Concerns Over Repayment of Loans

[Guest]

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[KEDS]

I am relatively new to Kiva (a month or so) but wondered if anyone in this forum could tell me why several of Kiva's Field Partners have a large number of loans behind in payment: Specifically  the Senegal Economic Micro Finance Fund (SEM), the Ebony Foundation of Kenya (EB-F) and the Women's Initiative to Eradicate Poverty (WIEC) in Uganda.

All three of these partners have a large percentage of borrowers who are more than one month behind in repayment. I was wondering if any of the Kiva Friends had heard why this is the case

Women's Initiative to Eradicate Poverty:

Total Loans Raised: $255,400
Total Loans Disbursed: $255,400
Amount Paidback So Far: $39,892
Amount +1 Month Overdue: $215,173
Amount Defaulted: $0
   
Total Number Of Businesses: 315
Active Businesses: 304
Businesses Behind in Payment: 297
Defaulted Businesses: 0
Paidback Businesses: 5

Senegal Ecovillage Micro Finance Fund

Total Loans Raised: $73,500
Total Loans Disbursed: $72,700
Amount Paidback So Far: $19,911
Amount +1 Month Overdue: $41,252
Amount Defaulted: $0
   
Total Number Of Businesses: 78
Active Businesses: 71
Businesses Behind in Payment: 57
Defaulted Businesses: 0
Paidback Businesses: 3

Ebony Foundation of Kenya

Total Loans Raised: $331,225
Total Loans Disbursed: $307,225
Amount Paidback So Far: $26,155
Amount +1 Month Overdue: $58,705
Amount Defaulted: $0
   
Total Number Of Businesses: 344
Active Businesses: 287
Businesses Behind in Payment: 52
Defaulted Businesses: 0
Paidback Businesses: 0

Does anybody know the story behind these late repayments?

Thanks.

KEDS

[chris]

Concern over WITEP has been raised before; see this post for a good rundown on their situation.

As for the rest.... I might assume that they're also having similar problems to WITEP, such as subpar business processes in collection and record keeping.  I don't know for sure.  Perhaps you could contact SEM and EB-F directly?  SEM at least has a website:

http://www.sem-fund.org/team.php?val=6

[cpbailey]

I agree that some partners have issues.  However, I think Kiva needs to start the new partners more slowly.  It doesn't make sense to have $200,000 in loans by month five when some loans are suddenly 30 days late.  This means that in 150 days some loans are now 60 days since a payment has been made.  Given that Day one is when they are approved...

I believe that partners with subpar performance should have delayed access to new funds (perhaps lower priority in time than those that are better ranked).

Some cut offs could be :

*more than 5% of loans outstanding are not CURRENT
*previous loans with funds distributed to partner are not designated active yet; hey, if one waits two months to mark distributed, that gives 60 extra days before it is late!
*the balance of loans paid timely (excluding paid off loans) is greater than amount of loans in arrears; for new partners a few bad loans really hit hard!


Additionally, I believe that newer partners should have tighter controls such as:

* lower loan amounts relative to GDP per capita
* test of a few loans the first month to ensure process is smooth
* each month a gradual increase in the number of loans, based on performance

It almost felt that some organizations mentioned above paid a couple months until a huge amount of loans were outstanding and then ALL loans stopped.  The payment I did receive was not going to pay off the loan if it continued at that rate.

Finally, I think that if there are unusual payment terms, it would be good to state them on the loan.  Ecuador's rice farmers do a good job explaining this--they pay 1/2 the sixth month as that is when the crop's income becomes available.  The first five months pay 10%. 

I have seen that Kiva is looking to hire someone to do risk management of loans, and maybe this would help.

Colette

[jakeone]

Good points here.  It would appear that tighter control is needed and that is probably something that only Kiva can initiate.  The temptation is to give all this money to these worthy causes because it's easy without adequate incentive to ensure the money is repaid promptly.  It is quite worrying to see the figures since I'm sure many lenders, myself included, are waiting for the repayment of funds in order to reinvest with other people in need.

Without seeing how the partners operate, I'm only left to speculate as to their methods and the systems they have in place.  However, I recently read Muhammad Yunus's "Banker to the Poor" - and I think the policy of the Grameen Bank to lend to a few members of a small group - and to only lend to the remaining members of the group once the few have paid back their loans, is a very clever one. It gives a sense of collective responsibility and that generates momentum.

I hope Kiva will begin working with their partners to address this.

[RichardF]

If you want to know more about a field partner before you decide to lend to an entrepreneur, many of them have a MIX Market Profile.  I could only find one of the three field partners listed above.

EB-F  (Ebony Foundation)

[Ramón]

As Kendall noticed in his blog, I think we should ask Kiva to add the "+120 days late" amounts for the MFIs as well... Any amount that is over 120 days late, has a good chance to become a default.

--Ramón

[Julia]

As Kendall noticed in his blog, 
 

Speaking of his blog, did you see the new pictures of the loan offices in Honduras that he just posted.
http://microfinancetravels.typepad.com/microfinance_travels/

Its so cool to see the administrative side.

[cpbailey]

It seems that only Africa has major unresolved issues with loans.  It makes Azerbaijan a really good option!  Of the first loans I made, three were to Africa.  None of them are on target to pay off in time, if at all.  If I waited for these to prove themselves, I would never have made the other twelve loans.  However, I have personally decided to wait on Africa until the situation resolves itself more positively.  Some partners in Africa appear to fall into the moral risk that  was on one of the blogs...

[Fred]

Could you explain what you are referring to by "The Moral Risk?"

I have some loans in Uganda and Kenya that are looking like they won't be repaid. On the other hand, I've had execellent repayments from Ghana, Tanzania and Togo.

[cpbailey]

Oooops, my bad.  It was moral hazard.  Here is the link (paragraph that follows is from the link):

http://microfinancetravels.typepad.com/microfinance_travels/2007/04/prisma_financia.html

The usual reason for non-payment are:  1)  loss of job; 2) illness; 3) death (we have insurance to cover this); 4) reduced economic circumstances; and 5) MORAL HAZARD.  I love the sound of this last category.  It just means that the person and/or co-signers just don't want to pay.  Unfortunately, we find that the majority of our delinquencies happen to fall in the moral hazard category!!!

When I originally made loans, there was less information about the organizations.  Some of them were fairly new to KIVA.  I must have gotten in when many of the organizations were about to choke; three of four have had issues.   Something isn't working in the approval process, and Kiva staff is working on this.  Until it changes, I will be reinvesting where I find success (or where there is a longer period of repayment history).