LAPO (Alumni) Break the Silence

I recently received a response to my blog-post “Doomsday”, which discussed a leaked document from Triple Jump and Incofin complaining about some of LAPO’s activities. The comment was from a group claiming to be students of LAPO. It’s as close as we’ve got to a formal response from LAPO. I would usually not bother posting or responding to an anonymous message from a generic email address, although it did appear to have originated from Nigeria at least. I cannot vouch for its authenticity, but it was sufficiently interesting to dissect. Thus I reproduce the entire comment in red text, and respond to it in black text for clarity.

We are alumni of LAPO, who have worked with LAPO for number of years and are in various fields of endeavor. What binds us together is the quality of training and experience  we received during our years at LAPO.

Conveniently the comment is unsigned, and cannot be considered an official response from LAPO, who are yet to make one. My name is on the front of my book, the names of the authors of the various rating reports these “students” refer to are on the front of their rating. Transparency?

Our concerns
•    Over the past few years, we have watched with utter bewilderment the smear campaign by Hugh Sinclair to rubbish an organization, which a lot of dedicated young Nigerians labored  very hard to build for over two (2) decades. 

I had presumably persuaded two professional rating agencies to join this smear campaign; the New York Times; Berrett-Koehler publishers; and endless other media outlets. Chuck Waterfield was presumably part of the conspiracy as well, and when Kiva, Calvert Foundation and eventually Triple Jump/Oxfam Novib/ASN Bank pulled out of LAPO, they did so on the basis of false information. The Dutch channel KRO-Reporter was also in on it.

I leave it to the (informed) reader whether they believe this conspiracy theory, but would refer to Occam’s Razor in such cases: “other things being equal, a simpler explanation is better than a more complex one.” A simpler explanation might be that LAPO was a questionable but very profitable MFI that led investors to salivate at the potential to benefit financially by supporting such an institution, and turn a convenient blind-eye regarding the impact upon the poor? We have to at least consider this possibility.

•    We are however peeved with choice of words and temperament in his comments and reference to LAPO. We strongly feel that  even in the act of whistle blowing there should be some level of decency and legal boundaries

So sue me. LAPO and its investors haven’t denied a single claim to date, resorting to utter silence. The book was meticulously fact-checked, legally reviewed etc. so if they wish to take legal action, by all means do so. We suspect LAPO’s investors might be a little hesitant to have their dirty laundry aired even more publicly for all to see. Does LAPO, or its investors, wish to engage in full disclosure of the activities that took place in a public arena? I would be delighted to do so, as there are still some unanswered questions, particularly relating to Grameen Foundation USA and their knowledge of events before and after they guaranteed the Citibank and Standard Chartered loans to LAPO. Bring on full disclosure. Those with nothing to hide have nothing to fear. However, I congratulate the author(s) on the use of the word “peeved” – a great word that one hears all too rarely nowadays.

Our aim
•    While we appreciate the dignified silence of LAPO Management in the face of this persistent unwarranted attacks over the last three years, we strongly feel that half-truth and falsehood when repeatedly peddled unchallenged would take the form of truth particularly for those who do not have the benefit of knowing:

i)    the other side of the story and
ii)    the real motive of the peddler

I am not sure of the distinction between dignified silence and cowardly silence. The only immediate time I can remember when LAPO publicly commented on anything was when they claimed to have reduced the interest rates, which turned out to have been a lie, confirmed in the rating reports, by MFTransparency, and reluctantly admitted by Oxfam Novib’s CEO Theo Bouma in the recent KRO-Reporter documentary. LAPO’s original press release announcing the “reduction” was subsequently removed from their website but is available on mine.  But, if LAPO would like to formally comment they are free to do so. However, in order to save us all time, could they carefully read the book and the source documents first?

The interesting thing here is that their response does not state either the other side of my story or the real motive of “the peddler”, aka “heretic”. I was so looking forward to hearing about my actual motive!

•    The other danger is that the peddler becomes bolder and will devise more channels to make the half- truth and downright falsehoods seem factual. We have seen this trend emerging in Sinclair’s campaign which began with his wife’s verbal assult on the Founder of LAPO  in 2009; his  writings  under various pseudo such  as Street cred;  various calls, threats of being ‘taken to the media’ and slanderous comments on LAPO to the organization’s partners; his ‘famous’  book and  now a web platform.

