Adjustment to loan write-off policy

Discussion in 'Announcements' started by Julia Kurnia, Mar 16, 2014.

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  1. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Dear all,

    We have modified our write-off policy to include amounts outstanding for loans that have not made payments in over six months, in addition to amounts not yet repaid six months after the loan's final repayment due date.

    Up until now, our policy has been to write off any loan amounts that were not fully repaid six months after the loan's final repayment due date. We had adopted that policy because it is a widely accepted standard for microfinance reporting.

    In the case of Zidisha, waiting until six months after the final due date to write off loans was problematic in cases where rescheduling pushed the final repayment date far into the future. To ensure this did not lead to under-reporting of our write-off rate, up until now we have been manually reviewing and writing off loans that we considered unlikely to be recovered, regardless of the final due date.

    We now have thousands of loans outstanding, and the volume is too great to ensure a thorough manual review of each one. More importantly, we want to standardize the stricter write-off policy in order to give lenders more confidence in the statistics we are reporting.

    Our new web developer was able to take this enhancement live yesterday. From now on, our website will automatically write off all outstanding loan amounts which have not made any payment for six months or more, as well as all outstanding amounts whose final due date passed six months ago or more.

    Note that writing off a loan is a reporting convention whose purpose is to communicate the level of risk in a lending program. It does not mean that collection efforts stop or that the borrower no longer needs to pay back the loan. We have had many cases of loan recovery after write-off, and in such cases, repayments are returned to lenders just as they are for active loans.

    I'd be happy to answer any questions about our write-off policy.

    Best,

    Julia
     
  2. Charlie

    Charlie Forum Member

    Julia - Thank you for this change to the loan write-off method. I believe it will go a long way to improving the transparency of the Zidisha borrowers' actual repayment histories.
     
  3. Charlie

    Charlie Forum Member

    When I look at today's statistics page, I see:

    Active Loan Statistics

    Category: Principal outstanding; Percentage of Total

    Paying back over 180 days late: 92,300 (USD); 10.75%

    Paying back over 180 days late (rescheduled): 78,707 (USD); 9.16%

    Should these amounts now be included under:

    Cumulative Statistics

    Percent of ended loans that have been written off: 9.43%
     
  4. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Hi Charlie,

    I agree that this is confusing. In fact, the "paying back over 180 days late" category includes loans which first fell past due on scheduled installments more than 180 days ago, but have not been written off because they have continued to make repayments since then.
     
  5. Charlie

    Charlie Forum Member

    Okay.
    So, this means the repayments are at least $10 less than what was due six months ago, but at least one payment was made within the past six months.

    "Paying back" = paid something within the past six months

    "more than 180 days behind on scheduled repayments, within a margin of USD 10" = at least $10 less than what was due six months ago

    Right?
     
  6. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Hi Charlie,

    We consider a loan to be "past due by more than 180 days" if the loan first fell behind schedule 180 days ago or more. For example, if a borrower missed one payment over six months ago, and has not yet caught up with the cumulative amount due, then the loan would be counted in this category even if every other installment was made since then. It is simply an expression of the length of time a loan has been in arrears.

    It is worth noting that many of the older loans which are in arrears were made to borrowers who cannot use computers. These members joined before we began requiring online identity verification and personal computer use of new members (starting in Spring 2013). Their understanding of our on-time repayment policies and incentive system tends to be much more limited than that of computer users who interact personally with our website. This explains why many of them continue to make payments late, rather than rescheduling in our website.

    Best,

    Julia
     
  7. Charlie

    Charlie Forum Member

    Okay, thanks. I think I'm starting to catch on. It's more about the time than the amount past due.
     
  8. Sverre

    Sverre Forum Member

    I am unsure if this change really has gone live?

