Kiva's staff and volunteers work to create a highly transparent, data-rich lending platform. To achieve this, Kiva has different levels of due diligence available to help ensure that we can reach a broad range of borrowers through our local Field Partners:

All of Kiva's Field Partners are committed to serving the needs of poor and excluded people, whether directly through financial services or indirectly through the use of credit to extend pro-poor products and services.



Full due diligence process for potential Field Partners

Step 1: Initially screen each Field Partner

New potential partners whose core business is microfinance must meet Kiva’s minimum requirements in order to fundraise for local borrowers:

  • Have a history (at least 2-3 years) of lending to poor, excluded and/or vulnerable people for the purpose of alleviating poverty or reducing vulnerability.
  • Be registered as a legal entity in its country of operation.
  • Have performed at least 1 year of financial audits.
  • Have a strong social mission and a clearly-defined use for Kiva financing.

For organizations whose core business is not microfinance, these requirements are as follows:
 

  • Have a history (at least 2-3 years) of operations providing socially-valuable goods and/or services to people living at the bottom of the pyramid.
  • Be registered as a legal entity in its country of operation or in the country where it delivers goods or services.
  • Have performed at least 1 year of financial audits.
  • Have a strong social mission and a clearly-defined use for Kiva financing.

All potential partners must have a strong social mission and a demonstrated commitment to serving the needs of the poor and excluded. In some cases, Kiva will choose to work with for-profit organizations. If an organization is designated as a for-profit, Kiva's investment team will review the proposed use of Kiva funding, the alternatives available to the organization, the social value of Kiva's involvement and what the organization plans to do with Kiva's subsidized (0% interest) funding.

Step 2: Review application

If an organization meets Kiva’s minimum criteria, we proceed to the application process. At this point, the organization submits documentation detailing its operations. For microfinance institutions, these documents include: audited financial statements, portfolio reports, resumes of board and management members, organizational manuals, projections and ratings (if available). For non-MFIs, this information includes: financial statements, operational reports, portfolio reports (if available), business plans, resumes and/or bios of board and management members, projections, evidence of impact (if possible) and references.

This information is reviewed by a Kiva analyst on our investments team who determines if the organization is a promising candidate to become a Kiva Field Partner.

Step 3: On-site due diligence

If the organization is a promising candidate, the Kiva analyst will generally visit the organization for on-site due diligence. Some organizations may not receive an on-site visit due to risks of traveling to the country where the organization is located. In those cases, Kiva seeks to leverage external sources, other rating information and desk reviews to support our due diligence efforts. During the visit, the analyst evaluates the organization in more detail in a number of different dimensions. For microfinance institutions, the key areas of analysis are:

  • Governance

  • Management

  • Staff

  • Planning

  • Audit

  • Earnings

  • Liquidity

  • Capital

  • Management Information System & Internal Controls

  • Transparency
     

For non-MFIs, in addition to the areas listed above, special attention is paid to operational risks, past lending history, sales history (for service companies), borrower selection and reputational risks.

To get an understanding of the quality of the organization around these dimensions, the on-site visit includes interviews with members of the management team, middle management, entry level staff (loan officers) and clients. In addition, the analyst reviews documentation, reports and the information system of the organization.

Step 4: Prepare a report and propose a risk rating

From the visit, the analyst prepares and submits a report to Kiva's investment team to review. For microfinance institutions, the analyst proposes a risk rating for the potential Field Partner. For non-MFIs, the analyst proposes a credit limit commensurate with the proposed Field Partner's observed risk.

To calculate the risk rating for an MFI Field Partner, Kiva has developed a risk model based on the dimensions mentioned above. Each dimension has a variety of sub-dimensions that are scored on a 1-5 scale, based on the information obtained at that point in time from documents provided by the MFI and the on-site visit done by the Kiva analyst. The analyst uses the risk rating calculated by the model to propose a star rating in 0.5 increments between 1-5 for the Field Partner. This rating reflects the estimated risk of institutional default associated for each Field Partner according to the indicators described above. A 1-star rating means there are stronger indicators supporting a Field Partner's risk of institutional default, and a 5-star rating means that there are limited indicators supporting a Field Partner's risk of institutional default. Please note that microfinance is an inherently risky activity and even a Kiva 5-star rating does not imply anywhere near an investment-grade risk profile. It should be remembered that lending on Kiva presents some inherent risks that could result in the loss of your capital.

For non-MFI partners, no risk model is prepared because Kiva has not yet developed a framework for industries beyond microfinance. An example of this might be a farm assistance program. Kiva does not have a formal risk model prepared for that industry. In this case, Kiva would not publish a formal risk rating, and the partner risk rating would display as "Non-Rated". However, Kiva would label loans from that Field Partner as having gone through a due diligence process, and manually set a credit limit that it considers appropriate to the level of institutional default risk posed by that organization.

