The Other 2%
Those of us who know and love the Kiva platform probably find ourselves giving the “what is Kiva” elevator pitch fairly often. “Kiva is an online platform…” or “Kiva is a microlending social community…” or whatever your go-to line may be. And we’ve most likely all seen eyes glaze over and watched our audience find a sudden fascination with their feet. But every once in a while you can tell that you’ve hooked them: “So I would get my money back?” “I can really lend $25?” And my favorite moment of those conversations: “What is the default rate?”
That’s when I always feel like I’ve made my case. A 2% default rate is phenomenal, but what about those clients who don’t/can’t/won’t pay back their loans?
Yesterday I visited 4 clients who all are at least 1 year behind on their loan payments. Only 1 client is a Kiva borrower, but the stories are all very similar. Most of the women had something go wrong; a health issue, a death in the family, a sudden unexpected cost, etc.
But all of them also had over committed themselves to multiple loans from multiple banks. So when things start to head south financially it’s 3 times as hard for them because they have 3 banks knocking on their door. In the absence of a formal credit system it’s fairly easy to think that you’re being smart by taking out multiple loans. In some cases this can work just fine, but when it doesn’t work out it gets ugly really fast. Many banks charge late fees and most loans will continue to accrue interest charges until paid off. In some cases the bank will post a list of clients who missed a payment in their front window. So what do you do when your name is on the dunce list and your debt gets larger everyday? No, seriously, what do you do?
In the cases of the women I met with yesterday: 1 proposed a long term payment plan with smaller monthly payments, another cried and cried and asked for a year of leniency, another pretended she didn’t know what we were talking about, and the last client went to her husband and asked for his help in repaying the debt.
With Kiva brought into the mix it can complicate things even further. Kiva lenders expect to get their money back. In fact sometimes I wonder how many lenders even understand that the potential of not getting their money back exists. The microfinance institutions want to protect their reputation and with the level of transparency that Kiva provides to lenders, the default and late payment rates are right there for the world to see. Thus, many MFIs choose to essentially insure their loans for late payments and they have shiny ZEROS next to those stats. But that doesn’t mean that they don’t have late and defaulted loans.
I bring this up simply because it’s a reality of microfinance that I hadn’t fully understood until I came to Guatemala and began working with FAPE. As lenders, we agree to take on the risk, but I still wonder how the lender community feels when they don’t receive their money. Is a journal that explains the situation sufficient? Is there something else that can be done?
**This entry doesn’t have a “photo moment” but in the interest of keeping things visually appealing, here’s a picture I took on a client visit last week.
Andrea Bouch is a Kiva Fellow working with FAPE in Guatemala City. To help support
Guatemalan entrepreneurs please Join the Viva Guatemala Lending Team!