercise it and it would avoid hard feelings
• In relation to the team lending feature, what happens to a team if their captain doesn't agree to the new Terms of Use?
• What has Kiva done to establish the legality of taking money rather than letting the state try to find the owner

Answers about the unused credit policy:
(mostly from Premal, Austin spoke briefly to address the specific issue of the legality of what Kiva has been proposing)

for accounts that are inactive or abandoned, we asked ourselves, can we turn the credit balances into a Kiva donation? if account is dormant for long enough, escheatment laws come into effect.  After 3 years it'll go to the government, is there a way to turn it over to Kiva as operating budget instead?

After 12 months of user not logging into account, with no credit change, with 6 months of warning emails, Kiva would then convert that credit to a donation.  There would be a 6-month further grace period, if the lender came back, to reclaim.

We're looking at expanding from 1 year to a longer period, but also looking at the effect that would have on budget. Kiva could launch an auto-matching feature in '09 which could be used for long-term relending based on specified criteria

It's the long-term idle uninvolved users whom they are targeting.  Kiva is considering approaching the State: here's who Kiva is, we have a social mission, this is what we're trying to do, why we're proposing this.... For existing users: rather than being unable completely to access their account, should get user experience to see your transactions, but if you choose not to comply, you cannot lend on Kiva.  One choice that will be open: accept new Terms of Use, and once the auto-relend feature arrives you can participate in that.

[in answer specifically to the question about what would happen to a lending team if the team captain didn't accept new ToU] we have to find most efficient features without spending too much on engineering "edge" cases: publish in Terms of Use policies about "edge" cases which would not be cost effective to engineer.

[in answer specifically to the question about the original estimate of the new policy's contribution towards Kiva's operating costs in 2009] $1 million recovered for overhead using the policy as originally conceived, but around $150k following advice from General Counsel.

returning to the general questions raised about the unused credit policy. Budget projected for Kiva operating costs in '09 was in the region of $6M. Kiva is now cutting this back to $4.5m  We would love to hit self-sufficiency in '11.  Maybe we should extend the 1yr to 2yrs still including a 6 month grace period tacked on the end.  The Plan for the new Unused Credit Policy has existed for over a year. Policy would apply to all new users going forward. But Kiva's new General Counsel advised that you need consent of legacy user base. Those who don't login are the ones whose contributions would be lost if they can't be reached.

(summarizing the general drift.. Premal's actual words might have differed, but this is the gist of it:) Kiva is still considering the details of the new Unused Credit Policy, and how and when to launch it - nothing has been finalized.  In the context of Kiva's operating budget shortfall, there remains a need to find an acceptable way of turning dormant funds into money that Kiva can use to cover overhead.


MFI INTEREST RATES & QUESTIONS AROUND TRANSPARENCY
(sorry, can't remember how the question was framed exactly, but here's what Premal said...)

Improve reporting -- self-reported data can't always be trusted. Kiva should do a better job of capturing actual situation, actual interest rate charged to specific borrower. Find a way to expose the "yield" the MFIs are making off each borrower. Need to think about the "discoverability" of that information -- 50% of the loans come from 5% of lenders; find a way to expose details for those who want to see them.

[connected with those remarks about interest rates] Make it easy for lenders to judge social impact from an MFI. Develop social impact model in 2009 to give people contextualized comparison information to make better lending decisions.


COMMUNICATIONS
questions about "problem partners",more and better portfolio tools so that deliquencies can be identified and information about them accessed, and "Kiva is now working hard on communicating with lenders AFTER decisions are made. What efforts does Kiva regularly make, if any, to survey or communicate with lenders BEFORE decisions are made, either to give them input or at least to let Kiva know how changes under consideration might be viewed?"

In future, My Profile could provide shading for delinquent loans, clicking could take you to partner page.  Business profile page could provide a note on why a loan or field partner was delinquent. If you were interested, you could subscribe to more frequent updates. Send one mass update to all lenders affected.

One thing eBay did and Kiva could do in future would be to hold these sorts of conference calls, float ideas they're thinking about. It would be great if this kind of call could become a regular monthly feature.  It's win-win, for Kiva and the lending community.

EXCHANGE RATE ISSUES

• How is exchange rate affecting payments from borrowers and field partners?
• Could someone briefly describe what it would mean for the lending community to "bear the currency risk" in layperson terms? That is, will it cost lenders more, will they lose funds, etc

In last few months US$ has appreciated highly against other currencies.  Only a few partners have been mentioning this. Kiva encourages field partners to have a hedging mechanism, and Kiva won't be >30% of any MFI's portfolio. Premal talked about the possibility of giving the partners the ability to share catastrophic currency risks with the lending community.  For example: Pearl Microfinance in Uganda (which was named by Premal just as an example) has raised over $500K on Kiva. When they are posting a profile from Kampala, they could click a box saying they want to share currency risk with lenders. The first say 10% of decline against the dollar, Pearl would bear the risk, the remaining loss would be borne by the community. How can we do this in a way that would keep it simple? Say in a year you lend $25 to Uganda and they check the "share currency devaluation beyond 10% with Kiva lender". See note "you are responsible for currency devaluations..." Each month when there's a bill repaid, if the Ugandan shilling declines beyond 10%, lenders would receive slightly less back.


