Risk and Due Diligence
Deki cannot guarantee that you will have your loans repaid. However, we do try to minimise risk as much as we can.
Lending via Deki involves three levels of risk:
1. Borrower (Entrepreneur) Risk:
Our field partners screen every borrower posted onto our website. We aim to ensure that they are honourably borrowing and that they can feasibly manage the loan. There are however a number of reasons why a borrower may not be able to repay the loan:
- Health e.g. HIV/AIDS, malaria
- Natural disasters e.g. floods, Tsunami or earthquakes
- Business issues e.g. crop failure due to drought
- Personal emergencies
- Other issues
Deki always gives the borrowers the chance to defer their payments if circumstances arise where they are unable to repay their loans in a particular month. The length of time that a loan can be deferred is at the discretion of our field partners.
2. Field Partner Risk:
Deki links up with field partners who administer the loans. It is the field partner’s responsibility to ensure all money is distributed and collected appropriately. Although Deki is very thorough in selecting field partners, there are a number of risks associated with using them as an intermediary.
- Bankruptcy (e.g. the Field Partner may go out of business and be unable to collect your loan)
- Fraud (e.g. staff members at the Field Partner may embezzle funds)
- Operational difficulties (e.g. the Field Partner may have some cash-flow or other challenges that could prevent repayment)
3. Economic Risk:
Deki works internationally so there will be wider risks to consider.
Currency Fluctuations - As Deki lends in local currency there is the risk of large currency devaluation. Deki will cover any minor fluctuations (less than 10%) and at different times this could work for or against Deki. However, if there is a major loss due to currency fluctuation Deki may be forced to pass this on to the lender.
Political: From time to time areas we work in may become unstable and make it difficult for our field partners and borrowers to work effectively. For example they may flee an area due to civil unrest.
Deki’s field partners are already well-established grassroots organisations who participate in microfinance. They must have clear social objectives and a proven track record. Developing a partnership with Deki is a multistep process normally extending over several months. The process consists of the following steps:
1. Initial contact
a. We accept unsolicited contact from potential Field Partners via the Deki website.
b. We identify potential Field Partners of interest via third party recommendations such as other NGOs, international development networks or common interest groups.
c. We actively seek out potential Field Partners in specific geographical areas and as well as organisations working with specific target groups (i.e. rural farmers, women, disabled clients, etc).
2. Field Partner Evaluation application. This application includes:
a. Legal registration and key contact data
b. CV/s, bios or resumes of key personnel
c. Management structure
d. Details of mission
e. Specific financial/portfolio information
f. Detail on training programmes and other support provided
3. Provision of annual accounts, previous funder evaluations and details of policies and procedures
4. Research into any additional agency ratings/evaluations, including:
a. Mix Market link (Mix Market provides data on MFI’s including outreach and impact)
b. Previously used fundraising site evaluations (i.e. Big Give or other similar crowdfunding sites)
Once Deki has evaluated the above data and decided the organisation is aligned to Deki’s social objectives, has sufficient experience handling microfinance and has a proven track record of positive, reliable financial management, we then begin actively working with the future field partner to plan the terms of our partnership. This includes:
1. Development of initial organisational growth plans, including financial planning
2. Develop MOUs (Memorandums of Understanding) and Financial Facility Contracts
3. Development of business plans (or more comprehensive growth plans) within the first year of partnership.
Deki works on a monthly funding cycle with our Field Partners. This means loan information flows back and forth between our organisations on a daily basis, and is reconciled at the end of each month to ensure each Field Partner is adhering to their terms of contract. In line with this monthly cycle, Deki maintains regular checks on:
Loan applications and disbursals
Clients in arrears
Environmental or external factors affecting entrepreneurs and Field Partners
1. Deki representatives visit Field Partners on an annual basis. During these field visits, our representative performs several monitoring and evaluation activities, including: Data Verification Audit - so as to verify that loans actually reach the specified borrower and that all data is accurate, Deki will randomly visit several borrowers listed on the Deki website.
2. Financial audits on Field Partner accounts ensuring records between the Deki system and our Field Partners systems align.
3. Procurement of annual accounts viewing internal policies and procedures and advise on ways of strengthening them to reduce institutional risk. Bank Statement Reviews: From time to time Deki may monitor our field partners’ bank statements in order to verify the flow of funds match data entered onto the Deki database.
4. Business plan milestone evaluation.
Diversify Your Portfolio
Deki and our field partners try to ensure that all borrowers posted onto the website are able to pay back their loans. As this is not guaranteed we suggested that you spread your loans across a number of borrowers, in doing so you are spreading your risk. For example if you are planning on lending £50, we recommend that you spread your risk by lending £10 to five different entrepreneurs.