Concerns Over Repayment of Loans

[Guest]

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[JohnAtKiva]

Hello Amy. :-)

A number of ACCION USA loans were recently defaulted, so I'm in the process of requesting more information on the situation from the Regional Director for the Americas.  I don't know if we'll be able to easily get more info on your specific borrower - loans are administered by our partners, and so it's really tough to get that kind of info from inside of Kiva.  But hopefully we can get a general update on what's driven the recent increase in defaults...

- John

[Amy-in-PHX]

Hello Amy. :-)

A number of ACCION USA loans were recently defaulted, so I'm in the process of requesting more information on the situation from the Regional Director for the Americas.  I don't know if we'll be able to easily get more info on your specific borrower - loans are administered by our partners, and so it's really tough to get that kind of info from inside of Kiva.  But hopefully we can get a general update on what's driven the recent increase in defaults...

- John

OK, thanks a lot, John -- it's good to know Kiva is taking some action.  I'll try calling ACCION directly about my specific borrower.  Since they said they were engaged in working out a new payment schedule, I feel like there ought to BE a new payment schedule by now, three months later.  And the spring thaw is coming soon - this borrower is in the roofing business, so her cash flow should be going up.  Good luck with your efforts to get info.   

[Amy-in-PHX]

Here is something that lenders may want to know, about borrowers who take out successive loans from Kiva.  On February 13, 2012, a loan was posted on Kiva by FRAC, for a group which has since been anonymized, so I will simply call them the Group.  The loan was number 390195.  The loan description had within it a link to what it said was "the Group's previous loan."  I clicked the link, and was sent to loan number 318442, which indeed was a previous loan to the Group and showed that "The loan was 100% repaid," with the final payment having been credited to lenders in December 2011.  So I put my $25 into 390195.

Two weeks later, on March 1st, my loan was anonymized.  I wrote contactus about what I thought must have been an error.  I got a response from Laura in Kiva CS, with the news that the Group also had taken out loan number 354605.  That loan had been posted on Kiva November 7, 2011, and had gone delinquent when the Group paid less than the full amount due in January 2012 -- which, because of Kiva timing meant the loan got declared "delinquent" on March 1, 2012.

Here are my questions: 
1.  Do you think it is kosher for a FP and Kiva to post a loan for a borrower, when it is already known that the borrower is delinquent on a previous loan, without telling potential lenders about that delinquency?  (The effect of this is, the money I put in will be used to pay off the other set of lenders, when loan 354605 gets paid off late.)

2.  Do you think it is kosher to post a loan with a link to a "previous" loan, which is not the most recent previous loan to that borrower?

3.  Do you think it makes any sense at all to make any loans between the 15th of a month and the 1st of the next month, in light of the facts summarized above?

4.  Do you think the microfinance "market" may be getting overheated in Mexico and other places, like it did in India, with borrowers becoming over-indebted?


(I am a bit discouraged, as you can see.)

[FoxyOxy]

Here are my questions:
1.  Do you think it is kosher for a FP and Kiva to post a loan for a borrower, when it is already known that the borrower is delinquent on a previous loan, without telling potential lenders about that delinquency?  (The effect of this is, the money I put in will be used to pay off the other set of lenders, when loan 354605 gets paid off late.)

I'm not certain that the latest loan was posted knowing that the borrower was delinquent on a previous loan Amy.  Looking at the three different loans for this group, it looks to me as if payment for the middle loan (the one you didn't know about when you made your loan) was made at the end of January this year but the disbursement for the latest loan (the one you've loaned to) is said to have been made mid January.

2.  Do you think it is kosher to post a loan with a link to a "previous" loan, which is not the most recent previous loan to that borrower?

No, absolutely not.   That clearly needs to be looked into.

[David2051]

Thank you for bringing these issues to light, Amy.

I vaguely recall something similar to this in the past, so it is not a totally unique situation, though I'm afraid I can't recall the specifics ...

[Amy-in-PHX]

I'm not certain that the latest loan was posted knowing that the borrower was delinquent on a previous loan Amy.  Looking at the three different loans for this group, it looks to me as if payment for the middle loan (the one you didn't know about when you made your loan) was made at the end of January this year but the disbursement for the latest loan (the one you've loaned to) is said to have been made mid January.