OTHER QUESTIONS
the upgrade to the web site (going from one machine to multiple machines). Has that happened yet and if not, when can we expect it to happen? I'm still getting oops pages pretty often.

Premal: yes, the upgrade has happened

is there any consideration to adding a representative of the lending community to the Kiva board in some sort of advisory role?

Premal's response to that was pretty positive.  Definitely something for future consideration.



The call lasted for 70 minutes, and at the end there was gratitude expressed to Premal for what everyone thought was a very successful and productive session.  Premal said he thought it would be great to hold this kind of call more regularly, possibly monthly, sometimes on specific topics.

things we didn't get round to asking (mentioned in KF chat as the call was winding to a close)
Confusion about repayment details and loan terms under PA-2 - how come a 5 month loan is posted as 3 months.
Any further info about current "problem partners" - Ebony Foundation, FDM
"customer retention" - the $1m they had in mind for revenue from abandoned repaid loans represents (assuming the median amount is $25) possibly nearly 40,000 lenders whose interest has not been sufficiently engaged. What can be done by Kiva to improve that?

I hope that gives a fair idea of what was discussed. Please jump in to post your own impressions, and of course discuss what was said.


Peter

P.S. many thanks to Diane, whose notes were much more detailed than my own.

edit to correct a minor typo, Dec 19 2008

[QueenOfHearts]

Thank you Peter for posting such a detailed report....as I was unable to participate in the conference call.

Queen

[waywardcats]

to Peter and Diane for taking such detailed notes and writing them up.  And of course a huge  to Premal and everyone from Kiva for taking the time for the community call.   I do hope it can become a regular thing, and a good time can be found which is convenient for more lenders (especially our international friends) to join in.

But Kiva's new General Counsel advised that you need consent of legacy user base. Those who don't login are the ones whose contributions would be lost if they can't be reached.

I just want to make sure that everyone else heard this the same way I did.  What Premal said here was "if you don't log in, it doesn't apply to you."  This caused a few of us to laugh.    Very well said Premal.  

What this means to me is that those lenders who have been out of touch and continue to leave their funds inactive in Kiva WILL be subject to the escheatment laws.  Therefore, those funds will continue to sit in Kiva's account (providing some interest) for three-years from last activity and then will be turned over to the State of California which will try to locate the owner of the funds and hold them in escrow for those individuals.

Right?

-Kerry-

[cpbailey]

What would Kiva do if people refused to agree to the new terms and stopped lending?   Just wondering.

Colette

[wthepoo]

What this means to me is that those lenders who have been out of touch and continue to leave their funds inactive in Kiva WILL be subject to the escheatment laws.  Therefore, those funds will continue to sit in Kiva's account (providing some interest) for three-years from last activity and then will be turned over to the State of California which will try to locate the owner of the funds and hold them in escrow for those individuals.

Right?

Right (I think)!

This, though, means that the potential Kiva discovered - the one that made $$ appear in their eyes - will effectively NOT be available for them. That also means that - even with the 12 + 6 months rule (not even talking 24 + 6 now) - this "source of funding" will not be available for Kiva until late 2010; and I assume even later, because most inactive lenders probably are inactive more or less from the beginning, right after making their first loans... so you can add another 12 months (on average):

Assuming Kiva would implement the new policy effective 1 January 2009 (and I really don't think it will/should come so soon), a lender that logs into her/his account (still being active) and accepts the new ToU will most likely make another loan or two (because this usually is the reason for logging in...). These loans on average will be active for 12 months (including the PA 2 billing/processing times...), until 2 January 2010. Only from then on would the account be regarded "inactive". It needs to stay that way for 12 months until Kiva could turn the balance into a donation - 2 January 2011. Now adding another 6 months "grace period" and we are talking summer/fall 2011...

Well, that does not really sound like a good plan to cover a budget deficit for 2009 and help reach sustainability, or does it?

Apart from that, just to mention it once again: According to Peter's excellent summary (thank you, Peter, thank you, Diane!) Kiva once again suggested that the money should rather end up with Kiva instead of with the government and that they even intend to approach the State to ask them for approval...: Escheatment does NOT mean that the funds become property of the government (so the State won't in fact be able to allow for or approve of Kiva keeping them as donations...) the State just acts as a kind of trustee and keeps the funds. It may very well be the case that considerable amounts are never reclaimed - and I agree (especially as I am not a US taxpayer) it would be better that they were never reclaimed from Kiva than from the government; but as soon as Kiva intends to not any longer keep the account balances for the lenders but to regard them as donations I think they are overstepping a certain border...

I just don't think whatever can be gained by Kiva that way can be worth what Kiva is risking at the same time.


