The risks of lending

• Repayment rate for all loans: 96.2%
• Repayment rate for ended loans only: 97.0%
• Repayment rate for partner facilitated loans: 97.0%
• Repayment rate for direct U.S. loans: 73.0%
• Borrower repayment rate for all loans: 96.9%
• Currency exchange loss rate: 0.6%

Borrowers on Kiva are vetted or endorsed by either a local Field Partner, Trustee or members of the community.

For loans administered by a Field Partner

The partner looks at a variety of factors (past loan history, village or group reputation, loan purpose, etc.) before deeming a borrower as credit-worthy. However, a number of factors can result in borrowers defaulting, such as:

• Business issues (such as crop failure, liquidity issues or demand for goods)
• Health issues (such as malaria, cancer or physical disability)
• Other issues ( such as theft, paying for school fees, over indebtedness, reduced remittances, civil disturbances, etc.)

If a borrower defaults, Kiva Field Partners are expected to pursue collections according to their normal practices. In addition, Kiva asks and expects that all of our Field Partners adhere to the client protection principles from the Smart Campaign.

Learn more about the Field Partner's role in reviewing loan applications and administering your loan.

For direct loans

Borrowers are endorsed by either a Trustee organization or members of their community in a process we call social underwriting. A borrower must either:

• Have the endorsement of a Kiva Trustee, an organization or individual that works to connect borrowers with Kiva
• Or successfully invite members of their own social networks to support their loan before the loan is able to fundraise publicly on Kiva

Because their own connections, friends and family are putting their own dollars in, we believe social underwriting builds borrowers’ commitment to repaying their loans. However, direct loans can default for all of the same reasons as Field Partner loans, and with direct loans there is no Field Partner pursuing repayments.

Lenders should be aware that direct loans involve a higher level of risk of default than loans administered through Field Partners for various reasons, including less monitoring and follow up for collection of repayments as well as the stage of business. Many direct loan borrowers are start-up businesses in their first years of operation, which is a particularly challenging and critical time for businesses.

Most of the loans on Kiva are administered by a Field Partner, which means the funds are distributed through one of our local partners working in the community.

The funds are also repaid by borrowers through the Field Partner. While working with Field Partners increases the likelihood that your loan will be effectively used and repaid, new institutional risks are introduced. Even if a Kiva borrower is able to repay, Kiva lenders could still lose principal due to Field Partner issues such as:

• Bankruptcy (the Field Partner may go out of business and be unable to collect your loan)
• Fraud (staff members at the Field Partner may embezzle funds)
• Operational difficulties (the Field Partner may have some cash-flow or other challenges that could prevent repayment)

Before working with a Field Partner, Kiva performs due diligence on the organization to help assess this risk.

Learn more here.

Direct loans on Kiva are not administered by a Field Partner. There are some great benefits to direct loans: for example they are 0% interest to the borrower. But they are also at higher risk of default because there is no Field Partner working on the ground to follow up with the borrower and encourage or collect repayments.

Many direct loan borrowers are also startup businesses in their first years of operation, which is a particularly challenging and critical time for businesses.

When lending internationally it is important to consider "macro-level" risks:

• Economic (a large currency devaluation – or the institution of exchange controls by local governments – may reduce or render the Field Partner's local currency collections valueless for you).
• Political (many loans posted on Kiva are disbursed in the developing world. Policies can change regarding funds repatriation or even the requirement that borrowers have to repay their loans).
• Natural disasters such as a flood, tsunami or drought may greatly reduce the likelihood of loan repayment from certain countries or from specific regions in a country.

Kiva currently targets a country limit of no more than 10% of total loans outstanding to help ensure a balanced portfolio. Individual lenders may want to consider the country and regional balance of their own portfolios as well. In certain instances, the Kiva-imposed limit is lifted on a temporary basis.

While Kiva's working currency is the U.S. dollar, many loans are disbursed to borrowers in their local currency, thus adding an additional risk to lenders, especially in times when the U.S. dollar is strong. You can determine if currency exchange loss is possible for a loan under the Loan details section of a borrower's loan page. For loans with currency risk possible, lenders bear the risk of loss if the U.S. dollar appreciates against the local currency.

Additionally, if your home currency is not the U.S. dollar, another layer of currency risk is added because loans made through Kiva must be in U.S. dollars. Therefore, the initial conversion from your home currency to USD will add foreign exchange risk.

Note: foreign exchange risk is not present if your local currency is the U.S. dollar and loans are disbursed in U.S. dollars

There is a potential risk that Kiva, like any organization, may not continue its operations indefinitely. To better protect lenders’ funds in this circumstance and others, Kiva holds lender funds separately from its own operational funds. When lenders have available funds in their Kiva accounts (for example funds that have been repaid, or funds that have been deposited and not yet lent), these funds are held in bank accounts for the benefit of Kiva lenders. We believe that holding lenders’ funds separately from Kiva’s operational funds helps protect these funds from being subject to any claims of Kiva creditors (other than the Kiva lenders who have funds available in the Kiva system).