Special Notice on the Women’s Economic Empowerment Consort from Kiva Staff – June 5, 2008

Kiva’s Field Partner, the Women’s Economic Empowerment Consort (WEEC), is currently experiencing operational difficulties and is unable to repay its debt to Kiva. Therefore, all of WEEC’s active loans have defaulted and the partnership is now closed. Please see the FAQs below for more information.

FAQs:

Q: What is WEEC and how is it related to Kiva?

A: Loans on the Kiva website are administered by independent Field Partners, which are organizations that lend to the poor for poverty alleviation. The role of a Field Partner is to screen each entrepreneur, upload his/her loan request on the Kiva website, disburse the loan, and collect loan repayments. WEEC (Women’s Economic Empowerment Consort) is a microfinance institution in Kenya that was one of Kiva’s Field Partners. The partnership is now closed.

WEEC was founded in 1996 by a dedicated and inspiring woman by the name of Jedidah Waigwa. When Kiva established its partnership with WEEC in 2006, WEEC was a struggling, but promising, Microfinance Institution (MFI). The unexpected and untimely death of Jedidah in April 2007 added significantly to the organizational challenges facing WEEC. The organization has experienced financial and managerial difficulties following the passing of Jedidah, and was supported by a weak accounting and loan data system. Currently, WEEC is insolvent and it does not have a viable plan to repay its creditors, including Kiva. It is important to note that the entrepreneurs served by WEEC were not the primary cause of its insolvency. Many entrepreneurs repaid their loans on time and their businesses benefited from your loan.

Q: Why was my loan defaulted?

A: Your loan has defaulted because it is highly unlikely that Kiva will be able to collect the full amount of loan funds from WEEC. In the unlikely event that additional funds are recovered, you will be notified and your Kiva account will be credited with the additional funds.

Q. What does it mean for a loan to default?

A: A loan is typically classified as ‘defaulted’ if has reached six months beyond its scheduled repayment date and has not been fully repaid. For example, if a loan is scheduled to be repaid in 12 months, and after 18 months the loan has not been fully repaid, it would generally be defaulted.

The WEEC loans were defaulted earlier than the six-month default guideline as we have determined that further collection of these loans is highly unlikely. In this case, the default was caused because WEEC did not repay the loan, independent of if the loan was repaid by the entrepreneur.

Q: What has Kiva done to investigate the situation and help WEEC and their entrepreneurs?

A: Over the past year, Kiva has sent 7 staff and representatives to visit and work with WEEC to help address their situation. Following the death of their founder in April 2007, Kiva sent a very qualified Kiva Fellow, a certified Chartered Financial Analyst with microfinance knowledge, to WEEC for three months. That Fellow provided strong assistance to WEEC and was replaced by another Kiva Fellow, an MBA graduate, who was on site from October 2007 to February 2008. In addition, Kiva retained the services of a local accounting and financial services firm to review the financial records of WEEC and to assess the quality of the loan portfolio.

Unfortunately, the findings from that review revealed significant weaknesses in the accounting and financial controls at WEEC and significant problems in WEEC's overall loan portfolio quality. In addition, the review also revealed that Kiva loan funds were being used for purposes other than funding entrepreneur loans. It is estimated that WEEC diverted about one third of lender funds to pay operational costs and debts that it had accumulated for years. Despite the diversion of funds, WEEC still has a large amount of debt to repay to five different organizations including Kiva. This situation was complicated by many additional factors including weak organizational management at WEEC, the unexpected death of WEEC’s founder, and economic and political unrest in Kenya. These factors have combined to make WEEC insolvent, and it is currently unable to repay its debts, including the debt to Kiva’s lenders.

Upon discovering WEEC’s weaknesses, Kiva requested that the WEEC Board of directors be convened to address the findings and define a path forward. The Board proposed several actions to address the management and financial challenges at WEEC. One option that was explored was to have WEEC acquired by another Microfinance organization and install new management. Kiva worked in cooperation with WEEC’s other creditors and worked to explore the options to turnaround the situation and recover lender funds. However, due to WEECs insolvency and the political crisis in Kenya, no buyer or investor materialized. At this point, Kiva determined that all outstanding WEEC loans should be defaulted.