I love it – my wife verbally assaulted the CEO? It is true that a woman did ask a question in the AGM of ASN Bank, which was presumably her right to do so under Dutch law as a shareholder of ASN Bank – in Holland there are laws whereby shareholders can hold their boards accountable, I am not sure of the situation in LAPO, but to describe this as an assault is farcical. The question was reproduced in the KRO-Reporter documentary, is reproduced in full on page 142 of the book and available to listen to on my website (footnote 8), and is very polite. In a nutshell: “what social impact are you having at such high interest rates?”. A reasonable question given the glaring information available at the time and confirmed since, and no one has actually suggested that LAPO’s interest rates are anything other than “high”. This was an act of accountability, of freedom of speech, and one enshrined in the shareholder rights in Holland. It is a foundation of the corporate legal system not only of Holland, but of many democratic nations. The fact that the author(s) consider this a verbal assault perhaps says more about their stance on accountability rather than that of the woman in the ASN Bank meeting who asked a perfectly legitimate, polite question. Even ASN Bank didn’t consider it an assault, according to their (feeble) written response to KRO-Reporter, who reproduced the question in full. An inconvenient question perhaps, but valid nonetheless.

I am assuming ‘pseudo’ refers to pseudonyms – fair point, I concede that one. “Avatar” is another word. “Alumni of LAPO” is not much more transparent. ‘Various calls and threats’ – please elucidate. The book is not about LAPO, it is about LAPO’s investors. LAPO is merely another example of an exploitative MFI, of which there are hundreds, and LAPO is not necessarily the worst: Compartamos in Mexico charge even higher interest rates, Andhra Pradesh showed that mistreatment of clients can be more damaging than LAPO’s mere client desertion.

We are declaring emphatically that this half-truths, falsehood and reckless comments on LAPO MUST be confronted now.
Who we are to address
We are not addressing those who know LAPO so well and have discovered the falsehood and real motive of Hugh Sinclair. We are rather trying to enlighten persons and institutions who have little or no knowledge about LAPO beyond the tales by Hugh Sinclair

Please, tell me what my real motives are, I am so keen to hear these! Once again, an allusion to ulterior motives without definition. Even I am curious now! And what about the investors Kiva, Calvert, Triple Jump, Oxfam Novib, ASN Bank etc. that pulled out of LAPO – in which camp do they sit? Are these in the camp that have no knowledge about LAPO? They were LAPO investors. Ironically the anonymous author(s) might in fact be correct, they probably did have no knowledge about LAPO, but when they did, their actions were fairly clear.

What are the issues?
We will address the issues Hugh Sinclair has raised since 2009 which have been rehashed in this blog. The only difference is that at every presentation, they are ‘enhanced’ with outlandish claims and half-truths  to make them believable to the unsuspecting!
Illegal operations
Those informed on the local non-profit microfinance context have made their comments on this accusation,  through channels we know Hugh Sinclair had access to. Repeating it here is part of the mystery about Hugh Sinclair and his campaign against LAPO. We summarize the non-profit microfinance context in Nigeria thus:
•    Non-profit microfinance institutions operate savings and loan schemes which are  indigenous to West Africa. A major feature of these institutions is that members who are borrowers make contributions to a ‘loan fund’ from which ONLY them (the member-savers) can borrow. It was these pools or ‘loan funds’ early donors provided grants to support. To our knowledge, LAPO and several non-profit microfinance institutions still in operation in Nigeria do NEITHER accept deposit from the public NOR make loans to non-savers.

Indigenous they may be, but I am very careful in the book, if these students read it, to state that according to two rating agencies, they are also illegal. Note that I am equally careful to stress that it is the intermediation of savings which the rating agencies consider illegal, and that this is their choice of word, not mine. I cite every reference with page numbers from the original reports. It seems that this email is misdirected: LAPO’s students apparently disagree with the rating agencies rather than with me regarding their bank’s legal status. But perhaps more fundamentally, any astute reader of my book will have picked up fairly promptly that any so-called smear campaign is not against LAPO, or Compartamos, or any of the other shady institutions one might care to select from the generous supply the microfinance sector has available, but against the investors. I found this review of my book particularly astute precisely for this reason – it summarises the implicated parties but doesn’t even mention LAPO. They’re a sideshow.

