Maybe this is old news, but I just received this journal update concerning my MIFEX loans:
Here is a message written by Robert Edgar, MIFEX Co-Founder and
Director, on your loan:
As Mifex's Co-Founder and Director of Operations, I want to provide you
with an update on your loan managed by Mifex. As you may know, all
entrepreneur profiles on Kiva's website are posted by local Field
Partners, like Mifex, which are organizations that lend to the poor for
poverty alleviation. The role of a Field Partner is to screen each
entrepreneur, upload his/her loan request on the Kiva website, disburse
the loan, and collect loan repayments.
Lately, we have encountered substantial obstacles that may affect the
repayment performance of Mifex and its entrepreneurs on the Kiva
website. Here is an update from our institution that I hope helps
clarify what some of the issues we are dealing with are. If you have
any questions please do not hesitate to visit the Mifex website:
http://www.mifex.org/, or email us at
info@mifex.org.
In the microfinance industry Mifex is a very young organization. We were
amongst the first institutions to use Kiva for financing and we have
heavily relied on Kiva funds to start our organization. Although Kiva
and the great lenders that support the site have helped our institution
form a strong base for growth, we have recently encountered substantial
obstacles.
A shortage of capital, combined with escalating default rates, has put a
heavy strain on our operation. Many of our clients are also having a
very difficult time making their repayments due to the persistent rains
during the first half of the year. These factors have caused Mifex to
accumulate a debt to Kiva lenders that we cannot pay without putting in
danger the sustainability of our organization.
As a result, Mifex and Kiva have agreed to put a temporary pause on all
new fundraising on the site until our organization regains its
stability. We will continue to make collections on our Kiva loans
during this time. However, due to the challenges we face, some of the
funds you are expecting as a repayment may be delayed or defaulted if
we are not able to collect them within 6 months of the end of their
respective loan terms, as Kiva's policy states.
Over the next several months we will devote 100% of our efforts to
resolving this situation so we can continue our relationship with Kiva.
We will continue to collect the debt from our clients who have defaulted
as well as explore other sources of financing. Meanwhile, we
respectfully ask for your patience as we diligently work towards these
goals.
Speaking about 'transparency', I don't believe that KIVA ever stated anywhere that under any circumstances that an MFI could redirect payments made on our loans to other endeavours, such as to foster their sustainability, as in the present MIFEX case, or for any other reason.
If payments are being made on some of our MIFEX loans, don't we have the right to know about these payments? Conversely, if our borrowers are not making their payments, I think we ought to have a right to know about that, too. I believe that we ought to know how much of
OUR money is being withheld by the MFI, and specifically, which borrowers have repaid these sums.
When I joined KIVA, I presumed that the risk I assumed related to the non-repayment by individual borrowers. Now it appears that the risk is actually considerably broader than that. There is a risk that the MFI may make improvident business decsions, or for some other reason, require the use of MY money for THEIR purpose which was unstated and unknown to me at the time I agreed to loan to their client, through them and their partnership with KIVA. Additionally, there is a further risk that KIVA will permit the MFI's to do this, as has happened in the present case with MIFEX.
At law, what is happening here really two things: the first of which is termed "conversion", the second of which is termed "intermixture".
Conversion occurs when the characteristic of an asset is fundamentally changed, for example from cash to a good, as with a purchase or alternatively, from a good to cash, as with the sale of a commodity. Cheques may also be "converted" to cash, when they are negotiated (i.e. presented) for payment. ( A cheque, which is really a piece of paper, is evidence of a promise to pay a specified sum, on a specified date, to a specified person/business.) When the individual borrowers repay the MFI, they likely use either cash or cheques. If cheques are used, rather than cash, "conversion" takes place at this point.
The MFI then deposits these payments into their account. This is the point at which the "Intermixture" actually occurs.
"Intermixture" refers to a comingling of funds, designated for a particular purpose (e.g. individual loan repayments) being blended together with other funds, obscuring the source of ALL the funds (i.e. the identities of the individual borrowers who repaid them). Keep in mind a portion of the loan repayments includes both interest, which belongs to the MFI, and a percentage of the principal sum borrowed (which belongs to the collective KIVA lenders who funded that particular loan.) KIVA usually gets partial loan repayments from their MFI's quarterly, I believe. In these instances, KIVA is holding he funds for us in what is akin to a Trust. While the MFI holds the funds, before transferring them to KIVA, they hold them in what is akin to a Trust, for us.
In my humble opinion, in the MIFEX case, there has been an agreed breach of that trust, between KIVA and MIFEX. At law, that is termed a "conspiracy". The interest of maintaining the solvency of the MFI has been placed above our right to recieve an accounting of the repayments, if any have been made, and the return of the ALL sums repaid, as per our agreement with KIVA.
Not only is this act non-transparent, in my view, such an action is highly repugnant, if not unlawful.
I would welcome a response from KIVA Staffers and/or their solicitor(s). May we hear from you, please.
Lorna
