Kiva Conference Call about "Open Marketplace"

Discussion in 'Kiva | Loans That Change Lives' started by jbcarioca, Mar 3, 2012.  |  Print Topic

  1. jbcarioca
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    jbcarioca Gold Member

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    As many of you know Kiva held a conference call yesterday about the proposed "Open Marketplace" which has been causing so much interest among many of us, and worry for some of us too. The attendees were: Matt Flannery, Premal Shah and Beth Kuenstler from Kiva and YULtide, Bob Harris and fcjapan from our side. Of course Bob Harris and YULtide officially represented FOBH and LLL, respectively, but we are all together on these issues as well as most others. Due to schedule conflict neither Randy Petersen nor Nime01 were able to join.

    I hope YULtide and Bob Harris will correct me on my errors in my reporting.

    1) Field Partners and Kiva have had continuing problems trying to manage the flow of new loans and the funding of loans. While there is fairly good knowledge of which loans tend not to be funded (male, Middle Eastern, large, long) there is less clear ability for FP's to manage their flows.
    2) Kiva has historically tried to manage the flows to make sure that all loans get funded. That is labor intensive, fairly rigid, and does not enable such things as seasonal agricultural loans to be handled well.
    3) Several newer needs, such as longer term educational loans , are not well-addressed by the historical interventionist approach.
    4) The efforts to decouple the previous rules over the New Year caused consternation (my word) among the LLL, MilePoint and other teams as the unraveling of the no-expiry policy continues to produce many expiries (as of this moment I personally have had 103 loans expire unfunded since this change began) with associated dismay among Kiva staff, Field Partners and Lenders.
    5) The Kiva approach to dealing with these issues is to give far more data and control of loan posting to Field Partners, with special emphasis on information about what fails and succeeds in the Kiva funding process.
    6) The LLL team had provided lots of questions, only a tiny number fo which were discussed. However, Matt and Premal did ask YOULtide if the famed LLL analytic team could help support better approaches by Kiva.
    7) I have agreed to meet Kiva staffers on Monday after the DO to discuss better ways of integrating the Kiva analytic results, now fairly technical to use, into forms more suitable for use by Field Partners and others. I do the same stuff for a few FI's.

    My conclusion is that they are doing all that we might reasonably expect and more, but that that is not enough now, with continuous growth and expansion. They agree, and are asking for advice on how to do better. We cannot honestly ask for more than that IMO. They are incredibly open and thoughtful. Now it is our turn to find out how we can help them do better.

    So, folks, that is my report.

    I hope YULtide, fcjapan and Bob Harris will give their views too.
     
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  2. YULtide

    YULtide Gold Member

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    Here's what I posted on the LLL message board (hopefully with typos corrected!):

    The call was attended by Matt Flannery, Premal Shah and Beth Kuenstler of Kiva. Lenders were represented by Bob Harris, jbcarioca of Milepoint (and LLL), fcapan (also of Milepoint and LLL) and me. (I belong to all three teams, as well as acting as co-captain of Team Canada).

    The call was scheduled to go for an hour, and I had to drop out after 90 minutes. Something about my boss looking for me. So, I may have missed out on a little bit at the end.

    First, the vision of Kiva is to expand beyond its current boundaries. They started by showing figures on the current reach of banking and microfinance. About 2.5 Billion people don't have access to any financial services. About 156 million of those use microfinance. About 760,000 of those have had a loan funded by Kiva. Kiva is asking the question as to how they can help stimulate expansion of financial services beyond the current reach, perhaps using mobile payment systems or other technologies.

    A first step outside the usual microfinance area is the partnering with a University in Kenya to offer student loans, for example. Kiva is looking for more such opportunities.

    An important point made up front is that changes will be brought in gradually as they can be worked out. My sense is that a Kiva was giving us a sense of direction and trying to draw in the voices of active lenders early in the process of change, rather than just springing changes on us as has been the case in the past. So this conference call was a good thing.

    The concept of the Open Marketplace is a shift in how Field Partners will be allowed to post loans. For now there is a monthly quota in place, and one result of that quota is that loans are held back until the beginning of the next month once the quota is reached. Kiva wants to move toward a line-of-credit system rather than the current quota system, to give Field Partners the opportunity to post as many loans as they want when they want, within their line of credit. I actually think this is good news for LLL, because it will eliminate the big bulge of new loans arriving on the 1st of each month, which always means that we have a large number of loans expiring at the end of the month at the same time.