•    After a number of rating exercises on local microfinance NGOs, rating agencies which Hugh Sinclair has copiously quoted on this, now know better.

I use data and ratings up to the Planet 2011 rating. I haven’t seen a rating since then. If things have changed, hopefully for the better, then this is great news. Do tell us about it. Maybe publish any more recent ratings perhaps? It does appear that LAPO did in fact get a banking license eventually, as I mention on page 182. I meticulously reference every claim in the book, whereas this email makes no reference to any independent, verifiable document. It’s simply what the “alumni of LAPO” seem to believe.

•    It is preposterous for anyone to believe that LAPO with all its huge size and long history would have been allowed by regulatory authorities to carry out illegal savings mobilization!

Er, whether the Central Bank of Nigeria’s tolerance of these activities is preposterous or not is a matter of personal opinion. However, some would say that the regulatory oversight of financial services in “developed” countries has been somewhat preposterous over the last decade or two, evidenced by the recent financial crisis, so it is not inconceivable that such attitudes have reached further afield. Bernie Madoff provided us with an example of how preposterous the regulatory oversight was – and he also ran a large institution with a long history. But yes, I do personally find that the existence of institutions charging these sorts of interest rates with these levels of transparency, given the long list of criticisms about LAPO raised repeatedly in the ratings, does raise some serious questions about the regulatory oversight not only of institutions such as LAPO in Nigeria, but also of the funds that invest in LAPO, based in these so-called “developed” nations, this latter point being the focus of my book as the astute reader will have detected.

High Interest rate
•    Hugh Sinclair continued to quote various rates from various sources as it suited him. However, he has never made the following outlandish claim before as he makes this blog: “But instead increased it And(sic) not by a few basis points as we are accustomed to in Europe, but BY whopping 144% “(emphasis ours).

It’s not their emphasis, but their mis-quoting. I believe the original quote was ‘To a whopping 144%’, although I’ll have to check this. The 144% claim comes from the extremely well-recognized Chuck Waterfield, who founded the interest rate transparency website MFTransparency. His reputation is unprecedented, his work is respected by almost everyone in the entire microfinance sector, and he is a person of unquestioned integrity. Grameen Foundation announced that he would be visiting LAPO to verify the interest rates, but alas the report was never published – it was apparently a ‘private’ rating. Nonetheless, Planet Rating published the finding in the 2011 report. If LAPO refute this claim, then I suggest that they publish this report, and criticise either Chuck Waterfield for making a mistake, if that is what they boldly believe from possibly the most qualified person on Earth regarding calculating microfinance interest rates; or criticise Planet Rating for publishing this so brazenly in their 2011 report, which LAPO failed to notice for some reason in the review process of the rating prior to its publication. But let’s get this crystal clear – I do not calculate a single interest rate in the book, I only cite those reported by the likes of rating agencies, MFTransparency and the New York Times, and in all cases cite the source of such claims. These three sources can hardly be discarded as “various rates from various sources”. This email has so far produced not a single scrap of evidence actually refuting any of my claims and is not even signed.

So, to clarify this further I wrote the following email to Chuck Waterfield on 25/10/12:

Dear Mr. Waterfield,

The 2011 Planet Rating of LAPO made the following comment on page 7, directly referencing your company. Could you please confirm whether Planet Rating’s references to your work are accurate.

“However, Microfinance Transparency also noted that as the client remains with LAPO, the APR can reach between 99% and 144% by the third year (depending on the loan amount and increase at each cycle) due to the cost of accumulating weekly savings that cannot be withdrawn.”

I received the following reply from Mr. Waterfield later that day:

“The quote included in the Planet Rating report is entirely accurate, fully and correctly stating information that was contained in the LAPO Pricing Certification Report produced by MicroFinance Transparency.  LAPO provided this report to Planet Rating, and Planet Rating quoted the material correctly.  LAPO provided material to MicroFinance Transparency that was used to generate the rates of between 99% and 144%.  The material and methodology used are contained in that report.”

So, LAPO (or its alumni) – are you still sure these rates are incorrect?

[I would like to point out here that there is no link between the URL of my website and Mr. Waterfield’s company, usually referred to as “MFTransparency”, to avoid any confusion. I have met Mr. Waterfield, respect him enormously, but our work is entirely separate]

When we read this we did not know whether to laugh or to weep.  Those who know LAPO for over 20 years will pity this peddler of falsehood. How can a microfinance institution increase its interest rate “by whopping 144%”.

