Kiva proposes that lenders share part of the currency risk

In today’s conference call, Kiva explained plans to reduce currency risks for the local MFIs by having lenders absorb losses, if currency depreciation is higher then a threshold x% (with x% yet to be defined).

Currently currency risk for loans issued in local currency is fully taken by local MFIs of Kiva. In future MFIs can select for new loans, if they want to keep it that way, or if a new stop-loss rule shall apply.

The details are explained in this presentation:

Slide 14 shows how many of the loans would be affected, if the stop loss rule would have applied in 2008/ in the last 5 years.

One question in the Q&A of the conference call was, why currency risk came up just now after years of operation of Kiva and the answer was that the problem is now more pressing with the recent appreciation of the US dollar.

Another question was, if a possible solution would be that Kiva just would supply the hard currency as collateral to a local bank in the country which would then issue the loan in local currency. The answer was that this would be impractical, because in case the local currency appreciates then the bank would demand a raise in the collateral, which could not be handled as neither Kiva has the funds nor could the lenders on the loans affected be expected to make an additional payment for this.

It will be interesting to see, if some MFIs stick to the current mode and upload loans with no currency risk sharing to the platform.

On MYC4 lenders take currency risk in full but earn interest.

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5 thoughts on “Kiva proposes that lenders share part of the currency risk

  1. Hahahahahaha… I give them a year before they’re bust! is going to be the King with their 6% interest offerings. Why the heck would anyone want to waste their money at Kiva when you can have the SAME impact at MicroPlace and earn some modest cash?! Lame…

  2. Hi

    Very interesting debate as to currency loss and how and who to take on. We had same consideration last year and found that the borrower needs a local currency loan so the lender must hold the currency risk.

    Would be interesting to know what the thinking is when there is a currency gain (+) from the loan and who then to benefit?


  3. In response to F’s comment:

    I don’t think you realize the appeal of Kiva. Kiva lenders do not visit the site to make a return – they are there to help people. Actually, many Kiva lenders are turned off by Microplace because there is no direct P2P connection. With Microplace, you’re funding an MFI and not helping a specific individual.

    I sincerely doubt Kiva will go bust anytime soon. The lender base is constantly growing and the demand has far outpaced the number of loans available for funding. Kiva does not take a cut from any its posted loans, so it relies on donations from corporations, foundations, and individuals in order to pay for its overhead, system maintenance, and due diligence activities. The fact that the lending activity on Kiva has increased while it continues to operate on a shoestring budget is a testament to its popularity.

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