Kiva Blog

Last week Reuters reported that the EU is working to create a micro-finance facility for the unemployed:

"The European Commission said on Thursday it would create a 100 million euro ($141.1 million) micro-finance facility to provide credit to small businesses and encourage people who have lost jobs to start such enterprises."

Read the whole article here.

The Center for Financial Inclusion has blogged about the beta release of two new assessment tools for microfinance institutions by the Campaign for Client Protection:

• Getting Started: Client Protection Questionnaire - This tool is a first step for an MFI as staff begin to investigate their consumer protection practices. Click here to learn more >
  
• Self Assessment Guide - This tool is in-depth assessment designed to thoroughly assess the client protection performance of an MFI. Click here to learn more >

Kiva was one of the first endorsers of the Campaign for Client Protection. Learn more about the Campaign here.

The Center for Financial Inclusion's June newsletter gave some information about research being done on this subject:

Raising Funds for MFIs in the Face of the Global Financial Crisis

How has the global financial crisis affected the way MFIs are capitalizing their balance sheets? The Council for Microfinance Equity Funds (CMEF), is taking a closer look at this question through a study led by Willem Enklaar.

In January, CMEF launched a capitalization study with an online questionnaire asking MFIs about their funding strategies in the face of the credit crunch, foreign exchange movements and other results of the current economic crisis.

To date over 65 MFIs have completed the questionnaire. Merging these responses with interviews from experts in the investment community has produced some interesting initial results.

• MFIs still need equity but the pot of available funds is getting smaller. The need for fresh equity is not significantly decreasing, as MFIs continue to seek growth and to strenghten their balance sheets. At the same time, the availability of capital has shrunk, as a result of the liquidity crunch.
• With less investment money to go around, investors are likely to be less willing to pay high prices of MFI equity: valuations are likely to decrease.
• An increasing number of MFIs are planning to fund part of their balance sheets with subordinated debt because it less expensive and quicker than raising fresh equity.
• Things may get worse before they get better. Although increased risk of delinquency and higher interest rates are affecting MFIs, they are not presently a primary cause for recapitalization. However, Mr. Enklaar predicts that this will change in the second half of the year because delinquency rates are expected to further deteriorate and interest rate are not expected to come down.

The sustained need for fresh equity highlights the relative resilience of the microfinance sector to the economic downturn. At the same time the study underlines that, as the crisis lasts and profitability ratios come increasingly under pressure, MFIs will face difficulties. Furthermore, with scarce capital and increased risk investors are likely to put their money in first-tier MFIs, leaving small and second-tier MFIs out in the cold.

The study will be available on the CMEF’s website in late summer.

CMEF is the first membership organization to bring together more than 20 of the leading private funds that make equity investments in microfinance. The Center for Financial Inclusion acts as the Secretariat for CMEF and conducts much of its investment related work under the aegis of the Council.

Matt Flannery will join Mads Kjaer, Co-Founder and CEO of MYC4, at Silicon Valley Microfinance Network's Speaker Event this evening in San Francisco. Matt and Mads will discuss the hurdles their online peer-to-peer lending platforms have faced as the two young companies have developed over the last few years. The trail-blazing organizations have forced regulators, investors, philanthropists, borrowers, and others to ask new questions as we all form and find the answers together.

Come hear from Matt Flannery and Mads Kjaer, ask them questions, and meet others interested in microfinance tonight, May 26, 2009 at:
Silicon Valley Microfinance Network (SVMN) Speaker Event
6:00-8:30pm
located at O'Melveny & Myers office:
2 Embarcadero Center, 28th Floor
San Francisco, CA 94111

Register Now

Over the weekend, the White House announced a new $100 million microfinance growth fund for the western hemisphere:

The global credit crisis is having a significant and harmful impact on the availability of finance for micro and small businesses that provide a majority of the jobs in the Hemisphere. This is one of the factors jeopardizing recent hard won gains in reducing poverty. While the region has a wealth of microfinance institutions, these lenders are now confronting a serious shortage of private finance from both international and local sources. As the supply of lending is shrinking, the demand for smaller loans is expanding as job loss escalates and the newly unemployed are falling back on micro and small enterprises as their sole source of income.