I see what you are saying about the disbursement date, Linda.  But the loan did not appear on Kiva until February 13th.  That's what I was referring to, though if the translation & review process is long enough, I suppose it is possible that the FP wrote up the loan and put it into the queue before the last (and short) payment was made on the previous loan, around January 31.  But I assume there is some way for them to get a loan back out of the queue, before it goes live on the Kiva site, if they learn facts that suggest they should do that.

If the loan was disbursed in mid-January, and the FP found out on Jan 31 that the borrower was unable to make their final payment on the previous loan, then I think the FP should have refrained from passing that loan along to me and others, through Kiva, on Feb 13.

[hjs]

I see what you are saying about the disbursement date, Linda.  But the loan did not appear on Kiva until February 13th.  That's what I was referring to, though if the translation & review process is long enough, I suppose it is possible that the FP wrote up the loan and put it into the queue before the last (and short) payment was made on the previous loan, around January 31.  But I assume there is some way for them to get a loan back out of the queue, before it goes live on the Kiva site, if they learn facts that suggest they should do that.

If the loan was disbursed in mid-January, and the FP found out on Jan 31 that the borrower was unable to make their final payment on the previous loan, then I think the FP should have refrained from passing that loan along to me and others, through Kiva, on Feb 13.

As loan number three (390195) was predisbursed on January 11, you'd think that the borrowers concerned would have had plenty of money to repay their last payment on loan number 2 (354605), which was not due until January 25.

This makes me think that possibly the makeup of the group has altered?  The borrowers who were delinquent in January on the previous loan may not be in this last group for the current loan?

edited to say that btw, I'm a lender on their current loan too - and also wondered why it had been anonymised.

[hjs]

1.  Do you think it is kosher for a FP and Kiva to post a loan for a borrower, when it is already known that the borrower is delinquent on a previous loan, without telling potential lenders about that delinquency?  (The effect of this is, the money I put in will be used to pay off the other set of lenders, when loan 354605 gets paid off late.)

2.  Do you think it is kosher to post a loan with a link to a "previous" loan, which is not the most recent previous loan to that borrower?

Unfortunately this is not a unique situation.  I recently had a very drawn out exchange with contactus concerning a borrower in El Salvador receiving loans from PADECOMSM.  The three loan numbers in question are:
253529
304447
377659

You'll see there are a number of issues:

1.  On each of the previous loans, the loans were repaid early by taking out another (larger) loan.

2.  On each of these occasions, the borrower was delinquent at the time.  It's obvious that he was using debt to repay debt, and the FP was allowing this.

3.  On the loan page for loan #3, the link to the "previous loan details" was to loan #1 (fully repaid), not to loan #2 (delinquent at the time).

4.  The photo on loan #3 is an old one (the same as on loan #1), not the updated one from loan #2.  As an aside, it looks like he was on steroid treatment in the early pic, and you could almost think it was a different person...  Except it isn't for other obvious reasons.

My exchange with Kiva contactus was extremely frustrating.  The initial reply was encouraging and said "It is not acceptable for borrowers to ask for additional loans if they are delinquent in an existing loan. It is also unacceptable for our Field Partners to permit this activity."

Then eventually after lots of back and forth between me and them, and them and the FP, they did an about face and basically told me to go away.  They said:

1.  That the FP (PADECOMSM) often gives borrowers new loans when they are only half way though repaying the first loan.
". . . they work with their borrowers to establish and build their credit history. This is an important piece of PADECOMSM's mission in contributing to the improvement of the borrower's quality of life and access to financial services. To achieve this, the borrower is able to apply for a second loan after the first loan is 50% paid off." 
And also:
"Reynaldo's loan amount grew from $400.00 to $500.00 and finally to $700.00. Although it appears Reynaldo did use one loan to pay off another, we trust that PADECOMSM evaluated his financial situation closely and is working to help him build his credit history without experiencing over-indebtedness."

