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Kiva Community Call: Currency Risk Proposal Equitable Sharing  Between Kiva Partners & Kiva Lenders March 2009
Contents <ul><li>Currency Risk Overview + Proposal </li></ul><ul><li>Mock Ups:  Making a loan </li></ul><ul><li>Mock Ups: ...
<ul><li>Real Cost to Kiva Partners  </li></ul><ul><li>Results from Kiva’s Model </li></ul><ul><ul><li>Lenders lend USD </l...
Currency Risk Kiva PARTNERS
Loan is Made <ul><li>1 USD = 1 LCU  </li></ul><ul><li>Kiva Lenders </li></ul><ul><li>Lend USD $1,000  </li></ul><ul><li>1 ...
Loan is Repaid <ul><li>1 USD = 1.43 LCU  </li></ul><ul><li>Kiva Lenders </li></ul><ul><li>Lend USD $1,000  </li></ul><ul><...
<ul><li>Local Currency worth less in USD </li></ul><ul><ul><li>LCU = 1 USD on Disbursal </li></ul></ul><ul><ul><li>LCU = 0...
<ul><li>Pass Risk to Borrowers </li></ul><ul><ul><li>Increased Interest Charges </li></ul></ul><ul><ul><li>Unfair to Kiva ...
<ul><li>Kiva Lenders absorb currency risk above X% Depreciation </li></ul><ul><li>Kiva Partners would never have an exchan...
Loan is Stop-Loss Protected <ul><li>1 USD = 1.43 LCU  </li></ul><ul><li>- Stop-Loss </li></ul><ul><li>1 USD = 1.25 LCU  </...
<ul><li>Losses could be substantial </li></ul><ul><ul><li>Depends on Foreign Exchange Movements </li></ul></ul><ul><ul><li...
Data from Kiva Portfolio In 2008 10% 15% 20% 25% Experience No Loss 69.8% 80.8% 92.2% 98.4% Less than 2% Loss 14.8% 13.9% ...
Data from Kiva Portfolio – Assumes Bullet Maturity <ul><li>In 2008, 8 Kiva countries had devaluations large enough to crea...
Contents <ul><li>Currency Risk Overview + Proposal </li></ul><ul><li>Mock Ups:  Making a loan </li></ul><ul><li>Mock Ups: ...
About the Field Partner More on this Field Partner >> About the Country Country   Kenya Avg Income   $400 / year $25 there...
About the Field Partner More on this Field Partner >> About the Country Country   Kenya Avg Income   $400 / year $25 there...
About the Field Partner More on this Field Partner >> About the Country Country   Kenya Avg Income   $400 / year $25 there...
About the Field Partner More on this Field Partner >> About the Country Country   Kenya Avg Income   $400 / year $25 there...
Contents <ul><li>Currency Risk Overview + Proposal </li></ul><ul><li>Mock Ups:  Making a loan </li></ul><ul><li>Mock Ups: ...
<ul><li>Hi Kiva Engineering Team, </li></ul><ul><li>We'd like to give you a repayment update on the loans you've made thro...
Example of what we should do for loans in Delinquent status Status:  Delinquent  ( See details ) $400 Loan Requested $200 ...
My Portfolio > Loans Simplified First View (consistent w/ Risk Stats page) Me Avg. Kiva User Total Loaned Total Repaid + D...
My Portfolio > Loans 2 nd  level  (Consistent with our Risk Statistics) Me Avg. Kiva User Total Loaned Total Repaid - Deli...
My Portfolio > Loans 3 rd  level Me Avg. Kiva User Total Loaned Total Repaid - Delinquency Rate - Amount of Active Loans D...
Contents <ul><li>Currency Risk Overview + Proposal </li></ul><ul><li>Mock Ups:  Making a loan </li></ul><ul><li>Mock Ups: ...