    Another aspect of the quota system is that Field Partners dealing with agriculture loans have difficulty matching their seasonal needs for loans with the strict monthly allotment. A more open system (and I do wish they hadn't used the term "Open Marketplace"!) would allow a better fit between the use of the credit limit and the seasonal needs of the clients.

    The dark side to this, as I understand it, is that there will be a period of adjustment for the Field Partners as they figure out how to match their fluctuating needs for capital with the (finite if growing) amount of capital available from Kiva lenders. There will be a "feedback loop," as Premal put it, which will help them to learn how best to manage their own flows of loans. I asked if the primary component of the feedback loop would be expiries, and whether the LLL team activites in fact distort the feedback. The response was that they were looking to develop data analyses as a significant part of the feedback loop. But I had the impression, although it wasn't stated explicitly, that trial and error with expiries would be part of the learning process.

    I have to say, also, that all three Kiva staffers praised the work and dedication of the LLL team.

    Another point is that Kiva wants to develop data analyses for Field Partners, and are hoping that some knowledgeable people out there will develop some apps that Field Partners can use to help them understand the Kiva. It wasn't clear to me how they intend to seek out the people who can help do this. Jbcarioca asked some technical banking/finance questions that I'm really not competent to report on. I think I understood what he was asking, and what the responses meant, but I'm not sure I can adequately explain them here. Perhaps he will weigh in.

    Another aspect Kiva spoke of was that the current vetting process for new Field Partners is very detailed and very long, involving all sorts of checks, interviews, and so on, leading to an 80-page report to be analysed before accepting a new field partner. At any given time there are 2-4 dozen new field partners in the process of being approved. Kiva would like to make the approval system more efficient, and perhaps introduce a system of preliminary approval that would allow new Field Partners to begin posting loans in small numbers earlier in the process. This would allow them to develop a track record with Kiva as part of the approval process, if I understand correctly. A good track records and completing the approval process would alow the new Field Partner to post more loans. Field Partners with preliminary approval would probably be given 1 star to indicate that there is an element of unknown risk associated with these loans. A good track record and more information in the approval process would earn more stars, as I understand it.

    As noted above, the call went much longer than anticipated, and most of the LLL questions did not get addressed. I have received an e-mail from Beth asking how we can address them, so I will follow up and report back.

    The bottom line here, as I read it, is that Kiva is in the early stage of making some shifts in the ways it works with Field Partners, and is engaging active lenders in the process. Casual lenders won't notice much change at all, but active lenders such as FoBH, Milepoint and LLL members will notice the changes. The changes are still being fleshed out, and will be implemented gradually. Bob Harris asked Kiva how they are going to communicate with the lenders on these points, and I think they went away thinking about just that. So I expect to see more of this sort of communication effort, and engaging the lenders in dialogue.

    So we watch and hope. I came away cautiously optimistic about Kiva's future. More to come on our outstanding questions.

    If fcjapan and jbcarioca notice any errors or omissions, please do chime in.

    Best wishes, and Happy Lending.
     
  3. kiwi
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    kiwi Gold Member

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    Thanks jbcarioca and YULtide

    A lot to take in, but it is good that Kiva is communicating.
     
  4. milchap
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    milchap Gold Member

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    Does Kiva intend to briefly address these issues with the SFO Do participants?
     
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  5. jbcarioca
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    jbcarioca Gold Member

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    There will be some discussion for sure, and there also will be time to ask questions of Matt and Premal, who are the two most involved with these issues.
     
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  6. jbcarioca
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    jbcarioca Gold Member

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    He Whose Name Shall Not be Spoken continues to offer keen insight and a consistently grave, serious tone (does the man ever laugh?) that adds a certain unspecified gravitas to the proceedings.
     
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  7. Bob Harris

    Bob Harris Silver Member

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    Just jumping in to praise and verify the accounts of the call. Yep, that was it, in a nutshell. Well done, guys!

    I think on balance this is a necessary and wise step for Kiva to grow its long-term ability to help the most people possible, even if there might be a couple of growing pains in the first few months.

