Why We Should Debate Loan Expiration
30 October 2009 at 09:55 Suzy Marinkovich 30 comments
By Suzy Marinkovich, KF 8/9
As you may have seen, over the past couple of months Kiva has seen its first loans expire on the site. Currently, I am in my eighth week of working with a brand-new Kiva partner, CIDRE, an MFI specializing in agriculture and livestock loans in Bolivia. I mention this because I’ve noticed a significant portion of the loans that have expired or are close to expiration are from MFIs in Bolivia. I realize my opinion is skewed by having spent only a handful of days at Kiva headquarters followed by 5 months at two Kiva partners in South America. As a result, I don’t have really have a great vision from the top – I don’t understand all the organizational elements in place to keep Kiva sustainably rolling. I am just going to call it like I see it now, sun-drained from a long day spent on grueling rural roads, visiting incredibly inspiring Kiva borrowers and successful social projects CIDRE has had a hand in.
My understanding of the premise behind loan expiration is that it allows for Kiva to be more of a marketplace – where instead of making decisions on the end of Kiva, they are made on the end of the MFI and the funding choice is up to the lenders. Thus, the website itself is designed to be like an Ebay for microloans, an intermediary between funders and the funded.
Here is my reasoning for why I personally believe the expiration of loans on Kiva could be detrimental:
1(a). To make an analogy with the child-sponsorship model (please bear with me as it’s stretch): imagine a marketplace for sponsoring children’s school loans, with the exact same design as Kiva. At this hypothetical site, lenders like us could lend to cover school fees for children that would pay for middle or high school (in many countries, attending said schools requires paying school fees). Children’s photos and biographies are thus posted to this hypothetical site, and we treat it like a marketplace. Then, as the site expands and more loans are posted, certain kids aren’t being funded – their loans expire on this site. Then, you pull up the pages of all the children whose loans expired, and they are all kids who aren’t cute or aren’t fitting our notion of how a needy child should look. As you can see, this is unfairly discriminant.
1(b). The positive idea behind Kiva-as-a-marketplace is to support the notion that only the most eligible borrowers get funded. But, I think if we pay extra close attention to the “loans expiring soon” page, we may begin to see patterns. For example, as I write this, the two loans closest to expiration are men and from Lebanon. These loans are followed by several from Bolivia, which are in turn followed by a few from Peru (which could also be due to Kiva having more MFI partners in this area). However, I don’t see any fruit sellers or women from Africa close to expiration, for example. Now is a good time to reflect on Kiva’s core mission: “connecting people for the sake of alleviating poverty.” Does this show us that “lending for the sake of alleviating poverty” is actually, in practice, proving itself to look like “lending to certain people that fit our notion of poverty for the sake of alleviating their poverty”? And is this fair?
We can all agree that at times throughout history, capitalism has led to discrimination against certain classes and groups of people. Minority rights cannot be left up to the voting majority; the constitution and the courts must protect them. The clause “all men are created equal” was the premise most effectively used in the fight for civil rights, as it pointed out a gaping contradiction between the social reality and the constitution itself. But ultimately, court cases like Brown v. Board of Education led to the expanded freedoms we now see today. Otherwise, a simple popular vote may have found that the will of the majority (the ‘tyranny of the majority’), perhaps themselves raised with discriminatory beliefs, would’ve refused the minority group’s different interpretation of that clause.
Humans – even in mass – aren’t always right. During Kiva Fellows training, we learned that certain stories are traditionally funded faster on Kiva than others (e.g. fruit stand vendors over taxi drivers). If all other things are equal – meaning those two borrowers are suffering the same level of poverty and have an equal chance that the loan will vastly improve their respective businesses – is that ethical? While fostering growth in the fruit stands is awesome, Kiva still has that mission to help the poor. So is it okay to treat the poor like a market and only take care of some poor individuals over others because their businesses are more fashionable and appealing to us? This is something for us to reflect upon.