Stepping back, Kiva invested heavily in trying to help WEEC when it first learned of operational problems at the organization. We believe in helping Field Partners through difficult periods and rough patches. However, discovering that our lender funds were inappropriately used violated Kiva’s policies and our sense of trust with WEEC’s management. As a result, Kiva has terminated its partnership with WEEC.

Q: Did the entrepreneur that I loaned to receive any of his/her loan?

A: Possibly. Based on an analysis and limited client field audit, Kiva estimates that approximately two thirds of loans were disbursed to WEEC entrepreneurs. However, without a full client audit the exact number and status of each loan is not possible to determine. Due to the cost and time involved in auditing all 1,147 WEEC entrepreneurs funded on the Kiva website, Kiva decided not purse this action.

Q: Is Kiva still working to collect the loans from WEEC?

A: Yes. In coordination with WEEC’s other creditors, Kiva continues to work to collect funds owed to Kiva lenders by WEEC. More importantly, we are also working to transition WEEC’s borrowers to another microfinance institution so that the borrowers will be able to access future microfinance loans.

Q: What if Kiva is able to recover additional funds from WEEC?

A: In addition to diverting a significant amount of Kiva funds to repay creditors, WEEC did not send any funds to Kiva for over $100,000 in repayments it noted on the website. However, Kiva management has made the decision to still honor the repayments that WEEC had reported. For example, if a lender received notifications that $20 of their loan had been repaid, then Kiva will still provide the $20 in Kiva credit even if Kiva did not receive these funds from WEEC. As Kiva has incurred a ‘deficit’ by providing funds to lenders that it never received from WEEC, any funds that are recovered will first be applied to this deficit. It is highly unlikely that Kiva will recover funds in excess of this deficit. However, if this does occur, lenders to WEEC businesses will be notified and the additional funds will be returned to the lender’s Kiva account.

This summer Kiva is implementing a new loan repayment reporting procedures with its Field Partners to prevent this type of occurrence from happening in the future.

Q: What does this situation mean for WEEC’s entrepreneurs?

A: Kiva is making every effort to transition WEEC’s entrepreneurs to another microfinance institution so that the entrepreneurs can access future micro-loans. WEEC is located in an area where several other microfinance institutions operate. Therefore, WEEC's entrepreneurs may be able to access micro-loans from other microfinance institutions in Kenya. The ability of WEEC’s clients to access microfinance in the future is a key element to any option that we may pursue.

Q: What is Kiva doing to prevent this situation from occurring again in the future?

A: Please realize that the WEEC situation is a true exception to the norm. The vast majority of our Field Partners are healthy organizations that are very capable of administering your loans with the highest integrity. An incredible amount of work goes into ensuring that we are lending to healthy organizations capable of disbursing Kiva loans, that each entrepreneur gets the loan capital that you provide, and that you can trust the information on Kiva’s website. Please read below for a summary our risk management programs that aim to prevent situations like WEEC from occurring in the future.

Before Partnership: Screening
Before partnership with Kiva, each microfinance institution must be cleared of the US Department of Justice Terrorist Exclusion List and the Treasury Department's list of "Specially Designated Nationals and Blocked Persons”, and provide Kiva with legal incorporation registration documents recognized by the local government. In addition, Kiva staff evaluates the organization’s finances, management, past performance, and resources available. Kiva staff also completes numerous reference checks on each organization, and evaluates its social mission.

During Partnership: Rating and Monitoring
When an organization has been accepted as a Kiva Field Partner, it is assigned by Kiva a Risk Rating, which determines the organization’s fundraising ability while in partnership with Kiva. The Kiva Risk Rating reflects the estimated repayment risk associated with each partner according to the evidence described below. A 1 star rating indicates very limited evidence supporting a Field Partner's repayment reliability, and a 5 star rating indicates very significant evidence supporting a Field Partner's repayment reliability.