You should weep rather than laugh, and for the sake of the poor. Once again, it is not BY a whopping 144% but TO a whopping 144% – I really hope you understand the difference between these two concepts. Who is the peddler of falsehood? I cite a reputable source, written by an industry leader, who has confirmed the validity of the comment once again. I suggest here that it is the author of this increasingly ridiculous response to my blog that is the peddler of falsehood, but I shall entertain the response simply to demonstrate the origin of falsehood.

The true position  is as follows:
•    In her over 20 years of operations, LAPO has never increased its interest rates, not to think of “by a whopping 144%”!

So, Mr. Waterfield is simply wrong? LAPO is in possession of Mr. Waterfield’s report, if they would like to publish this, we can review the methodology. I have never seen the report, I simply refer to the Planet Rating report, and would thus be interested to see the full document. Has LAPO complained to Mr. Waterfield for making this claim? Did LAPO refute the findings of Mr. Waterfield at the time?

•    While we were at LAPO and to our knowledge now, the only direction LAPO’s interest rates have gone is downward. Indeed in 2010, we are aware that rates and fees were massively reviewed downward and a ‘road map’ for further reduction was developed in 2011. We are aware that in its September 13, 2012 meeting, the Board of the Microfinance Bank approved further reduction of interest rate

This is wonderful. If there is one part of this apparent response which actually brings outright laughter, it is this section. LAPO attempted to decrease the interest rates, but instead increased them. They did this cleverly, as described in the book. The cost of capital to the poor, known as the APR or EIR in Europe or the US, consists of a number of components, of which the interest rate is the main one, but fees, forced savings etc. are others. What LAPO did was reduce the nominal interest rate but raise the other fees. Such that the APR actually rose. I will quote, once again, the Planet Rating report, which explains concisely this “massive” reduction in interest rates:

“The decrease in interest rates coupled with the increase in the level of cash collateral resulted in an increase of the average Effective Interest Rate (EIR) for the clients to 125.9% from 114.3% before” (page 5, right hand side).

If LAPO have actually decreased the interest rates since the last rating report (2011) then I applaud this move. Alas my book was unable to anticipate future events, however. If, on the other hand, the rates were reduced in response to the book, then I shall claim that as a victory on behalf of the poor.

But, as if more proof was required, in the KRO-Reporter documentary, Oxfam Novib actually admit that this was the case. Having claimed that they were attempting to pressure LAPO to decrease the interest rates, the interviewer points out that LAPO had not in fact decreased the rates, and the CEO of Oxfam Novib states: “They told us that they did. And later, after a new rating, I think at the beginning of 2010 off the top of my head, it turned out that they didn’t.”

It is important to add that:
•    The accumulated surplus generated from microfinance operations has never been appropriated by anyone. This was eventually used to capitalize LAPO Microfinance Bank.
•    LAPO offers a range of social empowerment services to its clients. These services include scholarship awards for secondary/High school education , legal aid, insurance cover for complications at childbirth  , fire in the market place and life.

What does this mean – “LAPO offers a range….”? We have to be careful which institutions we are referring to. Is this LAPO Bank? There are a number of affiliated institutions bearing the LAPO name, for sure. I don’t discuss them.

•    As at today, LAPO Microfinance Bank offers one of the lowest pricing in the local microfinance market in terms of total pricing. 

LAPO as a jester? 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”

Once again, I refer to the 2011 Planet Rating, which states clearly “Shares will be allocated to LAPO NGO for 88% and for 12% to founder and Managing Director (MD) Mr. Godwin Ehigiamusoe” (page 4, left hand side). The fact that it has lent to nearly a million people is indisputable. The word enslaved is a fair description, in my opinion, of what such interest rates constitute. We are happy to refer to the legendary “evil moneylender” enslaving people in poverty, but the microfinance community has never had the courage to actually determine at which interest rate enslavement begins. In my opinion LAPO’s rates are well within this boundary. Mr. Waterfields excellent presentation on profitability and extortionate interest rates suggests a red line is passed when the ROE exceeds 25%, and that reported by LAPO in 2010 was 41.7% (page 17 of the same report).

