Kiva.org Responds to Fraud

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In an unfortunate turn of events, one of Kiva’s microfinance loan partners has been reprimanded for taking excessive and fraudulent loans. The group is called Afrique Emergence & Investissements (AE&I) and it appears as though Kiva has been able to act on this quickly enough that there was no further fall out. They were also able to recover all of the misappropriated funds by July 4th, 2008. A portion of their statement regarding the incident appears below:

In February 2008, Afrique Emergence & Investissements (AE&I) requested and received a Kiva Fellow to work with them in Abidjan, Cote d’Ivoire. In the initial weeks of the fellowship, the Fellow quickly discovered that the loan amounts and terms published on the Kiva website were consistently incorrect. Specifically, many of the loans were for $1200 with loan terms of 12 – 18 months when the actual loan amounts were often less than $300 with 1 – 3 month loan terms.

Within 1 week of discovery of these issues, Kiva sent a Senior Microfinance Adviser and a Microfinance Partnerships Manager to Cote d’Ivoire in order to investigate further.

During a week of investigation, serious gaps were discovered in AE&I’s process of raising funds on Kiva as well as its general microfinance operations. Specifically, AE&I demonstrated severe operational weaknesses, inadequate management information systems, and heightened potential for inappropriate transfer and leakage of funds. Furthermore, in the course of its investigation, Kiva learned that AE&I’strue interest rate was well in excess of the reported interest rate of 18% per annum. This higher interest rate was judged by Kiva to be entirely unjustified given the local context in which AE&I works, and concerns remain about the social impact of AE&I loans. After completing this investigation, Kiva immediately paused all fundraising for loans managed by AE&I.

Since all of the loans posted to Kiva by AE&I had actually be repaid by the borrower to AE&I or would be repaid by May 2008, Kiva pursued a strategy to recover funds as soon as possible and in full. On February 14th, Kiva and AE&I negotiated a repayment plan requiring all outstanding funds to be repaid by May 2008 and final payment was received on July 4th, 2008.

Kiva takes transparency and accountability very seriously and continues to strengthen and improve its due diligence systems to ensure that Field Partners are stable and serving a social mission to alleviate poverty.

I spoke with a person the other day who said their biggest fear about the microfinance movement was that eventually people with malicious intent would find ways to use it for fraud, laundering or scams. That’s always been the elephant in the room when it comes to microfinance and it appears that elephant has finally made some noise. Hopefully, for the sake of the majority of the people who are benefiting greatly from programs like this, this was an isolated incident.