2. Kiva encourages our MFIs to use the new funding to further one of Kiva’s goals: bringing financial services to areas that are traditionally left out of the financial sector. So let’s say that in line with our goal, one of our MFIs reaches out to a new group of people, perhaps spending significant resources traveling to a rural village eight hours away from the nearest office. Then, we don’t find these borrowers’ stories to be compelling enough to fund, and our MFI must forfeit services for the new group of people.
Now, I anticipate that one of the counterarguments to this point is that loan expiration is to reflect the will of the lenders. This example allows us to turn away from the lender view and assume the perspective of MFIs on the ground. We have all heard about plenty of charities who spend frivolously creating completely unsustainable projects in other countries; that is precisely why the lot of us were attracted to Kiva in the first place! The example above could be detrimental to our relationship with our MFIs, not to mention our mission. When we encourage an MFI to do something with our new funding, and then hold back the funding, we are looking at a waste of time and money on the part of the MFI. Is that what we really want?
3. Loan expiration might unintentionally incentivize our MFIs to begin embellishing their borrower profile descriptions, as more “dramatic” or “interesting” stories (e.g. woman lost her husband, makes artisan crafts, and has 8 kids) get funded over more “boring” ones (e.g. young, single man with a DVD shop and 2 kids). Thus, if the MFIs see they are losing money to other Kiva MFIs who are posting great stories, they may begin to be less transparent with Kiva by embellishing their borrowers stories. Transparency is the hardest to combat when there is a major stake at risk; in this case, it is much needed funding for the MFIs. I think loan expirations could set Kiva up for transparency issues from our many field partner MFIs. Logistically, this would be really hard to combat.
4. My final point stems from a comment I read on a recently posted article that was critical of Kiva. To paraphrase, the commenter was critical of the Kiva site because on the site, loan expiration appears to indicate the borrower doesn’t get funded. In reality, all of the borrowers that we see on the site are already selected and funded beforehand by the MFIs, as it is the most efficient way for Kiva and the MFIs to work together (for a more in-depth explanation, click here).
Kiva does put a time clock in red that counts down to loan expiration. Some of you may be thinking, “yeah, but it’s not that confusing, I understand how it works.” Let’s take a look at one of our popular lending teams, Late Loaning Lenders. The team page says that they loan because they “hate to see loans being left unfunded on Kiva. If the Field Partners feel that the entrepreneur deserves to be funded, so do we.” Then in the ‘About us’ section, it reads, “Loans that are nearing expiry won’t get funded if they don’t get noticed. We try to find them and get them noticed.”
Because our MFIs pre-qualify and pre-disburse each loan on the site, these borrowers do get funded even if they expire on Kiva. Their MFI will have to front the capital itself instead of using Kiva capital, which of course is less than ideal for the MFI. But, it does not effect the individual borrower you are looking at.
It is worthwhile to think more in depth about the biases we carry when selecting loans. My sister and brother-in-law, for example, rightfully chose not to fund butcher shops because they are both vegetarians. We all deserve the right to make that choice. But, lets think about choices we make unconsciously. For example, the lot of loans close to expiration from Bolivia: are there some internal biases we might have against Bolivia? Or do we simply not know much about the country? We would have to wait a while in order to reliably discern whether or not such patterns are emerging, so I am fully aware that this point is very hypothetical. Nevertheless, I think it important to examine now rather than later.
The last charity I worked for was heavily criticized for its use of “poster children,” i.e. children in wheelchairs on posters meant to ‘guilt’ people into giving; as a result, there were protests at fund-raising events and vital dollars were lost. Hindsight is 20/20. I hope this post at least helps us get our wheels turning now so that we can ensure that we are doing the best thing for our lenders, borrowers, MFIs, and Kiva as a whole.
Suzy Marinkovich is a Kiva Fellow at new Kiva partner CIDRE in Cochabamba, Bolivia, the second of her three placements. She has a wholehearted passion for microfinance, social justice, and poverty alleviation. Suzy is most excited to listen to the incredible stories of Kiva borrowers in South America and let them know how much they continually inspire us all.
Entry filed under: Bolivia, Peru, KF9 (Kiva Fellows 9th Class), CIDRE. Tags: kiva.org, Bolivia, Kiva Policy, Suzy Marinkovich, cochabamba, CIDRE, KF9, loan expiration, peer-to-peer lending.