Today the President announced a new partnership of the Multilateral Investment Fund (MIF) at the Inter-American Development Bank (IDB), the U.S. Overseas Private Investment Corporation (OPIC), and the Inter-American Investment Corporation (IIC) for the purpose of launching a new Microfinance Growth Fund for the Western Hemisphere. The fund will provide stable medium and longer-term sources of finance to microfinance institutions and microfinance investment vehicles to help rebuild their capacity to lend during this difficult period and to increase the supply of finance for micro and small businesses as recovery takes hold.

Read the full press release here.

Last fall, we posted a blog on Kiva's participation in a few Consumer Protection Initiatives that have started to emerge in the microfinance industry. Organizations involved in microfinance at all levels are now increasingly paying attention to the clients (a.k.a., borrowers, clients, customers, entrepreneurs).

A Microfinance industry-wide Campaign for Client Protection...

... is expected to launch in mid-2009. The Campaign is an ambitious three-year initiative that aims to ensure that providers of financial services to low-income populations take concrete steps to protect their clients from potentially harmful financial products and ensure that they are treated fairly. It sets specific quantitative goals for the industry to improve client protection and is already organizing Task Forces to flesh out approaches to the six core Client Protection Principles.

The Center for Financial Inclusion at ACCION International is providing the initial secretariat for the campaign, which is endorsed and led by a broad coalition of microfinance institutions (MFIs), networks, funders, and practitioners. You can find the Campaign's goals, initial activities, endorsers, Steering Committee membership, etc. at the Campaign's main Website. All investors that have endorsed the campaign (including Kiva) are listed on the right-hand side of the home page.

What is Kiva doing to protect Entrepreneurs?

We believe that Social responsibility towards clients is an important element of a Field Partner's social impact. Entrepreneurs benefit tremendously from access to loans, but not if they become over indebted, or suffer from unethical collection practices from the field Partners that serve them.

• We screen Field Partners based on their Social Responsibility to their clients
• We ask that our partners have a Code of Conduct/ Code of Ethics in place
• We ask that our Field Partners get written consent from Entrepreneurs to share their data
• We signed (early) the "Client Protection Principles" that are now endorsed by 50+ investors
• We are developing a social rating scale to evaluate the social impact of Kiva funding
• We are part of 2 major industry initiatives to ensure that Client Protection Principles are implemented by Field Partners: 1/ "Beyond Codes", led by ACCION International and 2/ the Microfinance Investor Initiative on Client Protection, led by CGAP.

What are the Consumer Protection Principles?

The widely promoted Consumer Protection Principles describe the minimum that microfinance clients should be able to expect from Field Partners.

1. Avoidance of Over-Indebtedness. Providers will take reasonable steps to ensure that credit will be extended only if borrowers have demonstrated an adequate ability to repay and loans will not put the borrowers at significant risk of over-indebtedness. Similarly, providers will take adequate care that non-credit, financial products,(such as insurance) extended to low-income clients are appropriate;
2. Transparent Pricing. The pricing, terms and conditions of financial products (including interest charges, insurance premiums, all fees, etc.) will be transparent and will be adequately disclosed in a form understandable to clients;
3. Appropriate Collections Practices. Debt collection practices of providers will not be abusive or coercive;
4. Ethical Staff Behavior. Staff of financial service providers will comply with high ethical standards in their interaction with microfinance clients and such providers will ensure that adequate safeguards are in place to detect and correct corruption or mistreatment of clients;
5. Mechanisms for Redress of Grievances. Providers will have in place timely and responsive mechanisms for complaints and problem resolution for their clients;
6. Privacy of Client Data. The privacy of individual client data will be respected, and such data cannot be used for other purposes without the express permission of the client (while recognizing that providers of financial services can play an important role in helping clients achieve the benefits of establishing credit histories).

Consumer Protection Principles: Signed! What Next?

Endorsing Client Protection Principles is a first step. Implementing them effectively is another story. Investors that are committed to the Consumer Protection Principles will be increasingly scrutinized to see whether they are integrating them into their investment processes.

