Admic - in trouble - paused

[Guest]

.

[tomviolence]

Just got a note that a loan that I funded 5/16 has been refunded.

here is the verbiage:

During routine partner monitoring at our Field Partner, Admic, Kiva became aware of difficulties Admic is having, mostly as a result of the current economic downturn. Admic is suffering from this recession due to higher client delinquencies, a strong devaluation of the Mexican peso, among other factors. Admic’s current situation is making it difficult for the institution to pay back its loans to Kiva on-time. We are working with Admic to obtain additional information on their situation so that we may develop a payment plan for Kiva lenders to be repaid.
Kiva has paused Admic on the website, meaning they can no longer raise funds on Kiva, and we have reduced their star rating to 1 star. In the coming weeks, Kiva will continue to work closely with Admic and provide additional updates as appropriate on Admic's Field Partner Page.

Admic was certainly one of my favorites, though lately I have not loaned to them. I have one outstanding, where there is no payments to the MFI for May -
July 2009       
From Entrepreneur to Field Partner May 5, 2009 375.00 MXN     
May 19, 2009 375.00 MXN   
From Field Partner to Lenders Jul 2009 $50.00 Available Jul 1

Their June payment to me is current , but does not look good ....

A look at the historical exchange rates does not look bad

 http://www.x-rates.com/d/MXN/USD/graph120.html

In fact, borrowers from febuary recieved more pesos than they need to pay back...

But a economic slow down might be the root cause ....

Hope they get back on track

[Jan & John]

I would imagine the fact that the whole country shut down over the flu epidemic might have lasting ripple effects through their entire economy in Mexico.  I do hope all the tourists are flocking back quickly.
jan

[wthepoo]

Thanks, Tom, for posting this - it is very new as I only checked Admic's status yesterday (quite by chance, unless Michael is a clairvoyant) and it said "Active".

Indeed, let's hope they get back on track.

Something about it is bothering me just a little, though... (and I know I am repeating myself, slightly, and I might also sound a bit harsh - I apologize for that):

Admic’s current situation is making it difficult for the institution to pay back its loans to Kiva on-time.

((just to clarify: this quote of course isn't by Tom but by Kiva quoted by Tom))

(At least) according to the original Kiva "P2P" model, those are not Admic's loans with Kiva, and they don't have to pay them back. If Admic cannot collect the repayments on Kiva loans because of "higher client delinquencies", they don't owe Kiva. What they do collect on principal, however, they (theoretically) can and have to forward to Kiva.*

Regarding the Kiva loans only, thus, and disregarding the currency risk for now (especially as it only affects the non-(fully-)delinquent loans and as Tom's research shows that the mentioned devaluation isn't particularly strong [less than 20%] and basically only corrects the appreciation earlier this year - so won't affect all the older Admic loans at all), the economic downturn seems to be next to irrelevant for Admic. "Next to irrelevant", of course, because they still have to pay their operating expenses which gets more difficult when the delinquent loans don't pay interest anymore. But then, not all loans are delinquent, and the interest on non-delinquent Kiva loans can be used completely towards their costs.

Obviously, Admic doesn't only have Kiva loans - but should have (according to Kiva policy) at least 70% of non-Kiva-loans. With these, Admic most probably bears the delinquency and default risks. So here delinquencies do affect their financial stability, viability, sustainability quite directly, and - if that is the case - any cash forwarded to Kiva (lenders) instead of being used at Admic's discretion exacerbates the problem.


And now for my two small problems / questions:

(1) If this (very) simplified analysis were basically correct and Admic's problems resulted mostly from their non-Kiva-loans (and in particular their funding), should Kiva really react to this situation by "developing a payment plan" with Admic (which will most likely involve a long moratorium and severe delays [with AN:K it's until 2013]) whereas I doubt that many other funders will be as "considerate"?

I am not quite sure about my own answer to this; probably it's even a cautious "yes, at least to a certain extent", because I am sure most of us are interested in keeping Admic "alive" and going. (I have to admit, though, that I only have one "paying back" Admic loan, so that I won't be very much affected by the outcome - unlike with AN:K.) But I yet do not think this is a foregone conclusion.

(2) More importantly, I fear that there might be the perception (with Admic and/or even with Kiva) that Admic should/has to repay the delinquent loans, too. Many, if not most, MFIs seem to cover for their delinquent clients, and I have posted in other threads about why I think this is completely wrong and dangerous both for the MFIs and for Kiva.

If this perception of an obligation to repay isn't there right now - and I hope it isn't -, then I hope this will also be reflected in a possible "repayment plan". With AN:K, the repayment plan (as far as I know from the AN:K Field Partner updates) failed to take that into account, and AN:K agreed to repay all loans in full over time, regardless of whether they are able to collect the repayments or not.

Just some thoughts...

Best wishes,
Wolfgang.


* It would be interesting to know whether Kiva's partner and/or loan agreements contain provisions securing the repayment to Kiva - in particular an advance assignment of principal repayment claims to Kiva. I surely think they should and hope they do.


PS: And yes, obviously the economic downturn (and the possible lack of tourism Jan mentions) is really bad for the borrowers, and I hope the situation gets better really soon.

[tomviolence]

As the saying goes, the devil is in the details ...

