Kiva has taken the initial step under Ecuadoran Law to recover funds by making a demand for repayment through a local notary. Because MIFEX has not responded to the notarial demand for payment within the time permitted under Ecuadorean law, we are working on next steps with our local Ecuadorean counsel.
Special notice on MIFEX from Kiva Staff on January 14, 2009:
After consultations with Kiva attorneys in the United States, Kiva on December 19, 2008 further engaged with local legal counsel in Quito, Ecuador. Our Ecuadorean attorney is in the process of reviewing the relevant fact situation to help us determine options and generate recommendations for proceeding forward under Ecuadorean law. The challenges involved in seeking a resolution to the MIFEX issues are complex, in the context of a foreign country’s legal system where rules and procedures are different from the U.S. Moreover, progressing via legal channels and processes can certainly take time, and we thank you for your patience in this matter. Please continue to check this page for further developments.
Special notice on MIFEX from Kiva Staff on November 25, 2008:
Kiva’s Field Partner, MIFEX, is currently experiencing operational difficulties and is unable to repay debt to Kiva. Therefore, all of MIFEX’s active loans have been defaulted and the partnership is now closed. Please see the FAQs below for more information.
Q: What is MIFEX 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 to the Kiva website, disburse the loan, and collect repayments. MIFEX is a microfinance institution in Ecuador that is one of Kiva’s Field Partners. The status of MIFEX’s partnership with Kiva is “closed.”
Q: Why has my loan administered by MIFEX defaulted?
A: Your loan has defaulted because it is highly unlikely that Kiva will be able to collect additional repayments on your loan from MIFEX. 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 it 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.
Some MIFEX loans were defaulted earlier than the six-month default guideline, as we have determined that further collection of repayments on these loans is highly unlikely. In this case, the default results from MIFEX not repaying the loan, regardless of whether the loan was repaid by the entrepreneur.
Q: What has Kiva done to investigate the situation?
A: Kiva has conducted a series of on-site visits to MIFEX. These visits have been conducted by both Kiva personnel and by an independent third-party evaluator. The purpose of these visits was to better understand the reasons behind MIFEX’s inability to repay loan funds to Kiva lenders and to work with MIFEX to find a solution to the problems they face as an institution.
Q: What were Kiva’s findings?
A: Kiva has discovered that MIFEX (i) improperly inflated the loan amounts it posted for entrepreneurs on the Kiva website and (ii) kept the excess amount of the posted loan to fund its own operational expenses.
By way of example, if an entrepreneur needed a $1,000 loan, MIFEX posted a loan request amount of $1,300, and retained the $300 excess to fund its own operations. Based on a sample of visited entrepreneurs, Kiva estimates that MIFEX inflated posted loans by approximately 35% on average.
These circumstances, combined with continued financial losses, have resulted in a situation where MIFEX is unable to repay your loan.
Q: Did the entrepreneur that I loaned to receive any of his/her loan?
Yes. Based on our investigations, we are confident that the entrepreneurs working with MIFEX featured on the Kiva site did receive a loan, but in most cases it was approximately 35% less than the stated amount on the website.
Q: Is Kiva still working to collect loan repayments from MIFEX?
A: Yes. MIFEX’s actions are a very serious violation of Kiva’s policies. Kiva has already suspended MIFEX from further participation in Kiva microloan funding, and we are reviewing all options for recovering amounts owed to Kiva lenders.
Q: What happens if Kiva recovers additional funds from MIFEX?
A: While further collections are highly unlikely, if Kiva is able to collect further funds they will be distributed proportionally to affected MIFEX lenders, and we will notify you by email.
Q: What does this situation mean for MIFEX’s entrepreneurs?
A: Based on our investigation, which included in-person borrower visits, we remain confident that the (i) entrepreneurs and business activities posted by MIFEX to the Kiva website were actual individuals and businesses and (ii) the entrepreneurs did indeed receive Kiva loan funds intended for them, although not the entirety of the posted amounts.
From our investigation we can say with confidence that borrowers, in most cases, have been able to use their loan funds to invest in their businesses and improve their lives.
Q: Why didn’t Kiva share this information earlier?
A: Kiva recognizes that our lenders have been extremely patient in waiting for this update. We thank you for this, and acknowledge your frustration.
Kiva is committed to being a highly transparent lending marketplace. Over the past few months we have been working hard to gather accurate and reliable facts on exactly what has happened on the ground. For example, we have sought to verify MIFEX management’s claim that they have been having trouble collecting funds because of the rains in Ecuador, and other reasons stated in a previous communication from MIFEX to Kiva lenders.
Since being alerted to MIFEX’s potential misuse of Kiva funds and their financial and operational challenges, Kiva has:
- Been in continual conversation with the MIFEX staff
- Sent 2 Kiva staff members to conduct investigatory field visits, at separate intervals
- Commissioned a highly reputable third party auditor to conduct an in-depth audit of the use of Kiva funds
- Attempted to gather a critical mass of information on, not only the repayment behavior of the entrepreneurs funded on Kiva, but also of the health of MIFEX as a whole
- Formed an in-house working group to maximize recovery of the Kiva loan funds administered by MIFEX
It is only recently that Kiva has been able to have a high degree of confidence in the results of our investigations. As such, we have held off on sharing information until we felt we could share not just speculation, but instead facts, with our lenders.
Q: Why has there been no stated delinquency rate for MIFEX?
A: In the handful of cases where a field partner has a large majority of clients with repayments that are not made on regular intervals, Kiva has generally not posted a delinquency rate figure. Field Partners such as AMK (in Cambodia), SEM (in Senegal) and GHAPE (in Cameroon) are examples of MFIs that fall into this category. Kiva had originally placed MIFEX into this category as well.
