What factors affect loan funding times

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Analysis into which factors drive faster or slower funding times for loans.

Based on qualitative analysis into 100 fast and slow-funding loans, and quantitative analysis of all loans made through to the end of August 2009.

Published in: Economy & Finance, Technology
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  • Oh, and it would sure be nice if we were able to comment directly to the Kiva blog. Thanks!
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  • Kiva lender here. Read the Kiva blog post and this presentation with interest. However, I think you missed an aspect with the assessment of the 100 loans. In speaking to people on Kiva, I have had several people tell me that they are concerned about the length of loan terms. They feel it takes too long to recover money in long loans, which means they help fewer people. That would help explain why a large loan to a group funds faster than an equally large loan to a single entrepreneur, since the group would have a more accelerated repayment schedule. Personally, I never even look at a loans term. My priorities are: loan to a new country, loan to women farmers (having grown up on a farm myself), re-loan all my repayment money every month, and usually at least one loan to the Philippines, since my nephew’s father lives there. Oh, and unless it is a new country loan, I tend to avoid loaning to groups (unless there are no other loan types available) or religious MFIs. My lender page: http://www.kiva.org/lender/deanna2404
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What factors affect loan funding times

  1. 1. <ul><li>This presentation contains some quantitative and some qualitative analysis into factors that affect loan funding times </li></ul><ul><ul><li>Relatively qualitative comparison of 50 randomly-selected fast-funding loans and 50 randomly-selected slow-funding loans </li></ul></ul><ul><ul><li>More quantitative comparison of the $90m loans made to-date* </li></ul></ul><ul><ul><li>Quantitative comparison of the 7,800 Tajikistani loans made to-date </li></ul></ul><ul><ul><li>Some simple ways in which MFIs could “improve” their content </li></ul></ul><ul><li>In summary, the factors that affect loan funding times have roughly the importance below: </li></ul>What factors affect loan funding times – Summary * Through to the end of August 2009; ** What “Quality” of description means is elaborated on slide 6 Note: The quantitative analysis in this presentation should be seen as a rough guide, rather than an exact measurement Sector (2,17,24) Region (3,15,16) Length of description (4) Picture related to business (4) Smiling entrep-reneur (4) Young entrep-reneur (4) Quality of Photo (5) Entrepreneur looks affluent (5) Colorful photos (6) “ Quality” of description** (6) Name of entrepreneur (6) Gender (18,24) Loan size (14,20,24) Demand for loans (25) (Figures in brackets represent the slide numbers that support the hypotheses); Quantitative analysis , Qualitative analysis Video (19) No of entrepre-neurs (12,13) Risk rating (21,22) Less important More important
  2. 2. 1. Qualitative analysis: Comparison of 50 fast and 50 slow-funding loans Breakdown of loans by sector <ul><li>Agriculture and Food loans are more common in the fast-funding loans </li></ul><ul><li>Retail, Services and Transportation are more common in the slow-funding loans </li></ul>Source: Analysis of 50 randomly-selected fast-funding loans and 50 randomly-selected slow-funding loans % of loans Food Personal use Manufacturing Services Clothing Transport Retail Agriculture
  3. 3. 1. Qualitative analysis: Comparison of 50 fast and 50 slow-funding loans Breakdown of loans by region <ul><li>Africa, East Asia and Central America are more common in the fast-funding loans </li></ul><ul><li>Central Asia, South America and Eastern Europe are more common in slow-funding loans </li></ul>Source: Analysis of 50 randomly-selected fast-funding loans and 50 randomly-selected slow-funding loans % of loans Central America Eastern Europe Central Asia South America Africa East Asia
