I joined the call about 5 minutes late but got a few of these early notes from others. This is stream-of-consciousness note-taking at its best.
Kiva Community Conference Call, Wed. 18 Mar 2009TIM: updates on troubled partnersMIFEX: May not be able do get everything done pro bona. Kiva has funds it can allocate for lawyer. More next month.
ANK: 31 loans never disbursed dating back to Nov. 2007. Working to reschedule their debt & pay back lenders, more next month.
PEMCI: all loans have defaulted, notices were sent to lenders, only 1 or 2 staff left trying collect the outstanding loans but it doesn't look good, more next month.
FSMA: Internal fraud was perpetrated on the MFI and not Kiva; Michellle reports they lost about 2/3 of total portfolio and are trying to recover as much as they can, their new exec director is thinking about rescheduling of debt and has proposed a moratorium on payments until FSMA can right itself, Kiva has not yet reacted to that, update next month.
Help Africa (Togo): As reported last month, they've been having some problems, and lost some of their external funding and staff, they're down to one person volunteering to keep the office open, there are no funds flowing back to Kiva, the executive director is temporarily in the USA, they need to reconstitute their board of directors to try to re-establish operations, no funds returning for at least 6 months and possibly lengthy delays after that.
Q: Any thoughts about adding Cameroon or Haiti?
A: Already have a partner in Cameroon, working to open Haiti.
Q: Any website or other org that extend microcredit into US?
A: Working w/ 2 MFIs for later this year.
Currency Risk(Tim?) discussed the issue using slides found at
http://kivanews.blogspot.com/2009/03/currency-risk-and-community-conference.html3 basic risks for lenders:
(1) borrower default risk
(2) MFI has a problem
(3) country risk – what happens if country nationalizes assets or blocks repayments
Task: Figure out an equitable way to share risk between Kiva partners and lenders
There is a real risk to partners: Kiva lends in US dollars (USD), borrowers get local currency
When MFI gets "1000 LCU" (Local Currency Units) back on the repayment date, it may be worth less (e.g. $700)
Currently, MFIs have to find the remainder to repay to Kiva lenders (resulting in a currency loss)
What could an MFI partner do in this case?
(1) pass risk to borrowers – resulting in much higher interest expense to borrowers who only have access to local currency
(2) hedge currency risk – this is either expensive or not available in many countries
(3) partners absorb loss – Kiva is less attractive to MFIs
Proposal:Kiva lenders could absorb some currency risk, say X% / partners would never have exchange losses higher than X%
e.g. X = 20%
max devaluation 1 LCU = .8 USD, min value for LCU = 1.25 (max amount of currency MFI would have to come up with to pay back Kiva lenders)
Example of what's happening in this case (from the slide set):
This slide shows the number of Kiva lenders having various loss profiles as threshold changes
This slide shows which countries showed significant decline
42 countries would have a possibility of loss in 2008, max loss was in Ukraine (24%)
(but this is a gross estimate, the calculations were run as if the $ were lumped out on 1/1 and repaid in a lump at end loan term, so not realistic)
Premal then discussed some possible mock-ups for the site:The key is to find the right balance between addressing this real issue and keeping the site simple and usable by many sorts of folks.
Suggestion:
Add a new “About the Country” box, w/ info about income, currency, and currency risk (and whether this would be fully covered by field partner, or shared with lenders who may stand to lose some portion of their investment in a downturn)
Kiva needs help suggesting how to write text for “Currency risk refers to…”
- real-time graphs?
- How much would you have lost if you lent 1, 3, of 5 yrs ago?
A THREAD FOR DISCUSSION ON THIS AND RELATED TOPICS NOW EXISTS:
Currency Risk discussion threadThe devaluation risk would be non-existent if disbursed in USD
On repayment emails, a new link would be added to
On a related topic, lenders have asked to now which loans are behind payment or delinquent.
(new tables showing how one's loans break down would be added to a new My Portfolio view)
QUESTIONS ON THIS TOPIC:Q: on stop loss, is it country specific?
A: The 20% in the slides is an example. It's absolutely logical to do it country by country/region, but not until 2010/2011.
Q: What about MFIs not translating European currencies into $ before moving it, for European lenders?
A: The Kiva of the future would allow lenders to use their local currency and possibly target it to MFIs where it would not have to be converted.
Q: Why not share gains on stop-loss?
A: For simplicity of engineering, and simplicity of use for MFI partners
An MFI might make $ on first few payments, then currency shock MFI ended up having losses. Offsetting with previous gains would require MFI to claw into liquidity that they may not have set aside. MFIs: work on keeping it simple
Q: Why have lenders assume catastrophic risk rather than the other way (up to some point, MFIs assume the rest)
A: Kiva wants to see lenders get repaid – most lenders would end up having a loss because of routine currency fluctuations. If MFI is only protected up to X but not beyond X, if there is a maxi devaluation and currency crashes, chance are they couldn’t repay lenders, period, so first lost taken by lenders = lose in both small and maxi devaluations. The way proposed, most lenders end up not having a loss.
SUGGESTION: Make risk sharing more obvious on make a loan page.
SUGGESTION: Lenders should be able to sort/select based on currency risk sharing.
Q: Why hasn't this been a problem until now?
A: For Kiva's first 3 yrs, $ generally devaluating, most of portfolio was not disadvantaged in terms of lending in local currencies, changed in 2008
Ideally MFIs would only borrow in local currency not hard currency, but they would need to cover all cost of funding and would need to find more collateral for that, most MFIs are limiting the amount of hard currency they’re borrowing.
Q: What about exploring using dollars as collateral for borrowing from local banks in local currency?
A: There’s always a currency mismatch, if local currency becomes worth more, local bank wants more collateral.
This might restrict which countries Kiva can operate in.
The currency risk sharing as proposed would only be for new loans not existing loans.Q; Can lender opt into currency risk sharing?
A: As stated earlier, this would be loan-specific, so a lender's choice would be based on the MFI's plans for each specific loan.
OTHER ITEMS:Q: Any plans for an MFI in Venezuela?
A: Not part of the plan for this year.