    Technology is changing the game, as it always does. Mobile banking is absolutely exploding in some parts of the world, and MFIs are finding new ways to use it all the time. One thing we didn't talk much about in the call, but which I see on the horizon, is the way that mobile banking allows MFIs to innovate in the size, duration, repayment terms, and so on for their loan products. Increasing flexibility on Kiva's side of things seems more than just a good idea — it seems almost inevitable.

    In the meantime, since the vast majority of loans will still be from the same MFIs we're used to seeing, same terms, same types of businesses, posted in exactly the same way, it's most casual users probably won't actually notice much of a change. This may wind up looking almost invisible to everyone but truly committed lenders.

    One thing I can attest to is just how hard Matt and Premal and JD and everyone there think about this stuff. It's not just a job for them — it's a life, a passion. I've always been truly impressed. I'm lucky enough to have spent time casually with all three, and even in their downtime, they're daydreaming and thinking and trying to come up with ways to innovate. So I feel confident they'll do this carefully, in any case.

    Hey, heading up to the DO in a couple of days — I'll be in town from Thursday night to Saturday night. Hope to say hi!
     
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  8. jbcarioca
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    jbcarioca Gold Member

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    That is an excellent point. M-Pesa is the only really successful mobile payments product today, but it is proving itself in innovative ways. It now operates in Afghanistan as well as Kenya, where it started, and Tanzania. The Afghan story is, IMO, one of the outstanding examples of how technology can improve teh lives of people in totally unexpected ways. This is from the Wiki on M=Pesa:
    In 2008 Vodafone partnered with Roshan, Afghanistan's primary mobile operator, to provide M-Paisa, the local brand of the service.[17][18] When the service was launched in Afghanistan, it was initially used to pay policemen's salary, which was set to be competitive with what the Taliban were earning. Soon after the product was launched, the Afghan National Police found that under the previous cash model, 10% of their workforce were ghost police officers who did not exist; their salaries had been pocketed by others. When corrected in the new system, many police officers believed that they had received a raise or that there had been a mistake, as their salaries rose significantly. The National Police discovered that there was so much corruption when payments had been made using the previous model that the policemen didn't know their true salary. The service has been so successful that it has been expanded to include limited merchant payments, peer-to-peer transfers, loan disbursements and payments.[19]
     
  9. YULtide

    YULtide Gold Member

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    Toward the end of the Conference call, it was noted that there were a couple of issues that were LLL specific that were still outstanding. I had a follow-up conversation with Premal Shah last week, and here are the notes from that follow-up:

    The conversation lasted about 1:20, and was primarily betwen Premal Shah and Alan. Rachel also sat in, taking notes and making occasional comments. The conversation involved brainstorming and a bit of blue- sky thinking. Although there was deep engagement and a commitment to continue the conversation, it was not the sort of discussion in which commitments to implement specific changes could be made, and so in what follows, no specific commitments of that kind should be inferred.

    The key issue addressed was the large numbers of expiring loans. We assume that this is a problem for MFIs, although we don't actually have any feedback from them about the extent to which it is a problem, or the point at which the problem becomes unmanageable. Expiry is also a problem for lenders. When a loan expires lenders who have supported it have a negative experience, which Kiva wants to avoid. From the lender perspective, the negative experience involves disappointment and, for the LLL team, increasing levels of frustration and decreased morale.

    As to causes of expiry, we focused on two aspects: number of loans active on the site; and factors that make loans harder to fund. (The question of loan basketing was raised briefly at the end of the conversation. I acknowledged that a recent change had been made, but suggested that more work needs to be done on basketing.)

    On the question of the number of active loans on the site, there was a great deal of back and forth about the pros and cons of having some kind of managed queue of loans, which would be held back (the metaphor was "back of the store") while others (in the "front of the store") are actively fundraising. If this concept were to be implemented ("if") it would have to be done in a way that does not disadvantage any MFI. All should have some access, even if that access is limited or regulated in some way, to the front of the store. How to define the amount of space at the front of the store is an open question. So many slots? A percentage of the total credit line for the MFI? There are also some potential problems with this approach: e.g., what if loans are waiting too long in the queue? (Response: that implies that other loans from that MFI aren't getting funded, so loans would be expiring.) What if the range of sectors gets distorted because of the queuing algorithm? What happens if a loan goes delinquent while it's in the queue? (Response: what happens now if a loan is delinquent while fundraising?) What happens if a loan cycle is completed while it's still in the queue? (Response: if loans are taking that long to get to the front of the store, there's something out of whack, and with no queue management there would probably be mass expiries, which is hardly better.)