Obviously, one hopes the entrepreneurs get back to healthy. That solves the problem and makes everybody happy.

If after the six months past end of loan date come with no completion, they will be "defaulted". Does Admic have a policy to try and collect longer than that ? Do they write off sooner ? If Admic writes off the loans and makes no attempt to collect, it is pretty pointless to wait six months past the loan term for Kiva to decide they are defaulted.

Does anyone know if Kiva requires the MFI's to make "good faith" efforts to collect during the "delinquency" period ?

I have only one open loan with them (out of 21 total I have made with them), so I am not worried about my exposure - just wondering how this process works. Starting out I favored them as they were very reliable.

I guess the good news is Kiva acted quickly and proactively

The bad news is there are borrowers out there in trouble

The specter of currency loss makes this doubly intersting as a test, since the Peso has gone up as well as down. Can a MFI wait till the currency "recovers" to make payments ? Are losses based on when the actual payment is made or due ? Are gains over 20% shared by the lenders ? I know the plan is not in place yet, so it is speculation (no pun intended) as what would happen, but it is worthwile thinking about how this would play out.

[Canadian Here]

I'm not sure what is required of the MFI in terms of trying to collect repayments, in the present situation. I also have at least one loan with Admic which has just become "Delinquent".    Here's the link:

http://www.kiva.org/app.php?page=businesses&action=about&id=91525

Not surprising, considering the influenza breakout there in recent weeks. However, FVP, the other MFI in Mexico, seems to be doing ok, so far. (I have five loans with them and amazingly, they are all current.)

I used to really like to lend through Admic although the interest rate they charged to borrowers was quite high. Their clients were generally highly reliable.

If anyone knows anything more, I'd really appreciate hearing about KIVA's repayment collection policies under the circumstances.

Many thanks!


Lorna ("The Critters")

[DoubleR]

(2) More importantly, I fear that there might be the perception (with Admic and/or even with Kiva) that Admic should/has to repay the delinquent loans, too. Many, if not most, MFIs seem to cover for their delinquent clients, and I have posted in other threads about why I think this is completely wrong and dangerous both for the MFIs and for Kiva.

If this perception of an obligation to repay isn't there right now - and I hope it isn't -, then I hope this will also be reflected in a possible "repayment plan". With AN:K, the repayment plan (as far as I know from the AN:K Field Partner updates) failed to take that into account, and AN:K agreed to repay all loans in full over time, regardless of whether they are able to collect the repayments or not.

Wolfgang,

I agree that Admic should not have to repay loans in which the borrower was delinquent.  After all, we Kiva lenders agreed to assume that risk in the first place.

When I looked at my three outstanding Admic loans, the repayment schedules indicate all three borrowers submitted their repayments to Admic for the previous billing period -- but Admic, in turn, only submitted a partial repayment to Kiva.

http://www.kiva.org/app.php?page=businesses&action=about&id=98030
http://www.kiva.org/app.php?page=businesses&action=about&id=94176
http://www.kiva.org/app.php?page=businesses&action=about&id=94168

I have an unsettling feeling that this will be similar to FSMA.  If a payment agreement can be reached, then it may take a while for lenders to get their money back.  Hopefully, it won't be a long drawn out ordeal like I've read with the OI-Wedco repayments.

BTW, my one outstanding FSMA borrower is current on her loan and her last repayment is next month (http://www.kiva.org/app.php?page=businesses&action=about&id=71375).  It's too bad that I won't find out until next year (when FSMA ends its payment moratorium to its creditors) if I'll be able to get my money back for re-lending.

My guess is that this will be a major topic on the next community call.

Regards,
Ronan

[michael]

Thanks, Tom, for posting this - it is very new as I only checked Admic's status yesterday (quite by chance, unless Michael is a clairvoyant) and it said "Active".

I am clairvoyant enough to predict that the rapidly approaching train will hit me if I do not get off the tracks.  Unfortunately, I seem to have problems recognizing the tracks for what they are before I park on them!

[cjp1973]

I am sad to see this loan refunded today, Pet Groomer.   
http://www.kiva.org/app.php?page=businesses&action=comment&id=111957&ent=145765&_te=j

[NerdBird]

Update:

Status update on Admic from Kiva Staff on July 22, 2009:

In early July, Kiva went on-site to Admic’s headquarters. During our visit, we were able to understand in more depth the challenges Admic is facing. In late 2008, Admic's board uncovered an operational fraud at the management level that had detrimental effects on Admic’s portfolio quality. The management was removed from the organization and a new management has now taken over and improved the flawed internal controls that existed earlier. Admic is working hard to restore the health of its portfolio and continue to grow. However, given the severity of fraud and the poor portfolio quality, Admic is unable to pay back it’s funders, including Kiva, at this time and continue operating to be able get back on its feet. Therefore, Kiva has agreed to restructure Admic’s debt, allowing Admic to pay the $49,889 owed to Kiva lenders in equal installments over a 24 month period. As this money is received from Admic, Kiva lenders will be paid back on a proportional basis.

http://www.kiva.org/about/aboutPartner?id=16

A good solution, I think.

[hejustlaughs]

This just pushed my deliquent loans up to 12.95%... o_O