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.