Peter,
Whatever the case may be concerning AE&I it seems that Flannery feels they committed serious fraud. Inasmuch as that it what he says, both in the
blog post that you mentioned and also more specifically in the
article that he wrote for innovations:
We have worked with about 110 field partners in our three-year history. With six, we have encountered serious fraud, leading us to dissolve a partnership. Behind each of these breakups is a story.
Although he doesn't refer to the acronyms it is clear he is talking about these six:
WEECSEEDAE&IWITEPRAFODEMIFEXOn the other hand, although Flannery was directly involved in the effort to resolve WITEP he may have had less of a part in the work with AE&I.
Is it possible I wonder that it's in fact Matt Flannery's blog that's being referred to in "We have drawn kiva’s attention when we found this presentation and noticed that a blog had made comments based on their website presentation that may create confusion on the real facts. Kiva sent us an email to tell us that the comments made on the blog did not reflect their views." Just a thought.
Intuitively, it does seem that they might mean Flannery's post. For one thing I would suspect Flannery's blog is more visible than the blog written by the Kiva Fellow, and secondly it is possible that the Kiva Fellow did not feel that it was her role to be writing in a public blog about the circumstances of the investigation.
While on the other hand MyC4 specifically links to the Kiva Fellow blog when they talk about picking up AE&I.
https://www.myc4.com/Forum/View/14/11610?page=2(please note, the message I am referring to is at the bottom of the webpage -- this is the first message on the thread chronologically)
It's interesting that MyC4 have picked them up, having done their own due diligence, and they won't of course have been unaware of how it went wrong between AEI and Kiva. As a lender through AEI myself -- my very first Kiva loan was to an AEI client -- I was glad that all the money was paid back, which in itself puts them in a much better light, and certainly not in the WITEP / SEED class, where fraud did regrettably occur.
Yes, a person by the name of Jes Colding of MyC4 specifically talks about the breakup with Kiva in that link above.
I had thought that the statement from AE&I came out shortly after the events (back in January and Feburary of 2008), however, it looks like it actually was written in December 2008 and Flannery's blog post is from July 16, 2008.
Flannery's post may have come out right after AE&I had repaid all outstanding loans which according to the post on MyC4 occurred in July 2008.
I'm not sure what circumstances led AE&I to create a statement almost a year after the events, as I had expected to have occurred right after (back in Februrary 2008).
Kiva states there was a week long investigation into AE&I. However, the statement from the management team in Abdijan says the request to pay back all money occurred the day after senior staff from Kiva arrived.
A possible explanation for the discrepancy between one day and one week is that the investigation was conducted in the week prior to the arrival of the senior staff by the Kiva Fellow herself, but without necessarily the consent of AE&I.
The scenario is that she e-mailed her superiors, and they guided her investigation of the MFI. After a week they felt there was sufficient reason to send in senior staff who corroborated the findings of the Kiva Fellow.
I originally thought that the one week investigation was conducted by the Senior Microfinance Advisor and Microfinance Partnerships Manager with the consent of AE&I after they arrived in Abidjan.
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.
http://www.kiva.org/partners/53If you compare the two statements AE&I gives the impression that it was all of sudden without hardly any investigation at all (from their perspective that may well be the case), but looking at Kiva's statement it appears there was at least a one week investigation before making a decision to close the partnership.
This scenario would seem to be similar to what happened with WITEP. According to the
article that Matt Flannery wrote for
innovations a Kiva Fellow named Shelby Clark stationed in Uganda uncovered some discrepancies and he called the central office. After the investigation uncovered a "smoking gun" Flannery went to Uganda and confronted Moses Onyango. The money had been funneled into some bad investments, and also a new house.
The piece was published in 2009, and Flannery wrote that little progress has been made on a legal case in response to the fraud in part because Kiva will not pay bribes.
And I think it wants to be seen to be cracking down, so that MFIs understand that Kiva will act strongly if it's being taken for a ride. What I'm saying is, you can't put a number on the salutary effect of being seen to be tough on fraud. As Voltaire said (loosely translated) it is good occasionally to take out an admiral and shoot him, to encourage the others.
In principle deterrence is a worthy goal. On the other hand, I don't imagine that any of us has unreasonable expectations about what can be done in terms of a criminal prosecution.
Consider the corruption rankings for the countries where the MFI's worked:
Kenya (this includes WEEC, SEED, and RADOFE) -- 146/180
Uganda (WITEP) -- 130/180
Ecuador (MIFEX) -- 146/180
Côte d'Ivore (AE&I) -- 154/180
Corruption RankingsThe closest thing to a prosecution of a fraudulent MFI seems to have occurred with SEED. The director was apprehended but then he was later released.
They contacted the police commissioner, and also the attorney general in Kenya, but the report from April 23, 2008 indicates that little progress was made.
Trying to carry out a prosecution in a foreign country because an MFI committed fraud is probably not an easy thing to do, but as you say it may be necessary.
I think that the model assumes that most of the MFI's which are approved through the due diligence process are basically honest organizations. But it still takes into account the possibility of fraud. It seeks to detect fraud, and to act swiftly and decisively when it occurs.
I hesitate to say this but I wonder what the fate of the directors would be if they were convicted under the Kenyan judicial system. I haven't researched it, but Kenyan prisons are probably not like prisons in Western countries.
David
