Risky Business: Evaluating Kiva Field Partner Ratings

6 September 2011 at 08:00 7 comments

Lauren Barra, KF16, Kenya

News of hurricanes, earthquakes, and wildfires bringing you down? Tired of hearing about how the world economy is in the toilet and the U.S. outlook is grimmer than ever? Want to explore a corner of the world where risk profiles are actually improving? Welcome to Yehu Microfinance Trust in Mombasa, Kenya.

Starting today, Yehu will now proudly display a three star Field Partner risk rating on Kiva. In their communication with Yehu, Kiva highlighted its main justifications for the change:

Reasons for the upgrade include continued maintenance of portfolio quality, strong growth, excellent management team hires, and strong competitive positioning.

I sat down with Esther Mutuma, the newly appointed COO of Yehu, to discuss her thoughts on the upgrade:

It’s really exciting. The most obvious outcome is people will take the time to look at us now because of the rating. We appreciate the model Kiva uses. Having lived in the U.K., I know the first thing I did before purchasing an item was check the rating. I know the mindset people in the U.S. have. Ratings are everything.

As Casey explained, the cost for an MFI to participate in Kiva isn’t cheap. It takes time, energy, and resources to collect borrower stories and pictures from the field. Morale can plummet when loan officers put forth all of this effort and their loans repeatedly go unfunded on Kiva. By displaying a strong Field Partner rating, Yehu can increase its visibility and instill confidence in the lender community. In the future, Yehu hopes that no loan will expire due to its Field Partner rating.

So how does Kiva decide to upgrade a Field Partner? We’ve seen from the recent S&P downgrade of U.S. debt that rating the inherent “risk” of a country or institution can be a controversial business. Kiva has developed its own methodology for evaluating the creditworthiness of each Field Partner. This risk model is based on Kiva’s accumulated experience with Field Partners and it evaluates a number of different dimensions, including:

  • Governance, management, and staff
  • Planning, audit, and earnings
  • Liquidity and capital
  • Management information system and internal controls
  • Transparency

Each of these categories is evaluated during an on-site visit by a Kiva analyst and scored on a scale of 1 to 5. An overall Field Partner risk rating is then calculated, with five stars indicating lower risk of institutional default and one star indicating higher risk of institutional default.

Vibrant colors of the Mombasa marketplace

Rural borrowers account for a significant portion of Yehu’s customer base. As Esther explained, this equates to a higher than average cost operation ratio as loan officers often spend an enormous amount of time and money connecting with borrowers in remote villages. While operating cost is an essential component of the risk model, incorporating a variety of other factors such as management and growth potential, Kiva has enabled Yehu to distinguish itself beyond the balance sheet. Kiva’s risk model isn’t perfect, but judging from Yehu’s experience it’s getting a lot of things right.

Congratulations, Yehu! To show your support for this important accomplishment, click here to loan to a Yehu borrower or join the Yehu Lending Team.

Lauren Barra is serving as a Kiva Fellow with Yehu Microfinance Trust in Mombasa, Kenya and Tujijenge Tanzania in Dar es Salaam.

Entry filed under: Kenya, KF16 (Kiva Fellows 16th Class), Yehu Microfinance Trust. Tags: , , , , , , , , , , , .

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  • 3. Aymer  |  7 September 2011 at 09:33

    Thank you for the post and the insight.

    As a Kiva lender, I evaluate the MFI more than the borrowers. I think microfinance has a part in fighting poverty; however it’s not a panacea. In some instance, microfinance has been used as a form of predatory lending.

    I think one the major role of Kiva is as a “rating agency” for MFI around the world to ensure that lenders don’t inadvertly loan money to MFIs that cause harm.

    Question, how often are MFIs rating evaluated? Yearly?

    • 4. Lauren Barra  |  8 September 2011 at 01:44

      Thanks for your thoughts, Aymer. I believe Kiva just updated its “Risk and Due Diligence” page to explain this process in greater detail:

      We generally update our risk rating at least once a year to ensure that we are providing the most up to date information as possible to our lenders. In addition, Kiva reviews quarterly financial information for each Field Partner that has received full due diligence.


  • 5. Anita  |  7 September 2011 at 08:23

    Thank you Lauren, this is good !

  • 6. Whitney Webb  |  7 September 2011 at 01:01

    Great post Lauren! I actually showed this to my Kiva Coordinator because she just asked why this MFI was just raised from a 3 to a 4 star. This was a perfect explanation. Congrats to Yehu and congrats to you – seems like you are doing great!

    • 7. Esther Mutuma  |  7 September 2011 at 08:02

      Thank you Whitney

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