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Community Call Currency Risk V1

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Transcript of "Community Call Currency Risk V1"

  1. 1. Kiva Community Call: Currency Risk Proposal Equitable Sharing Between Kiva Partners & Kiva Lenders March 2009
  2. 2. Contents <ul><li>Currency Risk Overview + Proposal </li></ul><ul><li>Mock Ups: Making a loan </li></ul><ul><li>Mock Ups: Tracking your loan </li></ul><ul><li>Q&A </li></ul>
  3. 3. <ul><li>Real Cost to Kiva Partners </li></ul><ul><li>Results from Kiva’s Model </li></ul><ul><ul><li>Lenders lend USD </li></ul></ul><ul><ul><li>Borrowers borrow in local currency </li></ul></ul><ul><ul><li>Kiva Partners are caught in the middle </li></ul></ul>Currency Risk
  4. 4. Currency Risk Kiva PARTNERS
  5. 5. Loan is Made <ul><li>1 USD = 1 LCU </li></ul><ul><li>Kiva Lenders </li></ul><ul><li>Lend USD $1,000 </li></ul><ul><li>1 LCU = 1 USD </li></ul><ul><li>Kiva Partner </li></ul><ul><li>Lends 1,000 LCU </li></ul><ul><li>(USD 1,000 x 1 LCU/USD) </li></ul>
  6. 6. Loan is Repaid <ul><li>1 USD = 1.43 LCU </li></ul><ul><li>Kiva Lenders </li></ul><ul><li>Lend USD $1,000 </li></ul><ul><li>Repayment USD $1,000 </li></ul><ul><li>1 LCU = 0.7 USD </li></ul><ul><li>Kiva Partner </li></ul><ul><li>Lends 1,000 LCU </li></ul><ul><li>(USD 1,000 x 1 LCU/USD) </li></ul><ul><li>Repayments of LCU 1,000 now worth USD $700 </li></ul><ul><li>( LCU 1000 x 0.7 LCU/USD) </li></ul><ul><li>Needs USD $300 to repay Kiva Lenders </li></ul><ul><li>- $1,000 - $700 = $300 </li></ul><ul><li>- Currency Loss for Kiva Partner </li></ul>
  7. 7. <ul><li>Local Currency worth less in USD </li></ul><ul><ul><li>LCU = 1 USD on Disbursal </li></ul></ul><ul><ul><li>LCU = 0.7 USD on Repayment </li></ul></ul><ul><ul><li>LCU has devalued by 30% </li></ul></ul><ul><ul><ul><li>(Original Value 1 – New Value 0.7)/(Original Value 1) </li></ul></ul></ul><ul><ul><li>Exchange Rate Loss </li></ul></ul><ul><li>Kiva Partner </li></ul><ul><ul><li>Must find additional funds to repay Kiva Lenders </li></ul></ul><ul><ul><li>Financial Burden on the Micro Finance Institution </li></ul></ul>Devaluation – Local Currency Depreciates
  8. 8. <ul><li>Pass Risk to Borrowers </li></ul><ul><ul><li>Increased Interest Charges </li></ul></ul><ul><ul><li>Unfair to Kiva Entrepreneurs to suffer this loss </li></ul></ul><ul><li>Hedge Currency Risk </li></ul><ul><ul><li>Not Available or Too Expensive in many countries </li></ul></ul><ul><li>Absorb Losses </li></ul><ul><ul><li>Compromises financial health of Kiva Partner </li></ul></ul><ul><ul><li>Makes Kiva value proposition less attractive </li></ul></ul>Exchange Loss – Options for Kiva Partner
  9. 9. <ul><li>Kiva Lenders absorb currency risk above X% Depreciation </li></ul><ul><li>Kiva Partners would never have an exchange loss greater than X% </li></ul><ul><li>Example: Assume X = 20% </li></ul><ul><ul><li>1 LCU = 1 USD </li></ul></ul><ul><ul><li>Maximum Devaluation is 1 LCU = 0.8 USD </li></ul></ul><ul><ul><li>Minimum Value for LCU = 1.25 (if 1 LCU = 0.8 USD, 1 USD = 1.25 LCU) </li></ul></ul>Kiva Lenders Stop-Loss Currency Risk
