Defaulted Loans

This week we defaulted our first Kiva Zip loans.

We classify defaulted loans as those for which we have not received any repayments in the last 180 days. While it is still technically possible to recover funds on these loans, the chances are very low. If any funds are recovered, they will be passed on to the lenders who lent money to the specific loan.

We will be defaulting 77 loans in total this week – 62 in Kenya, out of a total of 1,673 loans disbursed to-date (3.7%) and 15 in the U.S., out of a total of 486 disbursed to-date (3.1%).

The conversations tab on these loans will be closed, and the loans will be displayed as “Defaulted” to lenders on these loans. To Kiva Zip users that are not associated with these loans, the loan will be marked as “Ended”. These ‘defaulted’ borrowers will never again be able to access 0% interest capital via the Kiva Zip platform.

While we hope that lenders will appreciate the added clarity that this move provides, it is obviously deeply disappointing to us that some Kiva Zip borrowers choose not to honor the commitments they made to repay their lenders.

To this point, some lenders have recently been asking very valid questions of our customer service team about defaulting and delinquent loans on Kiva Zip. For example, lenders who are used to near-100% repayment rates on Kiva.org are voicing concerns that a much higher proportion of their Kiva Zip loans are in jeopardy of non-repayment.

We acknowledge these concerns, and we are working to increase Kiva Zip’s repayment rate, especially in the United States, where it is currently at 87.1% – both in terms of borrower selection, and repayment management.

Having said that, we also want to very clearly communicate that Kiva Zip should be seen as more risky than the regular Kiva.org platform, for two principal reasons:

1. Kiva Zip remains a very young and pilot platform
Whereas most of Kiva’s MFI partners have many years of experience in underwriting and risk management, our 8-person team is grappling with these problems, and learning these lessons for the first time. We’ve made some great progress over the last two years – for example, instituting borrower credit ladders, trustee portfolio limits, requiring some U.S. borrowers to invite a number of their network to lend to them, etc. But we still have many lessons to learn, and risks to identify and mitigate.

2. Our model is based on technology, rather than a boots-on-the-ground presence
We believe that this model has great potential benefits. For example, with respect to scale, the average U.S. MFI disbursed 24 loansper loan officer in 2011. The closest corresponding comparison for Kiva Zip was around 200. This technology-led approach is also how we can extend loans to entrepreneurs at 0% interest, and connect our borrowers with our community of lenders. But one of the long-term constraints of a technology-based model might be that, even once we have many more years of individual-borrower-level risk management experience under our belts, Kiva Zip repayment rates cannot match those of Kiva.org’s MFI field partners.

We have tried to communicate Kiva Zip’s increased level of risk throughout the lender experience – for example, we display our repayment rate, for both the U.S. and Kenya, prominently on our homepage. We hope that, even fully understanding these risks, Kiva Zip lenders continue to increase their participation in this pilot program, because they genuinely value the closer connections to entrepreneurs that we hope our technology-based approach can provide.

We have tried to communicate Kiva Zip’s increased level of risk throughout the lender experience – for example, we display our repayment rate, for both the U.S. and Kenya, prominently on our homepage. We hope that, even fully understanding these risks, Kiva Zip lenders continue to increase their participation in this pilot program, because they genuinely value the closer connections to entrepreneurs that we hope our technology-based approach can provide.

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Posted by Jonny Price, Senior Director, KIva Zip

Feb 6, 2014

Jonny first came to Kiva in 2009 as a volunteer on a 5-month externship from his management consulting firm Oliver Wyman. After 6 years at Oliver Wyman, first in London and then in San Francisco, he joined Kiva full-time in September 2011, to lead the Kiva Zip pilot project. Jonny is married to Ali, who he met at Kiva, and occasionally you may glimpse them cycling their tandem to work. He graduated with a BA in History from the University of Cambridge, where he represented his college at 14 sports (although 3 of these were table football, pool and chess).

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