This is the most UNFORTUNATE and SAD  comment of the blog, and indeed of all his comments and tirades against LAPO and our former boss over the years. He did not even get to this sad point in his book! We will request him to withdraw this statement for the following reason:
•    While the jester part is his opinion, the pocketing of 12% of the equity of the company is completely FALSE.
•    The CEO did NOT pocket any portion of the profit accumulated by the company. To our knowledge and this is available in the audited accounts by Deloitte the CEO’s stake in LAPO which he paid for with his money is approximately 2% as at December 31, 2011.

First, I did mention this in the book (page 182), but I am increasingly suspecting that the anonymous author of this email has not read the book. Secondly, if this is false, take the issue up with Planet Rating, not me. The Planet Rating report could not have been clearer on these two topics: the rising interest rate and the allocation of 12% of the equity to the CEO. And remember, we are largely ignoring the other issues raised in the same report – MIS, governance, savings frauds, etc. Perhaps he subsequently reduced his shareholding to 2% and the interest rates charged to the poor – great.

•    From what we know of our former boss,  he cannot even think pocketing another portion of the accumulated profit of the company.  This is a man who refused a raise in his monthly salary and benefits between 1996 and 1999 s imply because in his words: “I want LAPO to attain sustainability”; a man who vehemently and successfully argued against ‘sweat equity’  when it was suggested to him.
•    We are sure that those who know LAPO’s CEO well enough will be alarmed by this false allegation. This is unfair to a person who has spent his life and made enormous sacrifice, which we have all witnessed, to build LAPO into a foremost social and economic empowerment institution in Nigeria.
•    We hope Hugh Sinclair will be humble enough to tender an apology to him once he gets his figure right!

Actually, if anyone owes him an apology it is those who wrote the four ratings, and given that all MFIs have the opportunity to review a rating prior to publication, it is unusual that they seem to be refuting the claims now and not in the review process. However, it is the consistency of the ratings and their integrity in the market that leads me to have more faith in their analysis than those of these alumni. That this data is largely consistent with the MixMarket data, and confirmed by a wide range of external parties from the New York Times to those investors who did eventually quit from LAPO adds further credibility to this claim. In fact, if an apology is to be granted to anyone it should be to the poor that have provided the generous income stream to LAPO over the years, often with the barest of knowledge of the interest rates they were paying.

Risk premium
Hugh Sinclair makes a huge issues out of the Risk Premium (RP) indicating that “LAPO was caught sneaking in yet another fee on the poor “ and “as if these interest rates weren’t high enough ” He gives the impression that this was in addition to  the rates that was derived as the calculation of the microfinance bank’s interest rates.

“A huge issue”? I have never mentioned this once, in fact I think this is the first time I ever heard of the risk premium. I simply quote a letter written by Triple Jump and Incofin that does make an issue out of the risk premium. The letter was confirmed as authentic by the head of legal compliance at Incofin. They write the following:

“We are quite concerned about the fact that there is no data available on the use of the risk premium charged to clients at disbursement. This is an important part of your income and should absolutely be included in the external audit by the new auditing firm” (their emphasis).

Triple Jump and Incofin raise the point, not I. This is the first mention of it as far as I know, Triple Jump and Incofin seem pretty concerned about it, and it appears to have evaded the former external auditor, who was the brother of a board member, perhaps coincidentally.

The position is that:
•    Risk Premium was not sneak Risk Premium. It was introduced in 1994, fifteen (15) years before Hugh Sinclair began his campaign against LAPO.

This is a fair point, I had no idea about the antiquity of this particular fee. The blog post to which they refer discusses Triple Jump and Incofin’s concern about the risk premium. However, my concern about LAPO began in 2007, not 2009 as the author suggests, thirteen (13) years after 1994. It began when I visited LAPO and saw first-hand the institution’s operations, interest rates, treatment of the poor, back-office operations, and the fact that Triple Jump was so willing to turn a blind-eye to these activities.

