We just released a new risk rating system.  Like I said last time, we've been working on this for about six months.  You can check out the ratings here:

http://www.kiva.org/about/partners/

My guess is that most of our lenders barely noticed the addition.  It made it's way onto the live site with little fanfare or immediate effect.  About 10 people have written in about it and a few people have commented on Kivafriends.org.  Our daily loan volume continues at a steady pace.  Was it worth it?

From my perspective, it's been worth every month.  We did it because we feel it's important to educate our lenders about the true risks of lending on Kiva.org.  Compared to traditional investment products, lending on Kiva.org is relatively risky.  In doing so, our lenders are sending dollars to the most undeveloped places on Earth that are being handled by MFIs of all shapes and sizes.  Lenders are assuming 1) country risk 2) institutional risk and 4) the risk that a borrower defaults.  Kiva, as a young organization, is doing everything it can to minimize all risks, but cannot completely eliminate them. 

The risk rating system helps to educate lenders about the institutional risk.  We do this by assigning a 1-5 star rating to each MFI in our network.  1 star MFIs are generally seen as more risky and less likely to handle large volumes of loan capital effectively.  5 star partners are generally seen as less risky and very likely to be capable of easily handling debt capital and returning it dutifully to Kiva lenders.  Some of our MFI partners are large and established -- with sophisticated systems -- and some are very small with a less developed processes.  Several factors go into our ratings.  Key factors include the presence of audited financial statements, participation in a microfinance network, portfolio size, existence of credible outside funders, organizational age and financial sustainability.  In the future, we will make the scores more transparent so lenders can see exactly why a particular partner was assigned a particular score. 

There are conceivably 10K MFIs in this world. We currently have about 60 that have posted to our platform.  Of these, 16 have 5 stars, 18 have 4 stars, 12 have 3 stars, 6 have 2 stars and 10 have 1 star.   Low star ratings shouldn't be confused with low quality or low social impact.  Instead, low star ratings indicate that Kiva has less evidence that a partner will be able to repay loans as they scale. 

This portfolio breakdown is a pretty decent start, but we desire a portfolio more heavily weighted to less risky MFIs in the future because these are the MFIs that can most likely handle the growing amounts of debt capital being spent on our site by social lenders.  In the early days, Kiva has been too highly weighted towards riskier MFIs and that has limited the debt absorption capacity of our network.  This is changing rapidly for the better, however, as I write. 

Why did it take so long to get the rating system on the site?  It seemed like a pretty preposterous idea 6 months ago to think that we could rate MFIs in terms of credit risk.  After all, Kiva was started by a small team with experience weighted towards product vision and web technology.  Thus, we involved a whole host of amazing people and organizations.  Special credit goes to a few folks at Microrate, Unitus, Planet Rating, MixMarket who contributed their wisdom.  Advisors from these MF orgs and others helped educate our thinking as we evolved our model.  Erick Hong from Mercer Consulting was an amazing author of the model that, in the end, was used to generate the ratings.  The rating system, as it stands, is a work in progress that will definitely improve over time as our platform learns what truly determines the riskiness of a particular MFI. 

Kiva's repayment rates are high today.  The vast majority of MFIs in our network have performed and scaled well with Kiva.  A few have had problems and I expect there to be more difficulties as the loan amounts increase.  Certainly, there will be tough times ahead as our nascent marketplace matures.  We are far from a point of stability or predictable equilibrium and I still consider Kiva to be in the experimental stage. The kiva story will be a long one and we are just reading the preface today -- 3 years after the idea was born.  The idea has turned out to be bigger than we ever imagined.

In the meantime, we are doing everything we can to educate users about the potential risks.