1. Monica Suarez | 7 November 2011 at 17:51
Thank you, Suzy, for this thought-provoking commentary.
2. elizabeth | 20 February 2010 at 18:01
For the record, I am very biased in the ways I contribute my mite. I prefer women, as this makes more impact on the community (plenty of research there), I prefer agriculture & food – this also tends to a greater community impact – you can live without DVDs, try living without food. I have a sentimental attachment to Africa and a bias toward my local area.
In other words, I am very aware of, and deliberately choose, bias in my selections.
I bitterly resent being told that I should not do this. Especially from someone who appears never to have heard of the “Give a man a fish” concept.
Furthermore, the main point I have gained from this discussion, is that I do not, in fact, fund my choices anyway- just the MFIs. Many of which actually charge interest rates that I consider usury.
I think I’ll give Kiva away and cease spruiking it to others also – it no longer appears to be what I imagined it was.
Sad really.
3. Lisa | 2 November 2009 at 13:04
Thank you for this discussion. I am new to Kiva -less than a year but have had success in starting a team and getting people invovled – we are just short of a team total of $10,000. My problem with having loans expire is to do with the ‘popualtion’ I am working with when I go to places tp speak about Kiva. A lot of the people I talk to aren’t computer sauvy and find the expereice, while exciting, – with all the choices overwhelming. They wonder who to pick and feel badly not choosing someone. I used to be able to say ‘don’t worry everyone on Kiva gets funded’ Now I can’t say that and though the number that expire is very low it does open a bit of a can of worms for me as I try to explain. I would like to expiring loans come up first all the time – not by popularity – unless people select popularity.
Now that I am aware of the problem I try to pick expiring loans first and enncourage others to do so as well.
Cheers
Lisa
4. Ann | 2 November 2009 at 10:32
I’m not sure of the pros and cons of expiring loans, but it is an interesting discussion.
However, I do think that a field partner might learn something about how to make loans more ‘appealing’ to lenders, by analyzing those loans that expire, or get near expiring. I realize that your topic concerns the policy, but I’m shifting my response to talk about why some loans take longer to fund, if you don’t mind.
For example, just to follow up on the Bolivia example, a lot of the expiring loans are not translated into English.
I realize that I can use an online translation tool, but as a lender it adds an obstacle that makes it less appealing.
I also notice that a lot of the loans near expiry are for large amounts (sometimes not that apparent, as they quote individual amounts for members of a lending group. If you have 12 members each asking for $234, the total loan is over $3000 – so at $25 each it would take 122 lenders to fund the loan. )
And I don’t actually see any Bolivian loans near expiry today — perhaps your blog entry actually caused more lenders to respond?
5. Marsha | 2 November 2009 at 09:54
To correct my comment above, the 1,028 loans are all the outstanding loans at this time. When you choose Expiring Soon, all 1,028 loans are put in expiration order. My mistake.
6. Marsha | 2 November 2009 at 09:36
A simple solution would be for the Expiring Soon loans to come up first on the website instead of the Popularity loans. Right now there are 1,028 loans that are expiring soon. I am sure lenders would be able to find a borrower among that group who fits the lenders’ loan criteria. And thank you Suzy for your insightful comments, both here and at David Roodman’s blog.
7. Sarah Caldwell | 2 November 2009 at 07:48
Many good ideas. It’s seemed to me that group loans for large sums are slow to be funded. (Groups from the same MFI that look the same and are involved in the same businesses are even slower.) I personally don’t connect nearly as much–or loan as often–to groups as to individuals. As for countries, when I recycle loans, I check to see for countries not in portfolio to “spread the joy around.” Some people, however, concentrate on certain ones or certain areas of the world.
I suspect that group loans in the language of origin will be the slowest to be funded/ It’s a welcome challenge for some to apply barely remembered French/Spanish vocabulary, but the language barrier can be yet another barrier to funding. Perhaps translators might concentrate their efforts on group loans.