  4. 4. 1. Qualitative analysis: Comparison of 50 fast and 50 slow-funding loans Description length, smiling entrepreneurs, age of entrepreneurs 18% 10% 70% 915 28.3 841.5 $1,785 50 Slow Younger entrepreneurs do appear to have faster funding times 38% % young Smiling entrepreneurs do appear to have faster funding times 46% % smiling No obvious impact 72% % picture related to business Long descriptions do not necessarily result in fast funding 842 Description length 0.1 Avg funding time per dollar (mins) 0.6 Avg funding time (hours) Slow-funding loans are larger $565 Avg loan size 50 No of loans Fast
  5. 5. Does the entrepreneur look affluent? Number of loans Quality of photo <ul><li>Entrepreneurs that look wealthy tend to have slower funding rates </li></ul><ul><li>The quality of the photo may have some small effect on funding time </li></ul>1. Qualitative analysis: Comparison of 50 fast and 50 slow-funding loans Affluence of entrepreneur and quality of photo Number of loans Fast-funding loans Slow-funding loans Fast-funding loans Slow-funding loans
  6. 6. 1. Qualitative analysis: Comparison of 50 fast and 50 slow-funding loans Qualitative analysis of fast and slow-funding loans <ul><li>Loans feel happier and less serious </li></ul><ul><ul><li>“ Typical woman whose only ambition is to see her family happy” </li></ul></ul><ul><ul><li>“ She enjoys the group meetings and reflections” </li></ul></ul><ul><ul><li>“ For her pretty customers” </li></ul></ul><ul><li>Loans clearly make a difference </li></ul><ul><ul><li>“ She endured the high interest rate attached with that loan because she had no other option” </li></ul></ul><ul><ul><li>“ Have been a great help to her family because they can now support their daily needs” </li></ul></ul><ul><li>Spirited people </li></ul><ul><ul><li>“ Remains vigorous in the midst of the adversities” </li></ul></ul><ul><li>Interesting anecdotes or facts that Kiva lenders would not otherwise know </li></ul><ul><ul><li>“ Unrefined palm oil is a deep orange in color” </li></ul></ul><ul><ul><li>“ Gomesi (traditional formal dresses)” </li></ul></ul><ul><li>Traditional clothes (chitengis etc.) </li></ul><ul><li>colorful photos </li></ul><ul><li>Boring, factual descriptions </li></ul><ul><ul><li>“ Entrepreneur X is a resident of Location Y. He is 31 years old, is married and has 1 child. Mr X has a high school education. He has a sales location at the market. He sells women’s and men’s perfume. He has been in this business for 3 years. Mr X uses the profits from his business to support his family. At the moment, Mr X would like to increase the product assortment at his sales location. He plans to pay back the loan over 10 months.” </li></ul></ul><ul><li>Do not seem to need the money </li></ul><ul><ul><li>Talk about maximizing profits, rather than surviving </li></ul></ul><ul><li>Do not seem passionate </li></ul><ul><li>African loans that have not been funded tend to have “boring” names </li></ul><ul><ul><li>E.g. Wakimese D(ii) Group and Wakimese D(iii) Group </li></ul></ul>Fast-funding loans Slow-funding loans
  7. 7. 1. Qualitative analysis: Comparison of 50 fast and 50 slow-funding loans Fast-funding loan – example Young Store is sparse – does not look affluent Smiling No interesting fact, but she does say “thanks to all Kiva lenders” Sub-Saharan Africa <ul><li>Loan size: $550 </li></ul><ul><li>Funding time: < 1 hrs </li></ul>colorful clothes
  8. 8. Anonymized 1. Qualitative analysis: Comparison of 50 fast and 50 slow-funding loans Slow-funding loan – example Middle-aged Wearing a suit – looks affluent Not smiling Clearly already owns a well-established store No “hook” in the description. No interesting facts, no “thanks to Kiva lenders” Says “maximize his profits”, rather than “escape from poverty” Central Asia <ul><li>Loan size: $2,500 </li></ul><ul><li>Funding time: 700 hrs </li></ul>