As an illustration, CGAP has an entire taskforce dedicated to developing tools and reports to support investor implementation of the Consumer Protection Principles. Examples include:

1. "Investor Toolkit," comprised of resources and options for investors to draw on as they incorporate the Consumer Protection Principles into each stage of their investment process. The toolkit will include tools, policies and procedures currently in use or under development by investors and fund managers, grouped by stage of the investment process (e.g., due diligence, monitoring, reporting) and, where relevant, annotated as to the type of investor organization for which they are most appropriate and other considerations affecting their applicability and use.
2. "Annual reporting format for investors" participating in the Client Protection Initiative (see draft below). Investors would be held accountable for actual progress in implementing the Consumer Protection Principles.

We will need to decide, at Kiva, how far we go in monitoring and enforcing compliance from our Field Partners.

Consumer Protection Principle 6: Privacy of client data

Principle 6 poses a particular challenge for Kiva. The crux of Principle 6 is that customers have the right to expect that their personal and financial information will not be revealed to those who are not authorized to see it. A financial institution (any one of our Field Partner) measures up to this principle by respecting the privacy of client data, ensuring the integrity and security of client information, and seeking the client’s permission to share information with outside parties.

What could our Field Partners possibly be expected to track and commit to under Principle 6? The answer is: a LONG, LONG list of issues:

• Senior management sets the example of respecting a client's right to protect their information and ensuring systems are in place to protect the confidentially, security, accuracy and integrity of customer information.
• A policy on confidentially is in place which governs the gathering, processing, use and distribution of client data which could result in harm or inconvenience to the client.
• Customers know how their information will be used by the financial institution. Staff explains how client data will be used and seeks client permission for use. Clients have the option of not having their information shared.
• The organization ensures the accuracy of information shared and requests customer consent for use of data in a Credit Registry or Bureau. Customers are given the opportunity to correct their information, and the financial institution provides assistance in this regard.
• Customer consent is required for use of information in promotions and marketing material.
• Clients are asked to express their written agreement for use of their personal information, such as pictures and business and personal stories in the organization's publications, promotional material, external reports and any information shared with external audience.
• The financial institution safeguards clients' personal and financial information. Rigorous systems and checks are in place to prevent unauthorized use of information, or access to accounts. The IT system is secure and password protected with various levels of authorized access to information and access to data modification adjusted to the tasks and needs of the user.
• The financial institution offers information, orientation or educational sessions to clients on how to safeguard access codes or PIN numbers.
• Internal audits review security of physical locations, filing systems at headquarters, branch and posts.

Kiva's Remaining Challenge

The challenge for Kiva, as you may have guessed, is to protect the Entrepreneurs on our Website in the best possible way while providing transparent information to our lenders about what is happening on the ground.

We are likely to debate this quite a bit in the upcoming weeks.

A few options being tossed around/ discussed/ debated include:

• Providing more privacy options to our Field Partners, allowing them to mark repayment data as private. Field Partners can already mark the Entrepreneur location and name as private and blur the Entrepreneur's picture if that puts the person at risk (i.e., our Iraqi partners chose to exercise that option).
• Make the repayment data available only to lenders to a particular Entrepreneur, rather than the public at large.

Either way, the decision has large operational implications for our Field Partners on the ground, as the more information we disclose about individual entrepreneurs, the more Field Partner staff need to explain to the Entrepreneur in the spirit of full disclosure and consent. That increases costs for Field Partners, and reduces their ability to serve more poor people.

As we face these trade-offs, we need to learn more about what drives lenders to Kiva: do you really care about seeing repayment data for Maria in Peru when you have loaned to Aba in Ghana? In the best of worlds there would be no trade-offs - but this is not the world that we live in.

Hey Kivans,

As you are probably aware, Kiva believes in the power of people across the globe to come together in pursuit of poverty alleviation through microfinance. In our operations, hundreds of volunteers support the editing and translating of businesses and the Kiva office is often teeming with volunteer interns and consultants from Oliver Wyman pitching in.

Uniquely and relatedly, David Roodman, a Research Fellow at the Center for Global Development, is quasi-crowdsourcing his new book on microfinance. David describes the purpose of his new book as

to probe and limn the truth of microfinance, such as it can be understood, and draw out the implications for all those who back microfinance or contemplate doing so. It does so by viewing microfinance through the perspectives of history, economics, ethics, and politics and through the eyes poor clients struggling to protect and improve their lot, microfinance managers struggling to at least break even. Each perspective offers a piece of the truth of microfinance. Many books have been written about microfinance, but I don’t think any other has quilted together so many perspectives

David’s a jack of all trades, he’s written and published previously on instruments in regressions, develop countries’ commitment to development, and microfinance’s business model. Now, he is pioneering a new, participatory way of writing his book about microfinance. David is releasing chapters as he completes drafts and is inviting comments as he molds a final version.