    My first loan on Zidisha was:
    https://www.zidisha.org/microfinance/loan/monicahnjoki/1874.html
    She has no VM following up, and has not repaid anything for 1 year.

    https://www.zidisha.org/microfinance/loan/Magiwa/1867.html
    hasnt repaid since august 2013

    https://www.zidisha.org/microfinance/loan/eliza/1872.html
    hasnt repaid since june 15

    https://www.zidisha.org/microfinance/loan/hamadhamed/1877.html
    hasnt repaid anyhting

    Just a few examples from my portofolio.

    And before you default all my Niger loans, I would appreciate information about what is beeing done and who is working with the Niger loans not repaying.
    Feel free to send my an email if you dont want to post it on the forum.
     
    Last edited: Mar 21, 2014
  9. KirstenShute

    KirstenShute Gold Member

    Thanks for the information. I got a loan write-off notification by email yesterday, and I was wondering why it didn't tell me which ones were written off. Now that I see it was due to this policy change, I'm no longer annoyed - it would have taken ages to identify each particular borrower to each particular lender! But, on a normal basis, do you send email notifications to lenders when a loan is written off, saying which loan it is?
     
  10. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Hi Sverre,

    I'm sorry for the confusion. Loans which had not made any payment were inadvertently left out of the initial modification to the write-off automation in our website. We are working on including those in the write-off automation today.

    Best regards,

    Julia
     
  11. Jon Strang

    Jon Strang Forum Member

    I don't support this new policy. I think it alienates current borrowers.

    Zidisha was marketed as being different from other microfinance organizations so I don't think that writing off loans after six months should be implemented just because this appears to be a standard among peer organizations.

    For some of my loans that were just written off, the borrower was still corresponding with lenders to let them know about difficulties. In almost all these cases, the borrower should have been in a process of deferring or rescheduling. That they were not possibly speaks to challenges in communicating the options to these borrowers.

    And I also don't believe that transparency in reporting is a good reason. If you wanted to present more accurate numbers, you could do that without truly writing off loans. Transparency is information, not action.

    I have no problem in writing off loans, but only after more due diligence has taken place. Zidisha already requires us to place a lot more trust in borrowers than other microfinance organizations. I loved that Zidisha was flexible and worked with people to help them meet their commitments. This new policy means that borrowers merely have to last 18 months for a 12 month loan to walk away. And what are the consequences? That a Google search will show that they defaulted on a loan? This may in fact be harmful but it could also harm borrowers by driving them to more desperate and dangerous sources of credit. And Zidisha certainly hasn't been transparent around activities to recover money. And that may have been a good thing because it showed flexibility and a will to work with people through challenges.

    I think that this policy change needed to be discussed with the community of borrowers that you built so that you could have drawn support or even constructive feedback. Concerns could have been addressed. That opportunity has been lost. Personally, I will stop investing money in Zidisha for the time being.
     
    Cris, Evelyn, JohnMbathi and 2 others like this.
  12. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Hi Jon,

    Thanks for this advice. I understand from this that we have not done a good job in communicating what writing off is intended to mean.

    Our intent was that writing off loans should be a reporting convention only. Assigning a "written off" label was meant to convey that the loan has passed a standard threshold of arrears, not that the loan need not or will not be repaid. However I understand that in common speech, "writing off" does imply just that.

    We have not given up on these loans, and when they are repaid the funds will be returned to lenders just as with other loans. Borrowers who repay written off loans will be allowed to raise new ones in amounts equal to the largest loan they have previously repaid on time, just as other borrowers may do.

    What you say here is consistent with feedback we have received from a few borrowers, who have seen the "written off" categorization in their profiles and requested to have it lifted so that they may continue to pay back their loans. It seems clear now that having this categorization display in the loan profile pages is misleading, and may actually prevent borrowers from repaying.