  9. 9. 2. Quantitative analysis: All loans Africa accounts for around 30% of all loans Sub-Saharan Africa South America East Asia Central Asia Central America 0% 20% 40% 60% 80% 100% 20% 40% 60% 80% USA Pacific Middle East Eastern Europe 100% Loan value by region and sector $89.9m loan value; Data until August 31 st 2009 Food Retail Agriculture Services Clothing Transport Construction Other $24.6m $20.8m $15.4m $9.2m $7.8m $2.7m $2.4m $7.1m $89.9m
  10. 10. 2. Quantitative analysis: All loans Around 75% of loans are made to women Sub-Saharan Africa South America East Asia Central Asia Central America 0% 20% 40% 60% 80% 100% 20% 40% 60% 80% USA Pacific Middle East Eastern Europe 100% Female Male $67.4m $22.5m $89.9m Loan value by region and gender $89.9m loan value; Data until August 31 st 2009
  11. 11. 2. Quantitative analysis: All loans Group loans are more common in Africa and South America Sub-Saharan Africa South America East Asia Central Asia Central America 0% 20% 40% 60% 80% 100% 20% 40% 60% 80% USA Pacific Middle East Eastern Europe 100% Loan value by region and group size $89.9m loan value; Data until August 31 st 2009 1 2 3 4 - 6 7 - 10 11 - 20 > 20* $68.7m $0.5m $1.3m $7.7m $2.6m $7.9m $1.4m $89.9m * > 20 entrepreneurs in a group
  12. 12. 2. Quantitative analysis: All loans Group loans fund more quickly than single loans 0 1 2 3 4 5 $0m $10m $20m $30m $40m $50m $60m $70m $80m $90m Funding time: Single vs. group loans $89.9m loan value; Data until August 31 st 2009 Average minutes to fund per dollar Single loans Group loans Loan value Group loans 1.3x faster
  13. 13. 2. Quantitative analysis: All loans The larger the group, the quicker the funding time 2 0 1 2 3 4 5 $0m $2m $4m $6m $8m $10m $12m $14m $16m $18m $20m $22m Funding time: Number of entrepreneurs $21.3m loan value; Data until August 31 st 2009 Average minutes to fund per dollar 3 4 - 6 7 - 10 11 - 20 > 20 Loan value Large groups 2.6x faster than groups of 3 – 6 entrepreneurs
  14. 14. 2. Quantitative analysis: All loans Loan size appears to have little impact on funding time Funding time: Loan size $89.9m loan value; Data until August 31 st 2009 0 1 2 3 4 5 6 $0m $10m $20m $30m $40m $50m $60m $70m $80m $90m < $400 $401 - 600 $601 - 800 $801 – 1,000 $1,001 – 1,500 $1,501 - $3,000 > $3,000 Average minutes to fund per dollar Loan value
  15. 15. 0 1 2 3 4 5 6 7 8 $0m $10m $20m $30m $40m $50m $60m $70m $80m $90m 2. Quantitative analysis: All loans Region has a significant impact on funding time Funding time: By region $89.9m loan value; Data until August 31 st 2009 Loan value Average minutes to fund per dollar Eastern Europe Africa South America East Asia Middle East Central Asia Central America Pacific North America Other Africa 1.9x faster than Central Asia
  16. 16. 0 1 2 3 4 5 6 7 8 9 $0m $10m $20m $30m $40m $50m $60m $70m $80m $90m 2. Quantitative analysis: All loans Of the countries with over $2m in loan value, Nicaragua has the slowest funding time; 4 African countries have the fastest Funding time: By country $89.9m loan value; 17 countries with over $2m in loan value; Data until August 31 st 2009 Average minutes to fund per dollar Loan value Nicaragua Tajikistan Azerbaijan Lebanon Cambodia Vietnam Bolivia Nigeria Pakistan Togo Paraguay Peru Mexico Uganda Tanzania Ghana Kenya Other Eastern Europe Africa South America East Asia Middle East Central Asia Central America Pacific North America Other Uganda, Tanzania, Ghana and Kenya on average 3.0x faster than Nicaragua
  17. 17. 0 1 2 3 4 5 6 7 8 $0m $10m $20m $30m $40m $50m $60m $70m $80m $90m 2. Quantitative analysis: All loans Sector does not appear to have a significant impact on funding time Funding time: By sector $89.9m loan value; Data until August 31 st 2009 Average minutes to fund per dollar Loan value Food $24.6m Retail $20.8m Agriculture $15.4m Services $9.2m Clothing $7.8m Transport $2.7m Construction $2.4m Other $7.1m $89.9m Food, Services and Agriculture on average 1.3x faster than Clothing and Retail
  18. 18. 2. Quantitative analysis: All loans Gender appears to significantly impact funding time Funding time: Loan size $89.9m loan value; Data until August 31 st 2009 Average minutes to fund per dollar Loan value Women fund 1.5x faster than men 0 1 2 3 4 5 6 7 $0m $10m $20m $30m $40m $50m $60m $70m $80m $90m