In the absence of smiling, which some borrowers (so I’ve read) find contrary to the serious purpose of this transaction, maybe pictures in the business could show them at work, not just standing. For example, right Akbar and Chingiz are both from Azerbaijan, both do house repair; but I predict that Chingiz will be funded first because he’s shown with a paint can and brush in his hands while Akbar stares straight at the camera.
8. Victoria | 2 November 2009 at 07:46
For the record, I’m not sure where the 3 percent figure came from. Right now only 31 loans have expired in the history of Kiva: http://www.kiva.org/app.php?page=businesses&queryString=&status=expired&gender=All§ors=All®ions=All&sortBy=Popularity (Before October ended, it was only 14 and before October, only 2.) If you select the “All” option when searching for loans, there have been 143,860 loans on Kiva, so that means only 0.02% have expired.
I agree with all your points, Suzy. To play devil’s advocate a little bit, one thing I think that expiration accomplishes is creating more of a sense of immediacy. I know sometimes I rush to make a loan when I see a borrower is getting close to expiring. If lenders didn’t feel somewhat of a need to hurry and fund a loan, maybe they wouldn’t end up loaning to that particular person. I think this ties in too to something that Premal says–that loaning should be a fun/addictive experience. This “need for speed,” in its own way, makes lending on Kiva more exciting. Maybe that’s not a compelling enough reason though. A good solution might be, as someone else suggested, to extend the amount of time fundraising on Kiva to something like 60 days.
9. Suzy Marinkovich | 1 November 2009 at 12:11
Brian – love the ideas and it got me thinking that something simple we could do for our MFIs would be for fellows to do a powerpoint on “how to reach your fundraising limit with as few profiles posted as possible!” … that was a lot more of the letter P than I intended, but anyway, we could give them tips on making formulas, on spreading out their group loans over a month or even loans in one industry, on making their borrowers smile, on inserting local facts (e.g. Marta works in La Cancha, the biggest open-air market in South America). While we already touch on some of this, I think with more loan expiration in the picture, our MFIs would take the advice more seriously. Would be great to get a survey going on KivaFriends and then turn it in to a training PPT for our MFIs. Just an idea!
Suzy
10. bkbriankelly | 1 November 2009 at 12:00
…clearly trying to get fancy with an html link was too advanced for me. disregard my incompetence.
i meant to say “Youtube’s homepage might serve as a decent example, check out http://www.youtube.com”
bk
11. bkbriankelly | 1 November 2009 at 11:56
Hola Suzy, thanks for the post, its gotten a lot of people thinking which is awesome.
I have a few thoughts, nothing too profound:
I tend to go back and forth on this issue, but I think ultimately I side with the fact that the “marketplace” is inherent to Kiva’s design and that loan expirations must be a reality of the site. I think there might be some creative ways to help keep expirations down without having to walk the unethical path including beefing up borrower profiles with Performance Enhancing Details.
Some as simple as Diane’s suggestion of spreading out 30 similar looking loans in Bolivia across the month would certainly help. (Although this may not be viable for some MFIs; Im currently helping to develop the ‘Kiva processes’ for my pilot MFI and streamlining operations to reduce labor-intensity is definitely a priority for them).
Another relatively simple fix might be a redesign of the “Lend” tab on the website. Currently I find it a bit unwieldy and scroll-intensive, and I think there is potential for more efficient use of the current screen real-estate. Perhaps a grid style with multiple columns and rows that shows a picture and brief description? ( might even serve as a decent example). Or perhaps three different columns of profiles that run down the page side by side, one showing popularity, another showing date posted, and then the third showing expiring soon? This might even help us start to understand some of our biases towards what gets funded quicker, or possibly reflect on why certain loans get pushed out of view and go unfunded as Alan mentioned. I think there is definitely room for a more web 2.0’ey, data-rich interactive presentation of the Lend tab. This might help the data became more easily accessible within the marketplace. I am ducking the real ethical root of the loan expiration question, but I think some simple tweaks might help a bit.
Thanks for the post!