  10. 10. Loan is Stop-Loss Protected <ul><li>1 USD = 1.43 LCU </li></ul><ul><li>- Stop-Loss </li></ul><ul><li>1 USD = 1.25 LCU </li></ul><ul><li>Kiva Lenders </li></ul><ul><li>Lend USD $1,000 </li></ul><ul><li>Repayment USD $875 </li></ul><ul><ul><li>$700 Borrower Repayments </li></ul></ul><ul><ul><li>$ 175 Partner Currency Loss </li></ul></ul><ul><ul><li>$ 125 Loss to Kiva Lenders from the Stop Loss Protection </li></ul></ul><ul><li>1 LCU = 0.7 LCU </li></ul><ul><li>- Stop-Loss </li></ul><ul><li>1 LCU= 0.8 LCU </li></ul><ul><li>Kiva Partner </li></ul><ul><li>Lends 1,000 LCU </li></ul><ul><li>(USD 1,000 x 1 LCU/USD) </li></ul><ul><li>Stop Loss Maximum Repayment based on 1.25 LCU/USD </li></ul><ul><ul><li>Maximum Repayment is $ USD 1,000 x 1.25 USD/LCU = 1,250 LCU </li></ul></ul><ul><ul><li>1,250 LCU x 0.7 LCU/USD </li></ul></ul><ul><ul><li>= $ USD 875 </li></ul></ul>
  11. 11. <ul><li>Losses could be substantial </li></ul><ul><ul><li>Depends on Foreign Exchange Movements </li></ul></ul><ul><ul><li>Lenders take all losses in excess of a X% LCU devaluation </li></ul></ul><ul><li>Not Symmetric since: </li></ul><ul><ul><li>Foreign Exchange Gains remain with Kiva Partner </li></ul></ul><ul><ul><li>Not cumulative loss on loan </li></ul></ul><ul><ul><ul><li>Loss on each Repayment </li></ul></ul></ul><ul><ul><ul><li>Possible Kiva Partners realizes exchange gain in one month and Kiva Lenders take loss in another month </li></ul></ul></ul>Impact on Lenders
  12. 12. Data from Kiva Portfolio In 2008 10% 15% 20% 25% Experience No Loss 69.8% 80.8% 92.2% 98.4% Less than 2% Loss 14.8% 13.9% 7.2% 1.4% Great than 2% Loss 15.4% 5.3% 0.6% 0.2% Past 5 Years 10% 15% 20% 25% Experience No Loss 93.4% 96.7% 98.1% 99.0% Less than 2% Loss 4.5% 1.9% 1.2% 0.5% Great than 2% Loss 2.1% 1.3% 0.7% 0.5%
  13. 13. Data from Kiva Portfolio – Assumes Bullet Maturity <ul><li>In 2008, 8 Kiva countries had devaluations large enough to create a loss for Kiva Lenders </li></ul><ul><li>Worst loss experienced would have been in Ukraine of </li></ul><ul><li>24% </li></ul>Top 10 Devaluations 2008 Lender Loss X=20% Ukraine -39% -24% Indonesia -29% -11% Mexico -28% -10% Kenya -25% -6% Pakistan -24% -5% Bosnia-Herzegovina -21% -1% Bulgaria -21% -1% Uganda -21% -1% Paraguay -20% 0% Samoa -19% 0%
  14. 14. Contents <ul><li>Currency Risk Overview + Proposal </li></ul><ul><li>Mock Ups: Making a loan </li></ul><ul><li>Mock Ups: Tracking your loan </li></ul><ul><li>Q&A </li></ul>
  15. 15. About the Field Partner More on this Field Partner >> About the Country Country Kenya Avg Income $400 / year $25 there feels like $90 in the U.S. Currency Kenyan Schilling Currency Risk Not fully covered by Field Partner ( What’s this?) <ul><li>Mock Up #1a: Display new “About the Country” box </li></ul><ul><li>Loan is NOT in USD and </li></ul><ul><li>FX Risk Sharing is ON </li></ul>Lenders to this entrepreneur About Group Loans   In a group loan, each member of the group receives an individual loan but is part of a group of individuals bound by a group guarantee. Under this arrangement, each member of the group supports one another and is responsible for paying back the loans of their fellow group members if someone is delinquent or defaults. Rene & Rosi   SPOKANE, WA  United States Neil   Houston, TX  United States Matthew   Minneapolis, MN  United States My Portfolio > Loans
