Julia Lizama
Julia is a Media Analyst Intern at Wokai's Beijing Office.
Logo credit: www.cgap.org, www.wokai.org
In light of the growing number of online lending platforms, the Consultative Group to Assist the Poor (CGAP)* recently published some guidelines that microfinance institutions (MFIs) should consider before clicking “Yes” to their online partners. As you may well know, online platforms (such as Wokai, KIVA and ZOPA) channel funds from donors to borrowers via MFIs (or other NGOs). From the donors’ standpoint, these platforms are valuable in providing a secure venue that they can trust. They are also convenient, since relative information about MFIs are provided on the website, making it easier for donors decide to which MFI they would like to donate.
MFIs benefit from these platforms as well, not only in terms of the breadth of funds but also in terms of the speed with which the funds reach the MFI. Finally, MFIs benefit from the publicity garnered from being featured online. For all these reasons, MFIs show a demonstrated interest in developing a partnership with online platforms. Yet CGAP notes that there are risks associated with choosing the online platforms because they vary in structure (i.e., objectives, methodology, regulatory obligations depending on where they are based). CGAP recommends that MFIs consider the following eight questions before developing a partnership with online platforms.
We decided to take this opportunity to challenge Wokai and see how it rates as an online giving marketplace. Feel free to pipe in and call us out on anything we’re missing!
1. Which online platforms can be counted on to provide funding in the amount and at the time when needed, and what additional support do they offer to help the MFI?
This question is best answered by thinking of Wokai as a service provider that has a duty to deliver “customer satisfaction.” For example, customers value consistency and legitimacy of a company. Wokai ensures consistency because the funds that Wokai raises are distributed with regularity, and the process of collecting and distributing funds is transparent. What’s more, Wokai ensures “customer satisfaction” by providing Field Partners with technical assistance and training.
2. What is the cost and currency of the online funding, and who bears the foreign exchange risk?
The online funding is collected and distributed in US dollars, and the MFIs exchange the currency themselves. This way, we can make sure that the flow of funds between Wokai and the MFIs remain accurate.
3. What are the reporting requirements for the MFI?
Wokai’s periodically sends over members of our team to evaluate our Field Partners. Additionally, MFIs have monthly reporting obligations.
4. How will the MFI manage abrupt and perhaps unpredictable shifts in funding patterns?
MFIs regularly disperse loans to clients regardless of the financial flow, because MFIs have a duty to support their clients with funds. The MFIs first cover the necessary amount with their own money then it will be supplemented by Wokai’s funds.
Photo credit: www.cgap.org
5. How do more traditional lenders to the MFI view borrowing from online sources?
It’s difficult to say, because traditional lenders to MFIs (investment funds, banks, and other financial institutions) and organizations working on online platforms have different objectives. Speaking from Wokai’s experience, we have always been received favorably and have successfully forged partnerships with them. Wokai has several corporate sponsorships, which have allowed us to provide more loans with better quality.
6. What management information system (MIS) is adequate to meet microcredit portfolio reporting needs?
Association for Rural Development of Yilong County (ARDY) uses SWAP, with the help of software developers. Chifeng Zhaowuda Women's Sustainable Development Association (CZWSDA) does not use MIS.
7. What customer privacy and consumer protection concerns are posed by posting client information online?
Aside from the fact that we don’t ask unnecessary personal questions, the information that we receive from our clients (both donors and borrowers) is only used for institutional purposes. We never post information that breaches consumer privacy, such as specific contact information.
8. What due diligence about online platforms should the MFI conduct to satisfy anti-money laundering and anti-terrorist financing rules?
Our policies in the contracts that we sign with donors state that money laundering and anti-trust is illegal. It is made clear that should they be discovered committing illegal acts, they would be subject to contract termination. What’s more, funds are transferred through big institutions that have established credibility.
Well, we’ve gone through all of the questions. We think that Wokai’s scoresheet looks great. How about you? Let us know how you think Wokai rates!
*CGAP is an independent policy and research center dedicated to advancing financial access for the world’s poor.
On question 2 I think you only answered one of the three questions in the question.
"2. What is the cost and currency of the online funding, and who bears the foreign exchange risk?"
You didn't answer what the cost of the funding is and you didn't explicitly say who carries the foreign exchange risk (as far as I can tell, the borrower carries the exchange risk). It may be worth expanding on these areas a little.
Posted by: Thomas Bjelkeman-Pettersson | April 22, 2009 at 01:44 AM