Brian
12. Jackie | 1 November 2009 at 10:27
Just wanted to add that I think one of the reasons for there having been so many Bolivia loans expiring is because there were so many of them presented on the Kiva website at the same time which were very similar, and not because people were necessarily trying to avoid loaning to Bolivia per se. Mnay of them were groups of people in the “Services” sector. There’s nothing wrong with group loans, nothing wrong with Bolivia, nothing wrong with the services sector. It’s just that there were so many all similar and then a person finds it difficult to choose. I think someone else mentioned this above, but if the MFIs learned to space out their similar type loans over the month, there wouldn’t end up being so many similar loans up at any one given time during the month. Like if they have 10 loans that look similar (it’s superficial, yes), maybe they could try posting a third of them at the beginning of the month, another third of them in the middle and the last third towards the latter half of the month. Just ideas being thrown around here.
Take care Suzy!
13. Jackie | 1 November 2009 at 10:07
Hi Suzy,
Thanks very much for your post and thoughts about this! I personally wish that no loans expired before getting completely funded on Kiva, though I’m not on the LLL lending team. In the past I have tried to ‘save’ some of the loans that were about to expire. Now it often seems quite overwhelming just by the sheer quantity of the loans that are on the verge of expiring at times. I can only afford to make fewer loans now, so I have more criteria for the ones I do pick. Like not going over having a certain amount of active loans in a specific country or with 1 MFI, not taking on as many with Currency Exchange Loss Possible and spreading out the loans that do among the various countries in my portfolio, etc.
I think Kiva should really take note of your blog post as well as the thread(s?) about the same subject on the Kiva Friends forum, and the issues that Jan & John, Diane R and Alan have mentioned (sorry if I’ve missed naming anyone else who should have been). People at the KivaFriends forum have put a lot of thought and work into looking at the issue, as you have Suzy. I agree with them that the present default sorting used by Kiva, as regards those loans that are presented first or highlighted more prominently on the home page is in fact detrimental to some loans. After reading your post Suzy, it’s given me even more to think about and has reinforced the importance of this issue even more for me.
Thanks for all the work you are doing Suzy!
14. Suzy Marinkovich | 1 November 2009 at 08:36
To the KivaFriend commenter on #16: I am more than happy to respond to each and every comment, but in this case I believe the point of my post was clearly made – I question in my post whether or not loan expiration is detrimental. Yes, we are at 3%, but this number could rise to much higher than 10%. This, followed by my subsequent comment answering other questions (comment #12), should suffice to explain this for you. Please feel free to contact me directly if you should have more questions.
I can tell this is a sensitive issue for many, and to clearly state my personal view: I am only against loan expiration should it gets out of control, e.g. escalating to 40%+ on the site. I emphasize it is important for us to simply be AWARE of these factors, as hindsight is 20/20. I share my views from the perspective of the extra legwork of an MFI, not from a lender perspective. Please keep these things in mind.
Suzy
15. KivaFriend | 1 November 2009 at 08:16
It seems that Suzy asks us to debate the concept of loan expiration, but actually proposes no change to the status quo. Today, there is less than 3% expiration on the Kiva site and a 30 day fundraising period. My guess is that Kiva doesn’t want there to be a large amount of expirations I heard Premal say once on a call that he felt 10% expiration was acceptable. . So, am I right, that you are proposing no change to the way that Kiva thinks about this? If so, what was the point of your post?
16. Prem Thomas | 1 November 2009 at 06:43
Suzy, I like the post and think you make some good points. I personally like the fact that more loans are expiring. It creates incentive for MFI’s to create better posts and hopefully ensures that Kiva Lenders are funding the better borrowers. I guess the current Kiva user is not as interested in loans in Bolivia and Peru. Perhaps this means Kiva needs to do more outreach to get lenders who have some ties to these countries or the MFI’s have to post better content (more videos, more journal updates, etc.).
Maybe it’s because my background in finance, but I think lenders will flock to better borrowers, MFI’s and stories over time like any rational investor. But I really hope that the 0% interest offered by Kiva will allow them to take more risk and post non-standard/new clients to Kiva.
We should have a debate after we both return from our fellowships!
-Prem
17. robpacker | 1 November 2009 at 06:22
Those are some great insights from Suzy and everyone who commented.