The book already has three chapters up to read (all free and easy to download) here. I’m particularly excited for the three chapters looking at microfinance from the perspectives of development as impact, development as freedom, and development as building institutions. This new perspective on an evolving field is an exciting opportunity to take stock of what we know, what we care about, and where we can do better. Check out the book and comment!

Sincerely,
Ben Elberger
Microfinance Partnerships Manager, Anglophone Africa

The Microcredit Summit Campaign last week released the 2009 State of the Campaign Report, revealing that more than 106 million of the world's poorest families received a microloan in 2007.

Read the press release here.

Download the report here.

The Microcredit Summit Campaign is a U.S.-based grassroots advocacy organization committed to ending hunger and poverty.

Kiva is proud to partner with “Microfinance, CA”- the first state-wide conference highlighting Microfinance as a smart investment for California:

2 Million Entrepreneurs in California can’t access the small amount of capital they need to get their business off the ground. What are we doing to meet this demand?

Join us for the fist state-wide conference on microfinance to:

• Learn the nuts and bolts of domestic microfinance
• Visit Bay Area microfinance borrowers through small group tours
• Understand the impact and future of microfinance in California
• Discover your role in the field of microfinance through small group dinners with practitioners, leaders, and investors

The conference will be held at The Frances C. Arrillaga Alumni Center at Stanford University, Palo Alto, CA on Thursday, May 28th, and is presented by Opportunity Fund, Kiva, and the Silicon Valley Community Foundation. Click here to learn more and register.

Has "Kiva.org" become synonymous with "online social marketplace"?

The Industry Standard reports on IndieGogo:

Sometimes called the "Kiva.org of film," the site helps filmmakers promote their films with a website and online widgets, as well as raise funds.

For those following the effect of the economic crisis on microfinance, World Vision has reported that microfinance in Eastern Europe is thriving despite the global economic situation:

"Since clients predominantly live in rural, mostly agricultural areas and lack access to markets, they are quite insulated from global and even national economic trends."

However that doesn't mean that an effect is not still coming:

"Still, the economic crisis may yet affect World Vision MFIs and their clients. As local economies slump and unemployment and inflation rise, MFI clients will face reduced demand or at least a decline in real income."

Read the full article here.

Kiva has one Field Partner who is a partner of World Vision International, Vision Finance Company in Rwanda.

Kiva has four active Field Partners in Eastern Europe: Microinvest in Moldova, Zene za Zene in Bosnia and Herzegovina, Mikrofond EAD in Bulgaria, and HOPE Ukraine/Nadiya in Ukraine.

CGAP recently hosted a Virtual Conference on the Financial Crisis to look at how the financial crisis is impacting microfinance institutions and their poor clients. Check it out here, and there's also a downloadable report.

Many people have been asking me what the impact of the global financial crisis is, or will be, on microfinance. So, when two papers passed my desk this morning, I thought Kiva lenders might be interested in reading them too:

Click here to download the Foundation for Development Cooperation's briefing note titled "Impact of the Global Finanical Crisis on Microfinance".

Click here to download "Micro's Moment", an article by Sam Mendelson ( smmendelson A.T. googlemail.com ), published in Financial World magazine ( www.financialworld.co.uk ).

Dr. Scott McLeod recently heard Alan November's keynote speech at ITEC 2008, where he commented on Kiva:

"If the Web needed a reason to be invented, this is it."

Check out Dr. McLeod's notes from the speech here.

I recently had the good fortune to attend the 2008 Asia Pacific Regional Microcredit Summit (APRMS) on behalf of Kiva. Besides having the opportunity to share the Kiva story with other industry professionals and to meet with potential MFI partners, it was also a great learning experience as some of the latest developments occurring in the field were shared with the 800+ conference attendees during plenary sessions & individual workshops. And from what I heard, it’s definitely an interesting time to be involved in the microfinance field.