  16. 16. About the Field Partner More on this Field Partner >> About the Country Country Kenya Avg Income $400 / year $25 there feels like $90 in the U.S. Currency Kenyan Schilling Currency Risk Field Partner intends to cover fully ( What’s this?) <ul><li>Mock Up #1b: Display new “About the Country” box </li></ul><ul><li>Loan is NOT in USD and </li></ul><ul><li>FX Risk Sharing is OFF </li></ul>Lenders to this entrepreneur About Group Loans   In a group loan, each member of the group receives an individual loan but is part of a group of individuals bound by a group guarantee. Under this arrangement, each member of the group supports one another and is responsible for paying back the loans of their fellow group members if someone is delinquent or defaults. Rene & Rosi   SPOKANE, WA  United States Neil   Houston, TX  United States Matthew   Minneapolis, MN  United States <ul><li>Currency Risk Help </li></ul><ul><li>When you lend on Kiva, you should consider 3 levels of risk: </li></ul><ul><ul><li>Entrepreneur Risk ( Learn more ) </li></ul></ul><ul><ul><li>Field Partner Risk ( Learn more ) </li></ul></ul><ul><ul><li>Currency Risk (see below) </li></ul></ul><ul><li>Currency risk refers to…. </li></ul><ul><li>[ KIVA WANTS YOUR IDEAS FOR WHAT SHOULD GO HERE. </li></ul><ul><li>PLEASE SUGGEST HELP TEXT ON </li></ul><ul><li>WWW.KIVAFRIENDS.ORG AND WE WILL SCAN </li></ul><ul><li>IT FOR IDEAS WHEN CRAFTING THE FINAL LANGUAGE ] </li></ul><ul><li>To see how much money you would have lost if you lent 1, 3 or 5 years ago, click here . </li></ul><ul><li>For a video tutorial on currency risk, click here . </li></ul><ul><li>To ask other community members about their experience with currency risk, click here . </li></ul>
  17. 17. About the Field Partner More on this Field Partner >> About the Country Country Kenya Avg Income $400 / year $25 there feels like $90 in the U.S. Currency Kenyan Schilling Currency Risk Field Partner intends to cover fully ( What’s this?) <ul><li>Mock Up #1b: Display new “About the Country” box </li></ul><ul><li>Loan is NOT in USD and </li></ul><ul><li>FX Risk Sharing is OFF </li></ul>Lenders to this entrepreneur About Group Loans   In a group loan, each member of the group receives an individual loan but is part of a group of individuals bound by a group guarantee. Under this arrangement, each member of the group supports one another and is responsible for paying back the loans of their fellow group members if someone is delinquent or defaults. Rene & Rosi   SPOKANE, WA  United States Neil   Houston, TX  United States Matthew   Minneapolis, MN  United States
  18. 18. About the Field Partner More on this Field Partner >> About the Country Country Kenya Avg Income $400 / year $25 there feels like $90 in the U.S. Currency U.S. dollars Currency Risk None ( What’s this?) <ul><li>Mock Up #1c: Display new “About the Country” box </li></ul><ul><li>Loan is in USD </li></ul>Lenders to this entrepreneur About Group Loans   In a group loan, each member of the group receives an individual loan but is part of a group of individuals bound by a group guarantee. Under this arrangement, each member of the group supports one another and is responsible for paying back the loans of their fellow group members if someone is delinquent or defaults. Rene & Rosi   SPOKANE, WA  United States Neil   Houston, TX  United States Matthew   Minneapolis, MN  United States