My view on extending the loan expiry horizon is that it would be very difficult. MFIs post a certain amount of loans on Kiva in the expectation that they will be funded by Kiva at 0% interest. There are planning and balance sheet implications here. For example, if you pay your mortgage or rent using your salary as most people do, everything goes swimmingly until you’re laid off. The only real option for an MFI (continuing the analogy) is to pay the mortgage or rent on their credit card. This might be ok for a couple of loans but if it happens a lot, you’ve got a problem. If you extend the loan expiry, it increases the period of uncertainty for the MFI and the MFI would have to have found a way to have paid for the loan. They, generally, do not have a whole lot of spare cash lying around.
My view on loan expiration is that it is inevitable that it will happen to some extent. The first thing I’ll be asking my MFI on Monday morning (I’m also a fellow) will be asking them if they have a contingency plan for the day this happens.
18. moshawaf | 31 October 2009 at 22:18
Thanks Suzy for shining light on this important point. Just as Kiva is not a risk-averse organization, you are not a risk-averse Kiva Fellow.
19. Suzy Marinkovich | 31 October 2009 at 11:59
Hello everyone,
Thank you for your insightful comments. I have limited access to internet at the moment, but would at least like to respond to a few of you in the meantime.
Diane on comment #2: I absolutely agree – those Bolivia group loans you refer to are not being funded for a legitimate reason. There are numerous ones that look exactly the same (and though they have not been coming from my MFI in Bolivia, I am thinking about how to better educate these MFIs on what works).
KivaFriend in comment #3: You are right, simple criticism is not enough on my part. But I composed this blog to get the discussion going, as I don´t have a solution myself but I believe we can debate some great solutions as a Kiva community. Choosing against a particular loan for the sake of the high interest rates of that MFI is absolutely warranted (but requires we begin posting interest rates on the site). The best idea I have thought of myself is for Kiva to keep a close eye on expiration, trying to limit expirations on the site to (for example) 15%. This would allow Kiva to have more partner MFIs but not too many, as the day where 50% of our loans expire would be a difficult day to retain many of our partner MFIs. This is just an idea, and by no means is it backed by any research on my end. But it´s one we can think about so as to keep any type of expiration from getting out of control.
Kiva Friend in comment #6: these are arguments against expiration as a concept on the Kiva site, not against the 30 day fundraising period.
Jane in comment #9: absolutely agree with your comment here, and keeping the % at a low constant is (what I believe is) the key.
David Roodman in comment ·#10: To your first thought, you are absolutely right, predisbusal complicates my arguments in that it doesnt really discriminate against the borrowers financially, instead it just discriminates against their stories and photos on the Kiva site. So, in a sense, they are shown “publicly” on the internet as being unfunded, even if in reality they were funded by their MFI. But I would argue that it is discrimination nonetheless, because their unfundedness could (hypothetically) harm their reputation if it were found out in their community. I think the idea of posting 40%, or simply a few more borrowers each month than their fundraising limit allows, would work out well because once an MFI reaches its fundraising limit for a month, those leftover loans will get posted on the first day of the following month. Thus, no extra legwork for the MFI, and it helps them to keep reaching their limit.
Overall, I should have included my opinion on solutions rather than posting all the hypothetical extreme situations I listed above. I posted them not because I am sure they could happen, but instead to get us thinking about protecting ourselves from letting it happening. One of the ways we can do this is for Kiva to set a goal to limit expirations on the site to, for example, 15% any given month. If it creeps up to 40% for a certain month, then maybe Kiva will hold off on recruiting new MFI partners for a while. If it lingers around 5%, Kiva can continue seeking out new partners. It will give Kiva some legroom to work with.
Thank you for all your comments. I only share this post because I love Kiva, I love doing the work I do on the ground, and I am just as proud to be a lender as I am of our borrowers. I want to make sure we keep doing the best job we can for all of our constituents. Kiva did not get to $100 million in loans without being a successful model. But like I said, after an error hindsight is 20/20, so lets work hard to keep that organization we love on track for the next $100 million.