    At the same time, it is important for us that our published statistics communicate our past repayment rates as clearly as possible. If we did not report these loans as having been written off, prospective lenders may underestimate the risk of lending with Zidisha, and put funds they cannot afford to lose into the platform. This happened last year, when the repayment rate was very high because it included only the small number of loans that had fallen due as of that time. When our lending program reached substantial scale, the on-time repayment rate unexpectedly declined, and many lenders were understandably disappointed. We want to avoid this kind of disappointment in the future, and are therefore erring on the side of reporting high write-off rates to prospective lenders now.

    To ensure our reporting is transparent without conveying to individual members that we have given up on these loans, we have removed the "written off" designation from the loan profile pages, but are still including these loans in the writeoffs reported in our Statistics page. I'd welcome your feedback on this compromise.
     
    Evelyn likes this.
  13. Evelyn

    Evelyn Forum Member

    @Julia Kurnia
    I am so happy to see you have removed the "written off" status label from the borrowers' profile pages. I think it definitely conveyed the message that they had failed and could no longer repay the loan. For some it probably gave them the idea that they were no longer obligated to pay and were thus "off the hook."

    I have a couple loans that were probably about to be written off in a couple months. What will happen now? Instead of getting an email about a "written off" loan will I receive one that signals it is moving into my ended loans category?
     
  14. Sverre

    Sverre Forum Member

    Very good solution !

    Maybee they could be marked as "more than 6 months behind" , Delinquent, or similar.
     
    KirstenShute, Jon Strang and Evelyn like this.
  15. Evelyn

    Evelyn Forum Member

    If the profile was going to be marked, I like "more than 6 months behind." It is truthful without being accusatory or labeling. Maybe it could be removed if the arrears were cleared.
     
    K M, KirstenShute and Jon Strang like this.
  16. Jon Strang

    Jon Strang Forum Member

    Dear Julia,

    Thanks for your thoughtful response and clarification. The "written off" designation was certainly misleading and I think that led to my apprehensions. I think Sverre's recommendation of "delinquent" or Evelyn's less negative "more than 6 months behind" would allow you to move towards greater transparency in reporting without overly discouraging lenders and borrowers who continue to make efforts to repay.

    I think other recent changes have been quite positive as a whole. The bigger images are consistent with recent trends in web design. The faceted search for lenders allows me to drill down to countries and enterprises very easily. I'm not so sure about the Karma points, but that's probably not a feature for a guy like me. I hope your work with Y-Combinator continues to give you fresh ideas. Just hopefully try to communicate them to the existing user base and solicit some feedback.

    Jon
     
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  17. Julia Kurnia

    Julia Kurnia Director, Zidisha Zidisha Staff

    Hi Evelyn, under the current system, you will still be notified by email when any part of a loan you have funded is moved to the "written off" category. The loan will also display under the "completed loans" category in your profile. However, the loan profile page itself will simply display the designation "x% repaid", rather than "written off."

    Thanks,

    Julia
     
    KirstenShute and Evelyn like this.
  18. Evelyn

    Evelyn Forum Member

  19. Hope2012

    Hope2012 Gold Member

    I've just seen one of my loans marked as written off, whereas in the discussion above it (Evelyn) suggested that the status label was no longer visible

    - these may be obvious questions but to reiterate...

    Do the borrowers see exactly the same page and if they see "written off" won't they think they don't have to pay anymore? Won't this cause jealousy for those who have bust a gut to repay only to see one one else's written off?

    (Ok as far as I can see from reading above "written off" is just in my statistics page, not on the main page that the borrowers see, is that right? )

    If I leave feedback for a written off loan do you think they will see that as meaning the loan has been forgiven?


    Are Zidisha still doing loan forgiveness options or do they just let it slide?

    Cheers
     
  20. Evelyn

    Evelyn Forum Member

    @Hope2012 @Julia Kurnia @jonas When Julia first wrote about this, the percentages were displayed in the "my ended loans" section in my lender account, in the same area of the public profile and also on the borrower's profile pages. However I think maybe it's a bug. All those areas that had the nice percentages displayed have reverted back in the past day or two to say "written off."
     
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