For one thing, there are some incredible initiatives being started aimed at helping the poor beyond simple credit services. Probably the most interesting one to me was the whole concept of micro-insurance. Currently, the poor who receive microloans are at risk for from many factors beyond their control such as illness, death or natural disasters. In developed countries, individuals typically mitigate these risks through the purchase of insurance. However, this type of security has not been available to the poor because it thought it was too difficult & costly to assess. Fortunately, there are several organizations now focusing on this issue and several countries – including the Philippines & Indonesia – are testing different types of insurance products for the poor (hence the name “micro-insurance”) that seem very promising.

The one insurance initiative that seemed particularly innovative was a weather-indexed insurance product that covers flooding & hurricane damage. These events can easily wipe out the crops of poor farmers whose entire income largely depends on their crop yield. Until now, there was little financial protection for these poor farmers as the cost to assess the damages & manage claims was too high. However, one particularly innovative organization (in my humble opinion) is seeking to leverage the Internet to address this issue – much like Kiva through our site.

The organization – Micro Insurance Agency – uses publicly available meteorological data & to map either how far a poor farmer was from a hurricane or how much flooding occurred in the area. Using this data, the organization then pays the farmer an amount based on a formula-driven sliding scale – even if the specific farmer did not experience damage. By offering insurance through this manner, the organization avoids the high costs of actually sending officers into the field (which would make microinsurance prohibitively expensive) while offering poor farmers the first ever natural disaster insurance. While it is not an exact science, the organization has conducted the necessary actuarial studies & is actively piloting the program across the world. More information is available at their website: www.microinsuranceagency.com. Again, this initiative was but one talked about the 2008 APRMS – many more presented including how MFIs could provide business development services to the poor, how MFIs could better assess their impact on helping the poor, etc., etc. Truly inspiring!

Yet at the same time all of these new innovations are occurring in the microfinance field, I also think that there is a subtle shift that is also occurring that the industry will continue to debate in the coming years. When microfinance started, its focus largely was on helping the poor out of poverty. Now, with the demonstrated strength of the microfinance sector and client repayments rate remaining well in the 95%+ range, a large number of commercial investors are entering the field now that microfinance is also beginning to look like an attractive asset class. Many of these players were present at APRMS 2008. My personal views toward this trend are mixed.

Having attended business school, part of me wholeheartedly applauds these new entrants. If microfinance is to reach all of the poor wanting credit, hundreds of billions of dollars will have to flow to the industry & the only conceivable way for this to happen (at least in my view) is through the capital markets. So these new investors are definitely address a pressing need within our field & can help an MFI dramatically increase the number of poor reached. One MFI in India was able to grow from serving 40,000 poor clients to 1.2 million clients in a matter of years after gaining access to commercial capital!

Yet, at the same time, the rate at which commercial capital has flowed into the industry is somewhat startling. The number of microfinance investment funds has dramatically increased with large multinational banks such as Citi & Deustche Bank also getting involved. My reservations about commercial capital entering the microfinance space are the fact that at the end of the day, it is commercial. Investors want a financial return on their investment. And where does the return come from? Ultimately, it will come from the poor receiving the microloans. Now, I am a firm believer of base-of-the-pyramid business principles – in fact, I think that creating businesses that serve the poor ultimately will be much more effective in delivering needed services to them.

But in the context of microfinance, where financial literacy & interest rate transparency is still lacking, do we face the risk of mission drift in our sector as the commercial players become pronounced? I do not profess to have an answer nor a completely formed opinion at this point. Again, I see both the benefits & potential pitfalls of commercial capital and firmly believe the role of this type of capital will continually be debated not just myself but by microfinance professionals in the years to come.

On a more personal note, at the conference, I had the good fortune to meet & have my picture taken with one of my heroes – Professor Muhammad Yunus! For those unfamiliar with the name, Professor Yunus essentially created the microfinance movement in Bangladesh and was the recipient of the 2006 Nobel Peace Prize.

At the session where I had this photo taken, Professor Yunus was treated almost like a rock star – there was a line of people waiting just to shake his hand & have their photo taken with him. And to think that it all started with a small loan to a group of poor Bangladeshi women. Here is another picture of Professor Yunus with the other Kiva staff in attendance (starting from the left, Brooke Estin, Professor Yunus, me, Rico Munoz).

Darren Miao

Microfinance Partnership Manager – Asia Pacific