  19. 19. 2. Quantitative analysis: All loans Videos appear to reduce funding time (although it is a small sample size) Funding time: Loans with videos $89.9m loan value; Data until August 31 st 2009 Average minutes to fund per dollar Loan value: $137k Loan value: $89,808k
  20. 20. 0 1 2 3 4 5 6 7 $0m $10m $20m $30m $40m $50m $60m $70m 2. Quantitative analysis: All loans Larger loans do appear to take longer to fund for single entrepreneurs Funding time: Loan size $68.7m loan value; Single entrepreneurs only; Data until August 31 st 2009 Average minutes to fund per dollar Loan value < $400 $401 - 600 $601 - 800 $801 – 1,000 $1,001 – 1,500 $1,501 - $3,000 > $3,000
  21. 21. 0 1 2 3 4 5 $0m $10m $20m $30m $40m $50m $60m $70m $80m $90m 2. Quantitative analysis: All loans Partner star rating does not appear to significantly impact funding time Funding time: Partner star rating $89.9m loan value; Data until August 31 st 2009 Average minutes to fund per dollar Loan value 1 2 3 4 5 Note: Partner star rating reflects the risk factor of that partner (MFI). A star rating of 5 represents the least risky MFIs
  22. 22. 0 1 2 3 4 5 6 7 8 $0m $1m $2m $3m $4m $5m $6m $7m $8m $9m $10m $11m 2. Quantitative analysis: All loans Currency risk rating does not appear to significantly impact funding time Funding time: Currency risk rating $10.0m loan value; Data from June 25 th until August 31 st 2009 Average minutes to fund per dollar Loan value Partner takes all foreign exchange risk Lender shares some foreign exchange risk
  23. 23. <ul><li>While region does appear to be a significant driver of loan funding time in itself, it probably appears more significant than it really is, because (e.g.): </li></ul><ul><ul><li>High proportion of food loans in Africa (fast-funding sector) </li></ul></ul><ul><ul><li>High proportion of female loans in Africa </li></ul></ul><ul><ul><li>High proportion of group loans in Africa </li></ul></ul><ul><li>Although MFIs in “unpopular” regions are constrained by their geography to a certain extent , there are some things that they can do to help to ensure their loans are funded: </li></ul><ul><ul><li>Make loans to entrepreneurs in larger groups </li></ul></ul><ul><ul><li>Emphasize food, agriculture and services loans, rather than retail, clothing and transport </li></ul></ul><ul><ul><li>Focus on female entrepreneurs </li></ul></ul><ul><ul><li>Post videos with the loans </li></ul></ul><ul><ul><li>Promote smaller loans, rather than larger loans (especially for single entrepreneurs) </li></ul></ul>2. Quantitative analysis: All loans Quantitative analysis of loan funding times – Conclusions
  24. 24. Impact of gender on loan funding time Average minutes to fund per dollar Impact of sector on loan funding time Average minutes to fund per dollar Impact of loan size on loan funding time Average minutes to fund per dollar Women get funded twice as quickly as men 3. Quantitative analysis: Tajikistan loans Gender and sector affect loan funding times; loan size does not Services appears to be the fastest-funding sector, transportation appears to be the slowest However, these are relatively small sample sizes Surprisingly, agriculture appears to be relatively slow-funding Loan size appears to have relatively little effect on average funding times per dollar # of loans 3,778 3,978 215 2,881 1,516 1,101 1,378 363 302 1,249 1,218 1,404 1,397 2,488 Source: 7,756 Tajikistan loans with at least 3 lenders contributing to them
  25. 25. Average minutes to fund per dollar Average funding time per dollar Tajikistan loans, March 2007 - present Source: 7,756 Tajikistan loans with at least 3 lenders contributing to them 3. Quantitative analysis: Tajikistan loans Changes in loan funding time over time <ul><li>Average funding time per dollar was low throughout 2007, but has increased since then </li></ul><ul><li>Average funding time changes significantly between months </li></ul>
