I don't understand the risk rating of lenders

Discussion in 'Kiva | Loans That Change Lives' started by estnet, Jun 11, 2013.  |  Print Topic

  1. estnet
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    estnet Gold Member

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    Usually lenders with a high ratings have low delinquency rates and default rates, but I just loaned to one that had a 1.5 rating, had been on Kiva for a long time and had a 0 default rate 0 delinquency and very low at risk. Can't understand how they have such a low star rating:confused:
     
  2. miles and smiles
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    miles and smiles Gold Member

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    The risk ratings on Kiva have to do with the Field Partner's risk of institutional default. This is different than the individual's borrower's risk of default. They are two different indicators of risk.

    You may want to read this page on risk in Kiva:
    http://www.kiva.org/about/risk
     
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  3. estnet
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    estnet Gold Member

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    Thanks - I'll look at the link, but basically this means that the risk of the "bank" failing is high even though the loans are paid back well?
     
  4. miles and smiles
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    miles and smiles Gold Member

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    I expect that the truth is far more complicated than that, but I would have to search some more to find a good explanation. Given that Kiva's overall default rate is 1% and dropping, it's not something I worry about much. In fact I am shifting a lot of my lending over to Kiva Zip where the risk supposedly is much higher.
     
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  5. estnet
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    estnet Gold Member

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    I don't need a more detailed explanation but from what I read on the link there are risks like the company failing, embezzlement, etc that seem to factor into the rating.

    It didn't stop me from making the loan either. After all I don't have to worry about a Madoff scale or super bank level failure VBG
     
  6. miles and smiles
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    miles and smiles Gold Member

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    Yes, field partners have gone bankrupt or have been forced to stop lending (I remember that happened to a FP in Afghanistan a couple years ago). I would say that in my defaults over the years about half were because of FP failures and about half because of borrower's failures.
     
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