Kiva love,
Suzy
20. David Roodman | 31 October 2009 at 10:40
Suzy, this is a very thoughtful post. I am the unnamed “commenter [who] was critical of the Kiva.” Two thoughts: 1) Doesn’t the predominance of predisbursal undercut some of what you say? If the loans are made anyway, how “discriminant” is the process? I do take your point that a broader level, the Kiva system could bias MFIs toward lending to certain kinds of people. But I would think that even this concern is softened by the fact that Kiva limits itself to 30% of the capital of any one MFI. So can’t an MFI just list loans equal to 40% of its capital, choosing the most “photogenic” borrowers, and know that it will max out on Kiva? 2) I’m guessing that the 30 day limit comes about precisely because of the predisbursal system. It would be a bit awkward for repayments to start showing up on kiva.org before the loan is funded.
21. Loan expirations on Kiva « publishing for little people | 30 October 2009 at 21:37
[...] 31, 2009 Suzy Marinkovich, a Kiva fellow in Bolivia, wrote a post on loan expirations recently, questioning the ethics of the Kiva website functioning like a [...]
22. Jane, KF9 Mongolia | 30 October 2009 at 21:29
i’ve been thinking about loan expirations for awhile as well.
i personally don’t have an issue with the marketplace concept because kiva is exactly that. lenders get to choose individual borrowers they want to lend to, and choice will always involve personal biases. however, that freedom to choose is what makes kiva so successful – lenders feel empowered. if we were to remove allowance for biases – then kiva could just post borrower stories, but have lenders lend to a common pool instead of a specific borrower. but that, though more equitable, will unfortunately generate less lender interest, and ultimately less funding.
to the borrower however, it isn’t much of a problem since they will get funding anyway. having the MFI improve/refine their content to be more attractive to lenders is not a bad thing – since that will generate more lender activity on kiva and more funding in the long term (not a zero sum game). and whether or not they have integrity in improving their borrower profiles (i.e. not embellishing or making stuff up) is out of our hands
however, what I do have issue with is if an MFI has a kiva specific product. my MFI, XacBank, in Mongolia has exactly that (i think it’s the only MFI right now). but basically, kiva’s 0% interest rate allows my MFI to return 9% of interest paid to the borrower at the end of the loan term. but since my MFI pre-disburses the loan before getting fully funded on kiva, they’re essentially promising the borrower a certain product (9% int back) but are not absolutely guaranteed that they will get kiva funding (0% interest) for it.
so far none of our loans have expired w/o getting funded, but i’ve asked my kiva coordinator what will happen if it does happen. she said, she will just repost the loan the next month. i then asked – what happens if the loan was disbursed more than 30 days before the new reposting since that’s not allowed (i think this will be the case since loans are on the site for 30 days), she said she might try asking kiva to make an exception. i don’t think that will happen though. what i think will happen is that a) my MFI will have to tell the borrower that they can’t get the 9% back even though they’ve already taken out a loan, or b) fund that borrower’s 9% interest back themselves. option b) isn’t that big of an issue if they have to cover just a few borrowers each month, but if too many loans start expiring before getting funded, my MFI may have to stop offering a kiva-specific product due to the volatility of funding. (which isn’t what any of us want!)
so i guess the takeaway here is – as kiva continues to scale up, it needs to properly manage and regulate the amount of credit it is extending to MFIs, such that supply (of loans posted) never exceeds demand by too much, and hence keeps the % of loans expired at a low constant.
23. phil | 30 October 2009 at 16:58
Suzy,
Thank you for your thought provoking and INSPIRATIONAL posting. This, and your previous blogs, has been instrumental in causing at least one lender to re-examinin their own internal unconscious biases. Your ability “to call it like you see” with examples from the field, bring a reality to the concepts found in academic articles. You are a true educator
From my point of view, your postings, and those on Kiva Friends have provided a growing insight into the fact that Kiva, in all its facets, is sooo much more than a market place. It is a living breathing COMMUNITY.
Thank you again for providing some motive power to get the wheels turning.
Phil aka Closermann
24. Judi | 30 October 2009 at 16:24
@KivaFriend | 30 October 2009 at 13:51:
The parameter is 30 days, not 30 months.
