Kiva has now enacted changes in how currency risks are accounted for. The model was first proposed in March. Now MFIs can choose “currency risk protection” for their new loans. If this option is selected lenders will have to cover any losses that arise from a devaluation of the local currency exceeding 20% (for the part that is over the 20%).
On listed loans at Kiva there will be a new information status on the “about the Loan” Section under “Currency Exchange Loss”. The status will either be:
“Covered”: Meaning the MFI covers any losses (like it has been in the past)
“Possible”: The MFI has opted for the new rule – the lender covers currency losses above 20%
I browsed some new loan listings today – most are still offered under the “covered” rule, one example of a loan under the new “possible” rule is this Tajikistan loan. Continue reading →
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.
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.
Launched in summer French Babyloan.org has about 1750 lenders financing peer to peer micro-loans to entrepreneurs in developing countries. I signed up yesterday when I found the service (thanks to Jean Christophe Capelli for the pointer) and helped to fund 5 loans to borrowers in Benin, Cambodia and Tajikistan. One of them is Kheav Sitha who runs a small restaurant stand at her house in Phnom Penh, Cambodia. She wants to borrow 140 Euro for 6 months.
Signing up went smoothly. I liked the user interface for selecting the loans. It features summaries of the loan detail that are shown with AJAX on the right side of the screen while moving the mouse over photos of the borrowers seeking loans on the left side. The website is in French and English, but on some points the English translation seemed to be missing. Funds are transferred in via credit card payment – I have not yet found out how they can be transferred out after the loan term ends if they are not re-lend.
Like other platforms Babyloan partners with local microfinance institutions (MFIs). The MFIs screen the borrowers and handle the payout to the borrowers – in the case of Babyloan the payout has actually taken place BEFORE the loan is placed on the platform – and the MFI takes the sum to refinance the loan. Unlike at MyC4 lenders do not receive interest. While Kiva asks for voluntary donations to fund its operations, at Babyloan a fee of 1 Euro per 100 Euro funded is compulsory . (Minimum a lender can lend is 20 Euro).
This week the new social lending service Veecus.com launched. Veecus is a peer-to-peer microfinance network. It allows microentrepreneurs from all over the world to access funds to develop their projects. Lenders can select projects, invest and take part in economic development.
Microfinance institutions (MFIs) supply the loan listings and set the interest rates. Currently there are two MFIs active (VSSU and Oasis Microfinance), which list loans in India and Cameroon offering 3% interest rates.
Lenders can bid in multiples of 20 Euro. Currently uploading money is done via Paypal. Credit card payments will become available next week.
GlobeFunder India is now up and running, making us the first online lending marketplace to establish operations there. If you are a lender in India, the good news is that you will soon have a way to capitalize on one of the most vibrant and fastest growing economies in the world.
I checked the website. "Up and running" does not mean that you can register as a lender or request a loan so far. In fact borrowers will not use the website in the Globefunder India process:
While in the U.S. lenders can access borrowers directly, in India the sheer size of the lending market and the regulatory environment necessitate a slightly different approach. In partnership with global managed services provider Intellecap and some of the leading banks in India, GlobeFunder India links lenders and borrowers through a network of well-established Micro Finance Institutions (MFIs).These MFIs are rated based on their credit worthiness similar to individual borrowers on the U.S. GlobeFunder marketplace, and these MFIs in turn work with individual borrowers through their extensive on-the-ground networks.
According to Globefunder there is an unmet loan demand in India of 40 billion US$.
If you are an Indian resident and use Globefunder India, please share your experiences in the Globefunder forum of Wiseclerk.com Thank you.
Matt Flannery of Kiva.org describes in a blog post which obstacles Kiva has to overcome to make accounting not a too time consuming task for the local fireld partners (MFIs). With some MFIs having over thousand loans and slow internet connection Kiva needed to find a solution that saved time.
About a year ago, we realized that many of our Field Partners were having trouble doing so. The sheer number of page loads was making it prohibitively difficult for a Field Partner to register repayments on time, even when the actual borrower collections in the field were happening like clockwork. Thus, we introduced "exception-based" repayments. The idea, used widely in MFI accounting systems already, is to have regularly scheduled payment registered automatically in a system unless the loan officer marks an exception — an event signaling that something went wrong and the borrower did not pay the full amount. Since borrowers typically repay 95% (or so) of the time, loan officers only need to register something 5% of the time.
Kiva's first whack at exception based payments was very crude. The feature was written by me in late '06 in between blog entries and trying to keep the site up. Many of our Field Partners adopted the feature out of necessity and it saved them a lot of time. However, it was very difficult to mark an exception, so most of them never did. Thus, many of our Field Partners never mark exceptions and just repay all of their loans on time, even in the 5% case where the borrower defaults. This creates misleadingly high repayment stats on the site and we are working to correct that.
Kiva plans to have group loans. The post does not describe in detail, how group loans will work, but I am looking forward to examine this feature:
In addition to that, we are rolling out a number of features to further reduce the work required by our Field Partners and increase transparency. Group Loans will go live on the site this week. This will allow Field Partners to post up groups of up to 50 on the site as an individual loan application on the site. Group-lending is common practice in microfinance, but was not well supported by Kiva until now.
Also Kiva will change how currency exchange risks are handled:
we will be introducing local currency support for all of our Field Partners. This will allow the disbursement and repayment amounts on the site more closely mirror the actual accounting books of each MFI. This creates more transparency around financial flows. It also paves the way for a future reality where our partners will not need to bear currency risk. Hard currency lending has fallen out of favor in the microfinance world and we hope to soon be on the cutting edge of local currency lending.
Note that on MyC4.com for most loans the borrower has to take the currency exchange risk. Loans with small amounts are paid out in local currency, while large loans are paid out in Euro.