•    RP, as we remembered, was introduced to address the challenges arising from incidences which constrained clients’ capacity to be in business and repayment. Common incidences were fire outbreak in the market (which is covered by a insurance policy arranged from a major insurance company now), floods, illnesses and robbery attacks amongst others.  All clients who suffered from these had their loans completely written off. The decision to introduce this in 1994 was discussed and taken at Branch Councils (A Branch Council in LAPO is a body of all leaders of a credit groups supervised by a Branch Office. The Council has an elected leader and meets quarterly to discuss issues that affect operations and clients). This initiative has been highly recognized and commended by the microfinance community in Nigeria and has been adopted by most microfinance institutions in the country.
Withdrawal of Rating
•    We are aware that like all rating agencies,  guarantees the timeliness of a rating for a limited time period only. MicroRate’s performance ratings of MFIs remain valid for up to twelve months from the date of the financial statements evaluated.  The said rating by Microrate was conducted during 2008 using December 2007 data. Naturally, LAPO rating *expired* under the regular policy that Microrate employs for all of its ratings. Hugh Sinclair has consistently flagged this as a withdrawal by the rating agency.
•    We are also aware of written confirmation by MicroRate which is  available and accessible, stating that the rating was not withdrawn but expired naturally after two years.
•    He has also ignored the fact that MicroRate later admitted on August 26, five days after the said ‘withdrawal’ that
“we have only reminded our readers that the LAPO rating expired under the regular policy that we employ for all of our ratings” and added that “ We have not withdrawn (emphasis by MicroRate)the rating” .

Referring once again to my suspicion that the author(s) of this email have not read the book, I refer to footnote 3 of Chapter 10, where I clearly state: “Or, more accurately, the ‘expiration’ of its rating. LAPO’s own rebuttal to the press release referred to it three times as a withdrawal, so I use LAPO’s term. The LAPO response to MicroRate’s press release is available on [the] book website” (emphasis original, page 254).

•    Hugh reveals his motive when he lied in his book where he declares that:
“LAPO warned MicroRate that unless the press release was immediately withdrawn it would make sure MicroRate never worked in Nigeria again”.

Confirmed by Sebastian von Stauffenberg of MicroRate. But I was so looking forward to the description of my real motive!

We have confirmed that there was NO such threat, except it existed only in Hugh Sinclair’s fertile imagination
•    It may interest Hugh Sinclair to know that the same MicroRate, that LAPO had supposedly been  “warned ” to steer clear of the Nigerian market has just conducted a rating exercise of LAPO Microfinance Bank, the final report of which is expected in the next few weeks!

I am aware of this. It was an idle threat.

LAPO and Subsidiaries
Much has been made out of the subsidiaries in LAPO, this we consider to have arisen out of limited understanding  of the social perspective of early microfinance practice,  and in some cases, mischief.  Subsidiaries in LAPO arose from the history and scope of activities at inception.
•    LAPO started as a poverty alleviation organization. It conceptualized (LAPO still does) poverty as i. material deprivation, ii. Poor health and iii. Social exclusion. 

•    LAPO therefore developed program mix of which micro-credit or microfinance was just one item. As the microfinance operations grew, it was considered efficient to set up sister institutions to implement health and social empowerment activities. Most microfinance institutions which began operations before 1990 (when commercialization of microfinance began) adopted this credit-plus approach and  have subsidiaries. It is interesting to note that many successful microfinance institutions or banks which adopted minimalist (only credit ) approach  are setting up subsidiaries to implement social empowerment programs

•    We understand that it may be difficult for those who came into microfinance at  commercialization  phase to fully  understand and appreciate the existence of subsidiaries and level of resources for the implementation of programs which have been proved to be very helpful.  Even rating agencies which have highly acknowledged the double bottom-line approach of LAPO still need for education on this.

For instance LAPO subsidiaries implement :

i.    innovative HIV/AIDS prevention and support program in rural communities;
ii.    malaria awareness and treatment campaigns,
iii.    training and equipping Traditional Birth  Attendants in rural communities;
iv.    legal aid for poor women particularly, in cases involving deprivation of rights to  the property of deceased husbands; provide scholars to children of clients;
v.    Collaboration with insurance company to provide micro-insurance  against risk to life, fire in market place, and complications at child delivery and
vi.    Production  and air a gender sensitization TV program called Bridging the Gap.

•    It is impossible for one institution to provide the above social empowerment services as single entity.

•    LAPO in 1996 began clear separation of these entities from microfinance operations in terms of management and staff; financial reporting and performance assessment.