25. KivaFriend | 30 October 2009 at 13:51
If loans stick around for months is possible, but certainly them hanging around forever is not possible. Right? Certainly you are not asking for an infinite fundraising period.
So, is this argument against expiration the concept, or simply the 30 month parameter?
26. alan | 30 October 2009 at 13:17
Very thought provoking, indeed. The co-captains of the Late Loaning Lenders Team have adjusted the About Us section to reflect the situation more accurately, with apologies for any confusion caused by the previous description.
What you would have known from joining the team (shameless plug) is that we have been very careful to explain in team messages that expiring loans does not mean borrowers going without funds, but rather that the MFI misses out on what had been an expected source of capital, presumably to fund the next loan.
I agree that expiry of loans creates problems for the MFIs and this is something that will merit considerable discussion. I don’t believe that the problem is likely to do with any bias against Bolivia. It’s just Bolivia that got caught this time. I would say more positively that lender behaviour seems to suggest a preference for smaller loans, for loans to women, for loans to people with interesting stories. Other factors such as the translation or non-translation of loan descriptions, sharing of currency risk, and some extremely poor-quality photos – all of these may make a given loan less attractive.
Fundamentally, however, I believe that what gets noticed gets funded. True, a loan that best fits a given lender’s preferences is more likely to attract that lender’s money. But in the end, if I don’t see it I can’t fund it. And the current presentation of loans on the Kiva site guarantees that some loans are not visible long enough to get funded. When a large loan that is being funded by new lenders every few minutes is suddenly swept off the first page by the random arrival fo several new loans, which may even be similar to the loan in question, that is a problem. When that loan is close to expiry, it is a big problem. And when it expires, it’s not accurate to conclude that it just wasn’t popular enough. A recent problem with duplicate loan listings gave us a perfect opportunity to see this in action. There is no logical reason why two copies of the same loan should attract radically different levels of funding, but this is exactly what happened repeatedly. One got funded within minutes or hours, and the other was randomly swept off to oblivion where it languished for days.
This response is quickly turning into a separate blog entry. But the point is that there is a team of lenders who agree with you. Expiry of loans is a problem. And we want to help.
27. Dustin | 30 October 2009 at 12:04
Given that the borrower has already received the funds, is there any reason why the loan needs to be “fully” funded on kiva by expiry?
I can see that having half funded loans hanging around on the site for months on end might send out the wrong signals and makes the market place feel a little stale, but surely the mfi’s will be happy to get back whatever capital they can against a loan?
28. KivaFriend | 30 October 2009 at 11:15
Can you articulate a viable alternative to expiration?
– It should allow for the possibility that MFIs do not predisburse.
– It should accomodate the possibility, that some partners have employed, and may employ in the future, that a borrower may not receive the loan if it is not funded.
– It should allow for the reality that loan volume fluctuates unpredictably and may dry up at any point in time.
– It should provide a way for users to state their biases. For instance, if users just don’t like loans from a partner, because they protest their interest rates, they should allow those loans to go unfunded.
Rather than simply criticize, it would be most productive for you to design a very viable alternative.
Thank you,
KF
29. DianeR, from KivaFriends | 30 October 2009 at 11:02
There are also other reasons why group loans from Bolivia fall to the tail-end of the lending curve. One in particular is that some MFIs tend to upload to the Kiva website dozens (sometimes literally dozens) of similar-looking and -sounding group loans at the same time. There’s nothing “wrong” with any one of the loan requests, but when there are 30 of them appearing on Kiva.org simultaneously, some of them will be overlooked. Spacing them out throughout the month, rather than having them queued up to all become available at once on the Kiva.org website on the 1st of the month, might be one way an MFI could focus more attention on their clients.
30. Jan & John, KivaFriends | 30 October 2009 at 10:45
very thought provoking, Suzy, thanks. I go through my portfolio and see that I hold a personal bias in many ways. Trying to balance the risk between countries and MFI’s helps to fill in some blanks. The Kiva Friends forum has been holding lively debate regarding how Kiva itself presents the loans and which ones are showcased and which drop to the end of the line. It’s a difficult issue. jan