The Risk Rating is based on evidence from the Field Partner, such as the organizational age, sustainability, and loan portfolio size, and from third parties, such as recent financial audits, credit ratings and independent evaluations. In addition, the Risk Rating is influenced by evidence gathered by Kiva that supports a Field Partner's repayment reliability. This information includes Kiva data verification audits, Kiva Fellows journaling coverage, Kiva repayment performance over time, and bank statement reviews.

Kiva Field Partners are required to receive a Kiva staff person, representative, and / or third party auditors each year to evaluate the partnership, validity of loans, and accuracy of data. In some cases Kiva Field Partners have received numerous visitors during a year.

Kiva Risk Management
Kiva has a full time Risk Manager on staff whose responsibilities include constant re-evaluation of Kiva’s Due Diligence procedures, oversight of Kiva’s Field Partner portfolio in terms of level of risk of each Field Partner, and tactically managing any high risk situation with a Field Partner which may or may not be triggered by delinquency, political instability, organizational instability, or fraud. Kiva also has custom developed software and other monitoring tools that evaluate the performance of each Field Partner’s Kiva Portfolio and alert Kiva staff when a high risk situation arises.

For more information check out our Risk and Due Diligence Center.


Original Partner Description provided by WEEC

WEEC started her operations in 1996, by mobilizing local women in the Kiserian area to form self-help groups for mobilizing savings and starting revolving savings and credit funds. Their mission is to empower disadvantaged but economically active rural women in Kenya to enable them to meet their basic needs and improve their living conditions both socially and economically through savings mobilization, credit provision and information dissemination.


Repayment Performance on Kiva

    This Field Partner All Kiva Partners
  Start Date On Kiva Mar 15, 2006 Oct 12, 2005
Total Loans $472,200 $586,524,650
Amount of raised Inactive loans $0 $575,375
Number of raised Inactive loans 0 493
Amount of Paying Back Loans $0 $119,938,425
Number of Paying Back Loans 0 126,745
Amount of Ended Loans $472,200 $466,010,850
Number of Ended Loans 1,122 592,750
Delinquency Rate 0.00% 3.39%
Amount in Arrears $0 $2,666,127
Outstanding Portfolio $0 $78,651,892
Number of loanDelinquent 0 10,408
Default Rate 38.00% 1.15%
Amount of Ended Loans Defaulted $179,444 $5,337,667
Amount of Ended Loans $472,200 $466,010,850
Number of Ended Loans Defaulted 886 16,806
Currency Exchange Loss Rate 0.00% 0.08%
Amount of Currency Exchange Loss $0 $480,684
Refund Rate 1.83% 0.77%
Amount of Refunded Loans $8,625 $4,496,250
Number of Refunded Loans 23 5,040

Loan Characteristics On Kiva

    This Field Partner All Kiva Partners
  Loans to Women Borrowers 99.74% 74.17%
Average Loan Size $420 $418
Average Individual Loan Size $420 $656
Average Group Loan Size $0 $1,827
Average number of borrowers per group 0 8
Average GDP per capita (PPP) in local country $1,800 $3,433
Average Loan Size / GDP per capita (PPP) 23.33% 12.19%
Average Time to Fund a Loan 0.79 days 5.58 days
Average Dollars Raised Per Day Per Loan $534.09 $75.01
  Average Loan Term 10.19 months 10.31 months

Journaling Performance on Kiva

    This Field Partner All Kiva Partners
  Total Journals 223 292,969
  Journaling Rate 16.76% 42.41%
  Average Number of Comments Per Journal 0.62 0.08
  Average Number of Recommendations Per Journal 3.22 1.89

Borrowing Cost Comparison (based on 2009 data)

    This Field Partner Median for MFI's in Country All Kiva Partners
  Average Cost to Borrower N/A 36.00% PY 33.64% PY
  Profitability (return on assets) N/A 0.5% -1.40%
  Average Loan Size (% of per capita income) N/A 56.00% 41.35%

Country Fast Facts

Field Partner Staff