We're preparing an update to Kiva's innovative five-star risk rating system!
To help explain the new system and answer any questions you may have, we've pulled an FAQ - along with a PowerPoint presentation (embedded below):
What does Kiva's five star Risk Rating measure?
The Kiva STAR Rating is a measure of institutional risk. In other words, it's the risk that a Field Partner may default.
What does Kiva's five star Risk Rating measure?
The Kiva STAR Rating is a measure of institutional risk. In other words, it's the risk that a Field Partner may default.
If an institution has five stars, does that mean it's risk-free?
Definitely not. Microfinance is an inherently risky activity. STAR Ratings are a *relative* measure of risk; they measure the risk of one set of field partners relative to another.
For example: a 1-star rating means that a particular field partner is relatively more likely to default than a higher-rated partner. A 5-star rating means that the field partner is relatively less likely to default, but does not necessarily imply anywhere near an investment grade risk profile. It should be remembered that lending on Kiva is a charitable activity.
What's the difference between stars and delinquency rates?
Stars are an estimation about the overall level of risk that an entire MFI may default.
Delinquency rates are an actual measure of the percentage of paying back loans that are past due.
What's the relationship between stars and delinquency/default rates?
Stars will be calculated at least once a year, and are meant to give an estimate of the odds that an entire institution may default.
Delinquency and default rates are re-calculated every night, and measure how many individual Kiva loans have become delinquent or defaulted.
Please note: the Kiva STAR Rating does not give an indication of whether individual Kiva loans will default.
What exactly goes into the calculation of a Kiva STAR risk rating?
Risk ratings are a complex calculation that draws on 38 variables in 10 separate categories of information. Our teams collect this information, and use it to calculate an overall risk rating that shows our estimate of whether the entire MFI may default.
You can read more details about the system in the embedded slide show, which shows all ten categories along with details on the 38 variables:
Risk Model Presentation for Risk and Due Diligence
What's the difference between this risk rating system and earlier versions?
This latest version of Kiva's risk rating system was developed in 2010, and is based on Kiva's almost five years of experience working with MFIs in over 50 countries. It reflects many of Kiva's learnings over the years around what drives institutional risk.
How long will it take Kiva to move all of its risk ratings to the new system?
We are targeting the end of the year to fully migrate all risk ratings to the new system!
How will I know if a STAR risk rating is using the old system or the new system?
We will be going through the entire Kiva Field Partner portfolio, and moving MFIs one by one to the new system. As we do so, we will post updates to the appropriate partner page.
If no update about the risk ratings system has been made to a partner page, then the risk rating for that MFI is most likely based on the old risk ratings system.
Please note: the Kiva STAR Rating does not give an indication of whether individual Kiva loans will default.
What exactly goes into the calculation of a Kiva STAR risk rating?
Risk ratings are a complex calculation that draws on 38 variables in 10 separate categories of information. Our teams collect this information, and use it to calculate an overall risk rating that shows our estimate of whether the entire MFI may default.
You can read more details about the system in the embedded slide show, which shows all ten categories along with details on the 38 variables:
Risk Model Presentation for Risk and Due Diligence
What's the difference between this risk rating system and earlier versions?
This latest version of Kiva's risk rating system was developed in 2010, and is based on Kiva's almost five years of experience working with MFIs in over 50 countries. It reflects many of Kiva's learnings over the years around what drives institutional risk.
How long will it take Kiva to move all of its risk ratings to the new system?
We are targeting the end of the year to fully migrate all risk ratings to the new system!
How will I know if a STAR risk rating is using the old system or the new system?
We will be going through the entire Kiva Field Partner portfolio, and moving MFIs one by one to the new system. As we do so, we will post updates to the appropriate partner page.
If no update about the risk ratings system has been made to a partner page, then the risk rating for that MFI is most likely based on the old risk ratings system.
PREVIOUS ARTICLE
Hi, I’m Katie: I’m a Kiva Fellow and Here’s Why →NEXT ARTICLE
Commercializing Microfinance →