  26. 26. <ul><li>As stated earlier, MFIs in “unpopular” regions are constrained by their geography to a certain extent </li></ul><ul><li>However, there are some things that they can do to “improve” their content, and speed up the time that it takes their loans to get funded: </li></ul>4. How can MFIs “improve” their content? So what can an MFI do to “improve” their content? Type of loan A Photo and video B Description C Name of business D
  27. 27. <ul><li>Key determinants of funding time, related to the type of loan: </li></ul><ul><ul><li>Sector (food, agriculture and services fund quickly; transportation, clothing and retail do not) </li></ul></ul><ul><ul><li>Gender (women fund more quickly than men) </li></ul></ul><ul><ul><li>Group size (larger groups fund more quickly than small groups or single entrepreneurs) </li></ul></ul><ul><ul><li>Loan size (for single entrepreneurs, smaller loans generally tend to fund more quickly) </li></ul></ul><ul><li>The MFI is also constrained here to a certain extent (i.e. the composition of the economy in the country where they are working will largely determine the sectors that entrepreneurs want to work in)… </li></ul><ul><li>… However, MFIs still have the ability to influence these factors to a certain extent. For example, if they have 2 loans that they could put forward to be funded by Kiva: 1) A single man in retail, and 2) A group of women in the food sector, they could choose to put forward the second loan </li></ul>4. How can MFIs “improve” their content? A) Type of loan
  28. 28. <ul><li>Make the photo colorful </li></ul><ul><li>It helps if the entrepreneur is smiling </li></ul><ul><li>Entrepreneurs tend to fund faster if they do not look too affluent (e.g. if they are standing in front of their store and the shelves are already fully-stacked with expensive-looking merchandise, most lenders appear to ask the question: “Does this person really need my money?”) </li></ul><ul><li>Traditional clothes appear to have a positive impact on funding times </li></ul><ul><li>Interesting photos might also help (e.g. just sitting on the ground is probably less helpful than if the entrepreneur is “at work” – meeting customers in a shop, or working in the fields…) </li></ul><ul><li>Videos also appear to have a positive impact on funding times </li></ul>4. How can MFIs “improve” their content? B) Photo and video
  29. 29. <ul><li>Happy and fun </li></ul><ul><li>Clearly “make a difference” </li></ul><ul><li>Spirited people </li></ul><ul><li>Interesting anecdotes </li></ul>4. How can MFIs “improve” their content? C) Description Fast-funding <ul><li>Somber </li></ul><ul><li>Entrepreneurs don’t seem to need it </li></ul><ul><li>Dispassionate </li></ul><ul><li>Boring, factual descriptions </li></ul>Slow-funding Example: “ Entrepreneur Y is 61 years old and lives in the municipality of Sibalom in beautiful Antique Province. She is blessed with five sons; the oldest is 32 and the youngest is 19. Her husband, Vilmado, is a farmer. Nelly will use the 14,000 pesos from this loan to buy inventory for her sari-sari variety store and to buy a sidecar for a motorcycle taxi . &quot;Sari&quot; means various in Tagalog , and sari-sari stores can be seen all over the Philippines . The stores usually sell basic foodstuffs, beverages, and other household items. Nelly has had her sari-sari store for two years. Nelly hopes to one day have a larger store, and wants her sons to enjoy a stable life .” Example: “ Entrepreneur X is a resident of Location Y. He is 31 years old, is married and has 1 child. Mr X has a high school education. He has a sales location at the market. He sells women’s and men’s perfume. He has been in this business for 3 years. Mr X uses the profits from his business to support his family. At the moment, Mr X would like to increase the product assortment at his sales location. He plans to pay back the loan over 10 months.”
  30. 30. <ul><li>Very simply, MFIs should avoid “boring” names </li></ul><ul><ul><li>E.g. Wakimese D(ii) Group and Wakimese D(iii) Group </li></ul></ul>4. How can MFIs “improve” their content? D) Name of business

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