Services (microfinance)

Topics on the Kiva Conference Call

wiseclerk 1 Comment

Today was another conference call by Kiva with its lenders.

Kiva informed about the situation of Fundación San Miguel Arcángel (FSMA), a field partner in the Dominican Republic, who is unable to repay lenders and will soon cease operations.

On the question, why Kiva does provide fewer translations, Kiva explained that they have a hard time to find enough volunteers to translate all texts. Another factor is the limited availability of engineering time to improve features related to translation.

Kiva decided in August to not provide translations to English for some loans. In this “non-translation experiment” Kiva will try to measure the effect of omitting the translation on the funding rate and speed.

In the discussion on the currency risk Kiva asked for feedback from the lenders on which information should be presented. One suggestion was to make the information that a currency risk may occur more eye-catching in the loan selection. Consensus was that currency risk information is more important for “power” lenders than occasional, infrequent lenders.

One third of the time of the engineers is spend on MFI and volunteer related issues. One third is spent on lender related (interface, features) issues. One third is spend on maintenance, bug-fixing, system issues.

Conversion rate: Of 100 people visiting the website, 8 make a loan.
40 percent of the people who put something (loans) in the basket, do not complete the check-out.

MYC4 to Change Structure of Borrower’s Fees

wiseclerk 1 Comment

MYC4 will change its fee structure for borrowers for new loans starting in July. One main point of criticism had been that MYC4 by charging origination fees profited from any loan, regardless whether it was paid back or defaulted.

MYC4 has reacted. In future there will be no origination fees and only fees on the interest of the repayments. This uis a step in the right direction as the interests of MYC4 are now more aligned with the interests of the lenders. To make or increase profit MYC4 has to avoid and decrease defaults.

Quote of the announcement:

We have made a strategic decision with regards to the way MYC4 earns money by removing “closing fees” and only charging “interest fees” on the loans, when they are being repaid. That means that we put ourselves on the same side as the Investors on MYC4 only earning money when the Borrowers repay their loans.

With this change we want to signal that we believe strongly in the viability of the Businesses, and to align MYC4 earning with the earning of the investors and similar to investors be affected by any defaults and currency fluctuation.

Concretely, MYC4 will change the current income structure, where the Borrower is charged a flat fee of 2% of the loan amount, payable only when the loan is actually disbursed, and an additional fee of 2% (interest spread) when the loan is repaid on the basis of a declining balance. This corresponds to a total fee to MYC4 of approx. 3 percent of the total loan amount.

Instead, we will charge 6% interest commission. Considering a 12-month loan time, this 6% charge matches the 2% on initial balance plus the 2% on outstanding balance fees. The change will in most cases be neutral for the borrower.

In the same line, MYC4 encourages our Partners to shift their income from closing fees to repayment (interest) fees to show their belief in the quality of their portfolio towards investors. However, our Partners are not obligated to change their income structure, so it is up to each of them if and when they will change due to for instance their cash-flow situation.

Kiva Enacts Currency Risk Changes

wiseclerk

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 →