MIFEX - concerns, updates

[Guest]

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[RichardF]

It's like playing the stock market only I don't expect to make any money.  

And that's not like the stock market because?... 

[wind5001]

I am simply speechless. This is a huge disaster and shame...

[Dagfinn]

Matt admits to taking risks while building Kiva and Mifex was one that didn't pay off.  They have learned a lot about due diligence and have implemented many procedures in the partner process that will go a long ways to prevent another Mifex.
Matt admits that Kiva has learned many lessons in 3 years and I think Matt and the others are running fast behind this snowball they have started.
Matt admits to "serious flaws" in the old repayment system and the new system still has bugs they are chasing but I am satisfied to wait until December.
Matt finally 'heard' us on the subject of communication and we will wait to see what/when/where that improves.

John and I went into Kiva knowing there were no guarantees in this life and will continue to support Kiva into the future because we believe the borrowers gains are greater than our losses.

This is a sad but hopeful day for me...
jan

Bless your forgiving soul Jan - many of us can learn from that.  It is not a "card blanche" for what goes on at Kiva though.  

I for one have to admit I did not spend a calorie on the possibility that fraudulent behaviour was part of the troubles Kiva navigates through.  That though is a risk I can live with and today I got my first defaulted loan.

You speak of what Matt have learned - I am learning now that Kiva is very sloooooooooooooooow learners, just as slow as I have blue eyes.

The willingness to take risk combined with the absence of care of its lenderbase is what worries me the most having partially digested the last hours of events.

I for one will not accept their claim for transparancy, they simply do not deliver accordingly.  Right now I find it wise to let it simmer down while my sould make a grasp at what Kiva really is and is not.

Id Kiva have it in them to become Kiva I doubt - that is the saddest of all as we desperately need it.

Dagfinn A.

[Peter S]

Just some numbers to put the MIFEX default in context.  The biggest ever Kiva default by far, and it pushes total Kiva defaults past the half million dollar mark, which is an entirely unwelcome sort of milestone, just a few days after the fifty millionth dollar was loaned.

MFI      defaults       $ amount       % by $ amount

MIFEX      734           337,158          62.5%
WEEC       886           179,444          33.3%
SEED       184            13,965           2.6%
REDC         5             3,805           0.7%
Shurush      7             2,515           0.5%
E Afr Beta   7             2,445           0.5%
HKL          1               162           0.0%
         
totals:   1824           539,494         100.0%


Peter

[s_shewan]

I am simply speechless. This is a huge disaster and shame...

Agreed.
Hopefully lessons will be learned from it.
It is certainly a huge "black spot" for Kiva and will affect their default / repayment percentage in a big way.
It may even lose them some lenders.

Susan

[Soriak]

I'm not surprised that fraud happens, that's just the nature of business - charitable or otherwise. It does surprise me a little how bland it was (then again, isn't it always obvious in hindsight?) and that the biggest case happened in the US. I'd have expected it to be a developing country where it's much harder to prosecute. A testament to Kiva that WEEC is the only other major case, I'd say.

Anyway, I hope the two MIFEX guys end up in PMITA federal prison. Not that I'm an expert on US law, but this clearly crossed state lines and should therefore be an issue for the FBI, not a state prosecutor. I hear their financial fraud unit is pretty damn good, and it'd be nice if they could focus on someone other than UBS for a while.

[Odette]

Thank you, Peter, for posting the MFI's and default numbers.  There is no denying the numbers.

[TropicalPete]

Kiva legally is not a bank... so this is an interesting debate.

My response:
Mohammed Yunus considers himself a banker to the poor. When he setup Grameen Bank it was not legally a bank (that came later).

While your CDN dollars may be insured when you deposit in a CDN bank. Any USD, GIC (except Treasury Bills) or Mutual Fund you deposit in a CDN bank is not insured. Having a deposit insurance system does not make a bank. There were banks for centuries before the concept of deposit insurance was implemented. Also, you do not always receive interest when you deposit money in a bank.

Banks DO help the middle/upper class. Without access to a bank account (and it's various services) you would be poor. Hence the need for MFIs to provide banking services to the poor (who have been systematically denied access to the regular banking system). In Canada, the shareholders (by and large) are the middle (and upper) class. Since no person or corporation can own more than 10% of a bank and many of the large retirement pension funds for the working class are invested in the big 5 banks.

My goal in participating with Kiva is to help reduce poverty. While I currently have less than I an afford to lose invested with Kiva; since I plan to be a long term lender I can envision the day when I will have so much invested with Kiva that I could only afford to lose 10% of the money invested. With a 96% repayment rate then I am not taking unnecessary risk.

I believe that whether one views their loans as disposable (donate-able) has no impact on their altruistic intentions. So we are equally as generous. If I am making the choice on where to donate money, I prefer to donate money to medical research. I just do not hold the view that all the money I invest in Kiva should be disposable.

Cheers,
Pete

[wind5001]

I hope that any, even perceived, Stanford connection does not infringe with the prosecution and Kiva's drive for it. They need to be brought to justice.

[Ramón]

So, for the legal experts among us... please comment on these thoughts & questions:

When does a breach of contract (i.e., the contract between Kiva and Mifex) become fraud?

I understand that there was misuse of funds involved, but as far as I understand, there must be a "misrepresentation of current intentions" involved when they signed the contract with Kiva.  Or were they planning to do the right thing when they signed the contract, and (for whichever reason) ended up doing something else?

Also, should each loan be considered an individual and separable contract between Kiva and Mifex, or is there only one? In my opinion, you can argue this both ways; however when you look at the loan fulfillment procedure between Kiva and the MFIs, it's more of a bidirectional stream of money that gets justified via individual loans, and not a loan-by-loan commitment.

So, according to Ramón's common-sense method of non-legal arguing, it may be quite hard to prove that fraud occurred, unless it can be proven that Mifex intended to breach their contract with Kiva when they signed it...