A technicality: I suggest that just sending emails is hardly sufficient to contact lenders of inactive accounts


And finally one other thing: These last few weeks I learnt some astonishing things about California law... one of them being this

1749.5.  (a) It is unlawful for any person or entity to sell a gift
certificate to a purchaser that contains any of the following:
   (1) An expiration date.
   (2) A service fee, including, but not limited to, a service fee
for dormancy, except as provided in subdivision (e).
...

1749.6.  (a) A gift certificate constitutes value held in trust by
the issuer of the gift certificate on behalf of the beneficiary of
the gift certificate.  The value represented by the gift certificate
belongs to the beneficiary, or to the legal representative of the
beneficiary to the extent provided by law, and not to the issuer.
...
  
1749.51.  Any waiver of the provisions of this title is contrary to
public policy, and is void and unenforceable.

How come Kiva still includes a 12-months-expiration period into their GCs?

Here is an excerpt from the current GC terms and conditions:

# Subject to applicable laws, if a Gift Certificate is not redeemed within 12 months of the date of purchase (the "Expiration Date"), those funds may be converted automatically to a donation to Kiva Microfunds, a public charity under Section 501(c)(3) of the Internal Revenue Code of 1986.
...
# Some states may extend or void the Expiration Date. Expiration Dates do not apply in any state solely to the extent as prohibited or limited by law.
...
# These Terms and Conditions are applicable to the extent permitted by law.

As Kiva is a Californian entity and sells the GCs from their business address in California I would argue that these clauses are totally "unlawful", "contrary to public policy", "void and unenforceable".

Just wondering...  

Best wishes,
Wolfgang.

[charity]

About the GC expiration issue: (note: I am not a legal expert, just a citizen of California  )  Living here is California, we are one of the only states in our nation that has laws restricting expiration of gift cards, phone minute cards, etc.  As such, my experience has been that every time I get a gift card from any major chain that also does business outside of California, it has the exact same type of expirations and exclusions as Kiva has on their GC.  So in practice, I have thought of it that gift certificates can be sold with expirations here, but they just don't apply here.  So if I buy a gift certificate from a retail or restaurant chain for my out of state relatives, I expect that the expiration date WILL apply to them.  My understanding is that it is legal to sell GC with expirations, just that you can't actually APPLY the expirations to people living in California.  That is just my understanding, but again, I could be wrong. 

[wthepoo]

My understanding is that it is legal to sell GC with expirations, just that you can't actually APPLY the expirations to people living in California.  That is just my understanding, but again, I could be wrong. 

Well, Charity, either you or the California Code, it seems 

1749.5.  (a) It is unlawful for any person or entity to sell a gift
certificate to a purchaser that contains any of the following:
   (1) An expiration date.

But then again, it is not unheard of that legal provision are construed in a way you would not expect by reading them . Kiva definitely seems to share your understanding...

Best wishes,
Wolfgang.

[saabnet]

Well, Charity, either you or the California Code, it seems 

But then again, it is not unheard of that legal provision are construed in a way you would not expect by reading them . Kiva definitely seems to share your understanding...

Best wishes,
Wolfgang.

 

Wow, awesome post, Wolfgang! Thanks for doing that research!

I was going to ask about 'maintenance fees' that drain a GC down to zero by one or two bucks a year, but then I saw your previous excellent post that says:

(2) A service fee, including, but not limited to, a service fee
for dormancy, except as provided in subdivision (e).

What does it mean when it says "except as provided in subdivision?"

Thanks again, Wolfgang!!!

-Scott

[wthepoo]

What does it mean when it says "except as provided in subdivision?"

Thanks so much, Scott! It was just fun to learn a little bit about California law - especially as it is so different from German law in this aspect (and from most States' laws, too, obviously, as Charity pointed out).

Sorry for omitting the rather lengthy subdivision (e) (along with some others) in my previous post - I think it is not applicable for Kiva GCs as they invariably value higher than $5 and as the lender is not able to add to them/reload them.

Here it is:

(e) Paragraph (2) of subdivision (a) does not apply to a dormancy
fee on a gift card that meets all of the following criteria:
   (1) The remaining value of the gift card is five dollars ($5) or
less each time the fee is assessed.
   (2) The fee does not exceed one dollar ($1) per month.
   (3) There has been no activity on the gift card for 24 consecutive
months, including, but not limited to, purchases, the adding of
value, or balance inquiries.
   (4) The holder may reload or add value to the gift card.
   (5) A statement is printed on the gift card in at least 10-point
font stating the amount of the fee, how often the fee will occur,
that the fee is triggered by inactivity of the gift card, and at what
point the fee will be charged.  The statement may appear on the
front or back of the gift card, but shall appear in a location where
it is visible to any purchaser prior to the purchase thereof.

(you can find the whole provisions here: http://law.justia.com/california/codes/civ/1749.5-1749.51.html)

Best wishes, take care,
Wolfgang.

[AccountAbility]

Just for the record, Washington State also has similar prohibitions.

Dan