…. is probably how Triple Jump described the day the KRO-Reporter documentary came out. In fact the day I received the attached document (Triple Jump/Incofin letter to LAPO March 2010) was Doomsday. They now face questions in the Dutch parliament. They stand ridiculed in a documentary. The leaders of their beloved sector are abandoning them. Having worked a decade in this sector, only two people I know take Triple Jump seriously, and both work at Triple Jump. Calls for the formal regulation of the microfinance investment sector grow by the day, and Triple Jump find themselves as the central protagonist in the case. And now I hear them groaning, “Not another leaked document”. Yup, another leaked document, and they have no idea from where.
The document has been authenticated by Incofin (Ellen Wouters, Chief Legal Officer: “This morning, I checked internally with my colleagues, and this is indeed a letter that we sent to LAPO”). If it’s false, sue her. It was leaked to me by one of various insiders who have increasingly felt emboldened to speak out. Many are angry at the state of the sector, and if my book has served any purpose at all, it is that people now feel they can express their concerns about what is really happening in microfinance.
Two pages. Five bullet points. One catastrophe.
On March 5th 2010 Incofin and Triple Jump wrote to LAPO. They both knew they were in deep trouble regarding this investment. Let’s save Incofin for another day for the moment. What do they confess, inadvertently, in this document?
The document was written in response to the rating report prepared by Planet Rating. This had been requested in response to the mounting accusations against LAPO by Asad Mahmood of Deutsche Bank, and revealed all manner of problems. LAPO’s investors were desperately hoping that Planet Rating would dispel the myths about LAPO’s appalling behaviour. In fact they added salt to the wound. Interest rates of 144%, savings frauds, illegal operations, nepotism, the report reads like a microfinance crime scene.
- First, years after their initial investment, Triple Jump pleads with LAPO to get someone other than their brother to do an audit of the company. Yes, these funds had all invested however many millions of dollars on the basis of the audit done by the brother of one of the board directors. In Nigeria. LAPO had apparently promised to get a sensible company to audit them, but had reneged on the promise. Dutch taxpayer money, the funds of Deutsche Bank’s wealthy clients, all those Kivans who had so generously pumped in $5m in $25 chunks to eradicate poverty, the ASN Bank savers and pensioners, and still no meaningful audit. It’s a joke.
- Second, the interest rate charged. LAPO promised it would go down. But instead increased it. And not by a few basis points as we are accustomed to in Europe, but to a whopping 144%. Ooops. And ASN denied this a few weeks ago in the KRO-Reporter documentary. It’s the ASN Bank funds that Triple Jump is writing about, ASN Bank partially own Triple Jump, for Pete’s sake – at least get your stories straight!
- Third, LAPO should stop being illegal. Well, that’s a small step in the right direction, but one wonders what the endless investors and donors in ASN Bank, Oxfam Novib, Deutsche Bank, Standard Chartered, Grameen Foundation USA, BlueOrchard, responsAbility, Incofin, Kiva, Calvert Foundation etc. would think of their beloved funds having invested in an illegal operation in the first place. We bang on about client protection principles (LAPO does those too, apparently), but surely a good starting point would be that the institution is at least legal? A minor detail that had evaded their rigorous due diligence processes.
I’m going to skip to the fifth bullet point, because I want to save the fourth for last.
- Fifth, LAPO was caught sneaking in yet another fee to the poor. The “risk premium”, which had evaded the audit (done by the brother). Yes, as if these interest rates weren’t high enough already, even Triple Jump were alarmed by this new fee for the poor.
But the fourth point is the classic. [Drum roll] LAPO isn’t even investing this money in microfinance. As astonishing as it may sound, Triple Jump was “concerned” that LAPO had been channelling money to “affiliated LAPO organizations”. They amounted to 23% of the equity of the entire organization, and were “not in line with the core business of LAPO”.
So, all those investors in these various funds; those loyal Dutch taxpayers; the ever-generous Dutch government; those hordes of Kivans desperate to save the world from poverty, had all been pumping money to an organisation that wasn’t even doing microfinance! Where was the money going? Who knows? Triple Jump don’t hint at this, and let’s face it, it’s pretty clear they don’t know their **** from their elbow. They were shooting in the dark from the outset on this deal, duped by a rather clever Nigerian family, and ended up looking so ridiculous that it remains a mystery to me that the Dutch police haven’t arrested them yet. Then we have their board chairman, the charismatic Ab Engelsman (also of ASN Bank and Oikocredit, alas), telling KRO-Reporter (only a few weeks ago) that LAPO never deceived them, and if he had his time again, he’d still invest in LAPO. The guy is head of the Netherland Microfinance Platform, and this letter was written by Triple Jump! We have Calvert Foundation stating repeatedly that they “stand by their investment in LAPO”. Grameen Foundation reckons that rates of 144% are perfectly reasonable because some money lender is apparently a little more pricey. Kiva don’t care in the slightest what interest rates are charged to the poor (24%, 126%, it’s all the same to them, the Kivans will never notice). Deutsche , BlueOrchard, Citi and responsAbility are salivating at the sight of such massive operating margins, albeit originating from the hard work of exploited, vulnerable poor folk. Oxfam Novib have no idea what day of the week it is, and openly contradict the tripe spewed by their partner ASN Bank. Incofin are speechless that they managed to make such a catastrophic mistake. Schwaab Foundation handed these jesters (LAPO, not Triple Jump) an award shortly after they suffered the first ever rating withdrawal in microfinance history and landed on the front page of the NYT. And the CEO of LAPO just pocketed 12% of the equity of the company having enslaved the best part of a million people in debt.
These people should go to prison. Mis-use of public funding, deception, fraud, corruption, take your pick.
The problem is endemic. The microfinance investment funds are largely fraudulent. They tarnish the reputation of the few good players remaining. Microfinance may or may not be a flawed concept, but the practice of microfinance facilitated by these funds is totally flawed.
So, if you’re a Dutch tax-payer – refuse to pay your taxes until Triple Jump is closed down and your microfinance sector is regulated by thinking, ethical adults. Holland has a golden opportunity to lead the way here, don’t blow it. If you’re a Kivan, go back to school. If you’re an ASN investor, put your money under the mattress instead. If you accidentally invested in Citi, Deutsche, BlueOrchard, responsAbility, Incofin or Standard Chartered, ask for it back toute suite. If you donated to Oxfam Novib or Grameen Foundation, sue them. And if you’re the Dutch regulator, get out of bed.