    A related problem with the large number of fundraising loans is the factor of overwhelming choice for new or infrequent lenders. Although the "hardcore" lenders (however that's defined) will make many choices of loans, and will use the various filtering and selection tools to do so, new lenders, or those who are making perhaps 1 or 2 loans per month (or less), may find the choice so overwhelming that it's paralyzing, and it takes some experience to learn how to use the selection tools. (Late question: does this possibly affect the conversion rate of site visitors to lenders?) How to choose one loan out of 3000+? If a lender is going to lend to, say, 4 people running sari-sari stores in the Philippines, how to decide among, say, 100 or 200? Or if a lender wants to lend to someone running a taxi, what if there are 20 or more from which to choose? So, the question is, does an overabundance of loans from which to choose lead to negative lender experience? If so, is there an optimum number of loans that ought to be active at any given time? 500? 1000? a moving target that will grow over time? What is the balance between not enough choice and too much choice?

    With respect to factors intrinsic to certain categories of loans that tend to expire, Premal noted that 65% of the loans that have expired to date this year have come from one MFI. (No prizes for guessing which one!) Photos with pixellated faces seem to lead to red loans. Could there be other factors that would help make loans more attractive? Does using video rather than a still photo make a difference? (Answer from Alan: I'm probably a Luddite, but I don't click on videos; I like interesting still photos. Others may prefer videos.) Can the loan write-ups be improved? Instead of using a pixellated face, is it possible to anonymize the photo while making it more compelling? e.g., could a shoemaker be shown with the camera focusing on his hands repairing a shoe, leaving his face out of the photo? Another point is to revisit the need to pixellate the faces of certain clients. Is it still needed, or has it simply become the way of doing things?

    Next steps:

    1) Kiva needs someone to champion the cause of improving presentation of loans with respect to photo quality, video versus still photo, pixellation and writeups. Premal will try to find someone in the organization to work with the MFIs that have been most affected by expiries, and also to get the MFI feedback on the effects of loan expiries.

    2) The conversation about queue management can continue. There's no commitment to implementing any scheme here, though there is openness to exploring the question.

    3) It would be useful to do some statistical analysis on loan expiry. There is an engineer working on that right now (Stev). Is there someone on the LLL team who can partner with Stev to work on this?

    4) Rachel will monitor the basketing issue more closely. There is an engineer working on this.

    5) Kiva is working on ways to restart the lender conferences that they used to host. Whether that's lender conference calls or some other vehicle is still an open question.

    Bottom line: Premal expressed appreciation for the dedication and commitment of the LLL team. Alan expressed gratitude for Premal's time and the commitment of Kiva to engaging with lenders in this way. This is a partnership among lenders, Kiva and MFIs.

    Personal reflection: I came away from this conversation with a renewed commitment to Kiva, and a sincere appreciation for the commitment to working on these issues with lenders as partners. I also recognize that Kiva is a smallish organization with limited resources, though it's growing and doing amazing things along the way. There's lots to do to help Kiva to grow effectively, and to improve what is already a good thing. But every time $25 is lent, the world becomes a better place, and Kiva makes that possible.
     
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  10. miles and smiles
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    miles and smiles Gold Member

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    If 65% of the expired loans have come from one MFI, isn't the simple solution to have that one MFI post fewer loans on Kiva and try to get more funding from other sources? Why the complicated solutions to a fairly simple problem?
     
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  11. YULtide

    YULtide Gold Member

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    A valid question, M&S, but there may be many factors beyond mere volume from one MFI. And there seems to be an element of luck of the draw with respect to which MFI is getting hit on any particular day. The last couple of days it's Tajikistan loans that are expiring. We could tell MFIs to stop posting loans to men, but then some other factor would crop up. Once upon a time it was large group loans that were expiring. Now, you never see group loans expire.
     
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  12. YULtide

    YULtide Gold Member

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    Ouch. I assume you're referring to the foreign exchange rate? The deal with Kiva is that Paypal doesn't charge Kiva processing fees. I'm sure they will happily make money on forex from lenders. Personally, I just use my credit card to pay US$ and let the card company do the conversion. Whether that's much better than Paypal's rates or not is hard to say. Either way, I'm sure I get squeezed. But at least I get FF miles for the extra that the card charges me in forex.
     
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