“Much has been made out of the subsidiaries in LAPO” – not by me. I don’t mention them once in the book. The ratings do not go into them in much detail, and I didn’t have enough information to discuss them with any certainty. However, Triple Jump and Incofin did appear rather concerned about LAPO’s subsidiaries, and I discuss this in some detail here, in the context of misappropriation of Dutch tax-payer funding, as it appeared to have been diverted into non-microfinance activities much to the annoyance of Triple Jump and Incofin. Their comment on LAPO’s investments in its subsidiaries is interesting:

“We are concerned about the high level of lending and investments to affiliated LAPO organizations. This is a significant risk for a microfinance organisation, and not in line with the core business of LAPO” (their emphasis).

In his earlier writings and book, even in this blog, Hugh Sinclair has refused to provide the context of audit of LAPO though some other persons have made clarifications.
•    To our knowledge, the period 2009 was that of institutional transition for LAPO preparatory to transformation into a regulated entity. It was a couple of challenges and actions during this period that Hugh Sinclair has most capitalized on in his writings and book. For instance, in his book he recklessly declared that the “MIS was in a mess”. Show us a microfinance institution that has operated manually for over 15 years one that would not have experienced challenges transiting to automation of its data processing?

The MIS was a mess as reported in all the rating reports, but perhaps more interestingly, I have never seen an MFI of even half LAPO’s size operate manually for 15 years, full stop.

•    A transitional Board which was to give (and indeed gave) way to a Board of the regulated entity had existed in 2010. There was a relationship between a new member and the existing auditor

The relevant point was that the external auditor was the brother of a board member, as reported in the rating report. This is rarely considered a sign of good corporate governance. He was subsequently promoted to the board, and a new external auditor was hired. This was publicly available information since 2005, and it is interesting to note that the investors in LAPO either didn’t detect this (i.e. read LAPO’s own annual report as part of their due diligence), or didn’t care. Take your pick.

•    In 2010, a new board  for the regulated Microfinance was in place
•    In 2010, the firm of Deloitte was engaged as the external auditors. The firm was mandated to review 2009 key  transactions under an Agreed Upon Procedures (AUP). The reports were shared with partners of LAPO. It is important to note that there were no significant infractions in the AUP reports  by Deloitte.

Can we see this report? I gather it discusses the subsidiaries in some detail. Perhaps LAPO would like to publish it, as I am sure other people would be interested. If there is evidence that refutes any of the claims in the book the mystery to me is why LAPO have failed to reproduce them.

Lastly, We wish to advise Hugh Sinclair on the use of words and comments. Whatever cause he is pursuing, if it is to promote responsible financing, then his efforts could be constrained by reckless and intemperate comments and claims which border on slander and libel.

So, sue me. Prove that a point raised in the book is invalid, but read the points carefully first. This apparent refutation is, frankly, feeble and proves absolutely nothing. In fact it supports the point I make in the book that this is a questionable MFI. Explain why two separate rating agencies seem to have messed up repeatedly. Demonstrate that Chuck Waterfield was wrong in his interest rate calculations. That all the media fell for it. That the investors who withdrew from LAPO were wrong to have done so. This is a serious conspiracy. The alternative may be worth considering.


My hidden and nefarious motivations appear to have remained obscured another day! If this is the best refutation that LAPO can come up with, I find that more telling than any supporting evidence. It reminds me of Triple Jump’s equally lame attempt at a discreet, private refutation of the book, found here. We all know LAPO is guilty, but who cares (well, apart from the million or so poor people slaving away to repay their loans)? It is one mid-sized MFI. The far more interesting questions relate to the investors in LAPO: Citibank, Standard Chartered, Incofin, Triple Jump, BlueOrchard, responsAbility, Grameen Foundation, Deutsche Bank etc. Ignore LAPO, it is a mildly interesting drop in the ocean. How did these large funds, representing a substantial proportion of the entire private capital in the world, invest in the institution described above? This is the billion-dollar question. How much of their combined portfolios represent institutions like LAPO? When the academics report that microfinance is falling short of its miraculous claims of poverty reduction, to what extent is this the fault of the funds? These are the questions thinking, rational, conscientious people should be asking.

If LAPO or any of these investors wish to comment on this, feel free. But “alumni of LAPO”, if you wish to comment further on this blog, please identify yourselves, read the book, and quote your sources. I don’t do PR. I do fact.

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