Kiva's systems have historically not included the flexibility to account for repayments made on an irregular basis when calculating delinquencies. As a result, Kiva's system was not previously able to generate a delinquency ratio for the handful of partners designated as having non-standard repayment schedules in a manner consistent with delinquency ratio calculations for field partners with more standard repayment schedules, to allow an apples-to-apples comparison in the delinquency data.
Kiva has recently launched an updated version of our software that will enable Kiva in the near term to more flexibly generate delinquency data for field partners on non-standard repayment schedules.
Q: What Can I Do to Minimize Risk for Future Kiva Loans?
A: Kiva is committed to partnering with high-quality microfinance institutions with a social mission of lending to the poor. While partnering with newer organizations can imply greater risk of non-repayment, this is a portion of the microfinance industry that can create a great deal of social good. We encourage you to, at all times, refer to our Field Partner pages (http://www.kiva.org/about/partners), which indicate our assessment of the level of risk associated with each microfinance institution, as well as our Risk and Due Diligence Center (http://www.kiva.org/about/risk/overview).
Q: What is Kiva doing to prevent this situation from occurring again in the future?
A: A 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 MIFEX 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 they must 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 other 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 a Risk Rating by Kiva, which determines the organization’s fundraising ability while in partnership with Kiva. The Kiva Risk Rating reflects the relative repayment risk associated with each partner according to the characteristics described below. A 1 star rating indicates a relatively higher risk of repayment problems based on an MFI’s characteristics whereas a 5 star rating indicates a relatively lower risk of MFI-related repayment problelms.
The Risk Rating is based on information 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 data 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.
For more information check out our Risk and Due Diligence Center
Q: Is there anything else that Kiva learned?
With respect to the timeliness and frequency of communications, we recognize we have not provided information in as timely a manner as many of our lenders would have hoped. In order to increase transparency around our processes and internal decision- making, we are committed to using the Kiva Field Partner pages as a venue for updates in the future.
We encourage our lenders to consult these pages more frequently in the coming months, and we are working to eventually build out features that will enable lenders to more easily track which of their loans are delinquent, and the reasons why.
Q: What do I do if I have other questions?
Have more questions? Kiva staff would love to speak with you. Please join us at one of the times below for an open discussion on MIFEX:
Monday, December 1st at 9 a.m. PST
Wednesday, December 3rd at 6pm PST
Here is the call – in information:
Dial In (U.S.): 866-740-1260
Dial In (Outside U.S.): +1 303-248-0285
Access Code: 6415483
Original Partner Description provided by MIFEX:
Mifex is a savings and loan cooperative (credit union) located in Guayaquil, Ecuador. Along with microloans and microinsurance, we provide the poor with services that support business growth and development. These services will teach small businesses how to manage finances and mitigate risk. Thanks to Kiva, we help you contribute to the global effort against poverty. International lenders from Kiva and clients saving in our organization provide financial support to micro and small business owners from the poverty belt that surrounds Guayaquil and the rural coast of Ecuador. One loan at a time, Mifex is committed to bridging the gap between poverty and prosperity.
MIFEX can be reached via email at email@example.com
Listen to an interview with Robert Edgar, MIFEX Co-Founder and Director of Operations, here.
Repayment Performance on Kiva
|This Field Partner||All Kiva Partners|
|Start Date On Kiva||Apr 23, 2006||Oct 12, 2005|
|Amount of raised Inactive loans||$0||$394,100|
|Number of raised Inactive loans||0||550|
|Amount of Paying Back Loans||$0||$121,474,500|
|Number of Paying Back Loans||0||130,987|
|Amount of Ended Loans||$1,396,800||$494,069,300|
|Number of Ended Loans||1,907||624,052|
|Amount in Arrears||$0||$3,417,623|
|Number of loanDelinquent||0||16,120|
|Amount of Ended Loans Defaulted||$337,158||$5,427,172|
|Amount of Ended Loans||$1,396,800||$494,069,300|
|Number of Ended Loans Defaulted||734||16,892|
|Currency Exchange Loss Rate||0.00%||0.10%|
|Amount of Currency Exchange Loss||$0||$614,667|
|Amount of Refunded Loans||$5,100||$4,567,000|
|Number of Refunded Loans||10||5,104|
Loan Characteristics On Kiva
|This Field Partner||All Kiva Partners|
|Loans to Women Borrowers||60.95%||74.23%|
|Average Loan Size||$731||$419|
|Average Individual Loan Size||$731||$655|
|Average Group Loan Size||$0||$1,835|
|Average number of borrowers per group||0||8|
|Average GDP per capita (PPP) in local country||$10,200||$3,415|
|Average Loan Size / GDP per capita (PPP)||7.17%||12.26%|
|Average Time to Fund a Loan||1.46 days||5.75 days|
|Average Dollars Raised Per Day Per Loan||$501.96||$72.86|
|Average Loan Term||7.76 months||10.46 months|
Journaling Performance on Kiva
|This Field Partner||All Kiva Partners|
|Average Number of Comments Per Journal||0.71||0.07|
|Average Number of Recommendations Per Journal||4.09||1.80|
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||20.00% PY||33.15% PY|
|Profitability (return on assets)||N/A||1.8%||-1.29%|
|Average Loan Size (% of per capita income)||N/A||49.00%||38.08%|
Country Fast Facts
- Official Language:
- Spanish (official), Amerindian languages (especially Quechua)
- Avg Annual Income:
- Labor Force:
- agriculture 26%; industry 19%; services 54%
- Population Below Poverty Line:
- Literacy Rate:
- Infant Mortality Rate (per 1000):
- 18.48 deaths
- Life Expectancy:
- 76.15 years