  19. 19. Contents <ul><li>Currency Risk Overview + Proposal </li></ul><ul><li>Mock Ups: Making a loan </li></ul><ul><li>Mock Ups: Tracking your loan </li></ul><ul><li>Q&A </li></ul>
  20. 20. <ul><li>Hi Kiva Engineering Team, </li></ul><ul><li>We'd like to give you a repayment update on the loans you've made through Kiva. </li></ul><ul><li>A total of $14.30 has been repaid over the past month! As of 2009-02-20, you now have $15.71 in Kiva Credit in your account. </li></ul><ul><li>Click here to re-lend, withdraw or donate these funds! (The minimum lending amount is $25, but you can easily add new funds to existing Kiva Credit to complete a loan purchase.) https://www.kiva.org/app.php?page=account&_te=ru </li></ul><ul><li>Below is the repayment update on your Kiva Portfolio: </li></ul><ul><li>------------------------------------------------------------------------------- </li></ul><ul><li>Trinidad Rostran Mena in Nicaragua (Activity: Services) </li></ul><ul><li>You Loaned: $25.00 </li></ul><ul><li>Newly Repaid: $2.78 </li></ul><ul><li>Total Repaid So Far: $13.89 (55.56% of your loan) </li></ul><ul><li>Repayment status: On schedule </li></ul><ul><li>View loan profile at: </li></ul><ul><li>http://www.kiva.org/app.php?page=businesses&action=about&id=53929&_te=ru </li></ul><ul><li>------------------------------------------------------------------------------- </li></ul><ul><li>Flor de Retama Group in Peru (Activity: Retail) </li></ul><ul><li>You Loaned: $25.00 </li></ul><ul><li>Newly Repaid: $4.17 </li></ul><ul><li>Total Repaid So Far: $20.83 (100% of your loan) </li></ul><ul><li>Repayment status: Delinquent </li></ul><ul><li>View loan profile at: </li></ul><ul><li>http://www.kiva.org/app.php?page=businesses&action=about&id=54364&_te=ru </li></ul><ul><li>To view your Kiva loan portfolio go to: </li></ul><ul><li>https://www.kiva.org/app.php?page=account </li></ul>Include a “Repayment Status” - Active and not delinquent = “On schedule” - Active and delinquent
  21. 21. Example of what we should do for loans in Delinquent status Status: Delinquent ( See details ) $400 Loan Requested $200 Paid Back
  22. 22. My Portfolio > Loans Simplified First View (consistent w/ Risk Stats page) Me Avg. Kiva User Total Loaned Total Repaid + Delinquency Rate + Default Rate
  23. 23. My Portfolio > Loans 2 nd level (Consistent with our Risk Statistics) Me Avg. Kiva User Total Loaned Total Repaid - Delinquency Rate + Amount of Active Loans Delinquent Amount of Active Loans - Default Rate + Amount of Ended Loans Not Repaid in Full Amount of Ended Loans
  24. 24. My Portfolio > Loans 3 rd level Me Avg. Kiva User Total Loaned Total Repaid - Delinquency Rate - Amount of Active Loans Delinquent Delinquency caused by Entrepreneur Delinquency caused by Field Partner Delinquency caused by Currency Amount of Active Loans - Default Rate + Amount of Ended Loans Not Repaid in Full Default caused by Entrepreneur Default caused by Field Partner Default caused by Currency Amount of Ended Loans
  25. 25. Contents <ul><li>Currency Risk Overview + Proposal </li></ul><ul><li>Mock Ups: Making a loan </li></ul><ul><li>Mock Ups: Tracking your loan </li></ul><ul><li>Q&A </li></ul>
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