Kiva Update

I was quite surprised to find emails in my mailbox from Kiva stating:

During our most recent audit, we were not able to verify that XXXXXX was the actual recipient of this loan. We are therefore repaying in full the balance. Thank you very much and we hope you will continue to support Kiva and its mission.

This, obviously, caused me some concern. I immediately posted to the Kiva Friends website and got lots of responses very quickly. Several others had also received the same message and where wondering what was going on. All I could think about was fraudulent loans and how the whole setup was a scam.

Well, I was partially right.

I found this post on line from Dr. Kendall Mau the CFO/COO of Prisma Microfinance. Prisma Microfinance is the Micro Finance company that operates in Nicaragua in conjunction with Kiva. His blog is located here.

He wrote:

Last week we discovered a problem with some loans posted on the Kiva website by our General Manager in Nicaragua. How did we notice that he was creating projects that in reality did not exist?

1. An investor asked to visit 2 projects while he was in Nicaragua. Our GM kept putting us off. He was finally forced to admit that the projects really didn't exist.
2. I noticed that our local cash position was not going down which should have happened if loans were being funded.

What was the motive for the fake loans? The GM was given a goal of producing 20 good small business loans per month to list on Kiva. When the GM could not produce enough good loans, he started making them up. It never occurred to him that the two indicators listed above would alert me to his shenanigans.

The only good thing about the whole situation was that the funds for these loans were still in the Kiva payment system and would not have been transferred to us for another 1.5 months. Therefore, the repayment of the loans will reduce the net amount Kiva owes us at the end of September 2007.

Someone on the Friends of Kiva website asked why I did a payback instead of a refund. Two reasons:

1. The Kiva automatic repayment system had already kicked in and grabbed the first month's payment. It gave me balances and I just finished them off.
2. Yesterday, I had trouble reaching my usual contact at Kiva to have her spend 2 hours with me trying to do a refund for each of the 30 loans. Kiva's system does not allow me to do refunds. To get around this obstacle, I just repaid all the loans. Better to get the money back to the investors ASAP than wait around and chase down the Kiva contact to do them for me.

When Chelsa gets back from her African tour, I'll ask her if she can easily switch the 30 loans to the refunded category with one push of the button.

My apologies to all our Kiva lenders. The GM has been dealt with

There are plenty of comments on this issue as well, as one would imagine. Needless to say that I was not impressed as this was my first experience with Kiva.

To their credit however, they did identify the problem and the funds were refunded to my Kiva account which I then moved back into my PayPal account. It took about a week for that to happen and I am now watching my other loans to see if there is a similar problem.

I am not stopping any loans that I had planed to make thru Kiva but I am slowing down until I feel a bit more comfortable with the people on the ground there.