2.  "The borrower was delinquent when taking out the third loan. PADECOMSM was aware of that, but the loan officer felt that a new loan would still be appropriate given the borrower's particular situation and business plan. Sometimes more capital is exactly what the borrower needs to be able to further invest in a business and make a greater profit. Further, borrowers who are less than 30 days delinquent are entitled to get another loan for a larger amount, so this fits within PADECOMSM's policies, which Kiva is aware of. PADECOMSM is one of our strongest partners in Central America, both socially, financially and with respect to their Kiva operations."

3.  "The situation of the initial loan picture matching the third loan is not uncommon. Re-listing is built to connect the new loan to a loan that is "ended" in the system, if there are multiple previous loans in Kiva. In this case, one loan was "ended" (the first one) and while the second one had been paid off, because it had not yet gone through the Kiva billing cycle, it was still marked as "paying back." Therefore the system behaved as expected and attached this new loan to the first one."

I find all of this totally unacceptable, but eventually gave up as further discussion would get me nowhere, and just decided not to loan through PADECOMSM ever again.

Kiva appears to accept what the Field Partners say and take it at face value.  Then they tip their hat and say 'thank you, sir'.      Seems to me they are afraid of 'treading on toes'.  It's the same situation with MFI delinquencies and net billing.  We've been over it many times before, I know.  I'm sure some MFIs are delinquent on Kiva debts because they know they can get away with it for a while.

Sorry it's such a long post.   

[hjs]

As an addendum to the above, I'll add:

1.  Kiva does not have a written policy with respect to Field Partners advancing further loans to borrowers who are delinquent at the time.

2.  I also brought up the issue of full disclosure and transparency etc in not telling the lenders about the previous delinquency.  In my opinion it's OK for Field Partners to make the decision regarding the risk of lending to a delinquent client when they are lending their own money, but in this case the Kiva lenders are assuming the risk, and they were not given all the details.

I was fobbed off on both accounts. 

Firstly on point one by multiple mentions of "Kiva's appropriation of the Smart Campaign’s Client Protection Principles (http://www.smartcampaign.org/about-the-campaign/campaign-mission-a-goals), an industry-wide initiative to establish a baseline for responsible microfinance is attestation to our stance and concern on issues of over-indebtedness. To post loans on Kiva, all Field Partners must endorse the campaign (or provide justification for why their standards effectively meet the same requirements)."

Secondly on point two by the old one: "All loans on Kiva's website have a degree of risk. As you already know, lending to the working poor through Kiva involves risk of principal loss and Kiva does not guarantee repayment nor do we offer a financial return on your loan. Reynaldo's loan and the refinancing of his lending is one example of this risk."  Which is not the point really, as I was talking about having all the relevant information in order to make a decision to assume that risk...

[FoxyOxy]

Kiva appears to accept what the Field Partners say and take it at face value.  Then they tip their hat and say 'thank you, sir'.      Seems to me they are afraid of 'treading on toes'.  It's the same situation with MFI delinquencies and net billing.  We've been over it many times before, I know.  I'm sure some MFIs are delinquent on Kiva debts because they know they can get away with it for a while.

Do you know what worries me most about that?  Reading the article that Amy linked to a couple of days ago on the LLL thread (talking about the discussions between Kiva staff and representatives of LLL and Milepoint).  I read:
"Another aspect Kiva spoke of was that the current vetting process for new Field Partners is very detailed and very long, involving all sorts of checks, interviews, and so on, leading to an 80-page report to be analysed before accepting a new field partner. At any given time there are 2-4 dozen new field partners in the process of being approved. Kiva would like to make the approval system more efficient, and perhaps introduce a system of preliminary approval that would allow new Field Partners to begin posting loans in small numbers earlier in the process."

What concerns me is that Kiva presumably trust their long-established FPs such as PADECOMSM precisely because they did research them so thoroughly before they allowed them to start fundraising on Kiva.  But what about the new FPs that haven't been through quite such a detailed vetting process?  When they throw questions at them and they go 'yes, yes, that's completely normal. Trust us!' will they trust them and take their word for things quite so easily?  Will they be afraid to question them or 'tread on their toes'?  You would have to hope not.