For microfinance institutions, here is a look at the risk ratings and risk of institutional default:

Field Partner's Risk of Institutional Default      Corresponding
Risk Rating
Very Limited (Lower Risk) lit star lit star lit star lit star lit star
Limited (Low Risk)
lit star lit star lit star lit star lit star
Moderate (Moderate Risk) lit star lit star lit star lit star lit star
Significant (High Risk) lit star lit star lit star lit star lit star
Very Significant (Higher Risk) lit star lit star lit star lit star lit star


As noted above, Kiva currently only has a formal risk model prepared for microfinance institutions. Over time and as Kiva grows, it may develop formal risk models for other types of partners.

Step 5: Submit for approval

The report prepared by the Kiva analyst is presented to Kiva’s investment team, which reviews the risk and social profile of the organization. If the team approves an organization as a Kiva Field Partner, it will issue the final risk rating (where appropriate) and fundraising limit for the Field Partner.

The amount of money a Field Partner can have outstanding (credit limit) with Kiva is generally based on its risk rating. A Field Partner with a 5-star rating can have significantly more in total loans outstanding than a 1-star Field Partner. The amount a Field Partner can raise each month for local borrowers on Kiva depends on its credit limit and how much of its credit limit remains unused.

Basic due diligence process for potential Field Partners


The basic due diligence designation allows Kiva to partner with organizations that are looking to access smaller amounts of capital. Currently, the maximum allowable credit limit for a partner brought onto the Kiva platform with a basic due diligence designation is $400,000. We believe that the basic due diligence process is allowing Kiva to more easily partner with a diverse set of organizations that do innovative work on a smaller scale than our full due diligence partners.

Basic due diligence includes these steps:

Step 1: Initially screen each Field Partner

Kiva does an initial screening of each organization to understand the products the organization is offering, their history and desired use of Kiva’s funds. Kiva does not impose the same minimum standards in the basic due diligence model as under a full due diligence model.

Step 2: Review application

At this point, the organization submits to Kiva a complete set of documents that contain information about its operations, including financial statements, information on the board and management team, references and ratings if available. This information is reviewed by a Kiva analyst on our investments team who determines if the organization may be a promising candidate to become a Kiva Field Partner.

Step 3: Prepare report and submit for approval

Following the review of the above information, the Kiva analyst determines if the organization is capable of handling funding through Kiva.

The Kiva analyst will prepare a report and present it to a subset of Kiva’s investment team for approval. As opposed to a partner that goes through a full due diligence process, Field Partners that receive basic due diligence will not have a risk rating and the partner risk rating will display as "Non-Rated.” Kiva will also label loans from that partner as having gone through the basic due diligence process. Kiva’s investment team will manually set a credit limit that it considers appropriate to the level of institutional default risk posed by that organization.

The credit limit of Field Partners that have gone through basic due diligence generally will be significantly lower than that of partners who have gone through the full due diligence process.

Experimental partnership


Experimental partnership is a designation of due diligence that is available for organizations seeking to use the Kiva platform to experiment with small lending programs. Field Partners designated as experimental hold conversations with members of Kiva's investment team but are not formally vetted, nor are they reviewed by the whole investment team. Experimental partners that perform well with their early loan postings may be eligible to access a credit limit of up to $50,000 based on Kiva's review of their work and ability to absorb and manage additional funds.

Kiva believes that this partnership type will allow organizations with small credit needs to join the platform at a low operational cost for Kiva, allowing for experimentation in real-time at low levels of exposure. Experimental partners that are successful on the Kiva platform may be invited to apply for partnership under the basic or full due diligence designations.

Because experimental partners are not reviewed by Kiva's investment team, little is known about the level of risk they pose. As such, risk-averse lenders should avoid loans associated with experimental partners. Initially, Kiva will limit its overall exposure with experimental partners to no more than 2% of total outstanding balances in order to minimize the overall risk associated with this partnership designation.

On-going monitoring of existing Field Partners


Kiva monitors each Field Partner as regularly as possible (given staff constraints and certain country travel restrictions). In cases where a Field Partner has a risk rating, the monitoring includes updating the risk model. We generally update our risk rating once a year to ensure that we are providing up-to-date information to our lenders. In addition, Kiva reviews annual financial information for each Field Partner that has received full or basic due diligence. Kiva also monitors social performance factors of our Field Partners

As part of our on-going monitoring, we may discover some potential issues at a Field Partner. We will work to investigate and resolve the issues as quickly as possible. While we investigate, we may, at times, delay the timing of distribution of a collected repayment to you as a lender until the investigation is resolved.

Possible reasons for a delay include:

  • Questions about data accuracy (e.g. if Kiva believes that the accuracy of repayment amounts is in question)

  • Concerns about creditor claims (e.g. if Kiva believes that a Field Partner may be facing solvency issues and there's a risk that another creditor -- such as a government tax authority -- may attempt to assert a priority claim on a Field Partner's assets)
     

Basic due diligence partners are generally monitored with less frequency than full due diligence partners. Experimental partners are monitored at a lower level of scrutiny than partners that have undergone basic or full due diligence.

 

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