Philanthropedia has just published its list of the 11 most outstanding non-profit microfinance players. The mind boggles. Three feature in my book – prominently, and not too favourably. Grameen Foundation USA (GFUSA) was #2, Accion was #3 and Kiva was #6. I am personally amazed that any of these three are legal. It is hard to know where to begin.
GFUSA also managed to obtain the “GuideStar Exchange Seal, demonstrating its commitment to transparency”. GFUSA is a vehement supporter of one of the most questionable MFIs in history, the Nigerian Lift Above Poverty Organisation (LAPO). It’s adherence to transparency is nebulous, particularly when it comes to interest rates, which GFUSA can somehow often underestimate by nearly 100%. I will not re-iterate the criticism of LAPO here, I cover it fairly thoroughly in my book, and information is widely available on this institution. Summary of flaws: illegal intermediation of savings, providing dodgy data to rating agencies, family members on board and acting as external auditor, savings frauds, sloppy MIS, chronic client drop-out. GFUSA report the interest rates as about 50-80% usually, but the highest recorded rate is 144%, as reported by US-based NGO MFTransparency, who should have won this award instead of GFUSA for their excellent work revealing the full cost of microfinance loans exhorted from the poor. But perhaps that sort of transparency is not exactly what the nominators want to see?
ACCION of course, is the infamous NGO that pocketed vast sums in the IPO of Compartamos, the bank that charges interest rates of 195% to the poor women of Mexico, lambasted by Chuck Waterfield, CEO of Microfin. Nevertheless ACCION also got the transparency seal from GuideStar. It is farcical. A recent documentary revealed the massive pay-outs made to the departing ACCION CEO, Maria Otero, before she shuffled through the revolving door into the current US government administration. Now ACCION is run by a former Citibank bod, another institution with a chequered history in microfinance, who managed the IPO of Compartamos through their Mexican subsidiary. And that of SKS Microfinance in India, another player with, let’s say, less than a pure bona fide history. Guessed right: it involves forced prostitution and suicides. Pure coincidence. And finally, ACCION is also the mastermind behind the SMART Campaign, the industry’s best effort to date of pretending that microfinance is ethical without any actual need of checking, complete with a seal of approval given to many of the worst offenders in the sector.
Then we have Kiva, the mother of silly ideas combined with excellent marketing. That this company exists is testimony to the intelligence of its users, the “Kivans” as they refer to themselves. They provide vast sums to Kiva in the undocumented belief that they are helping the poor. A large portion of this money in fact never leaves California, according to Kiva’s own financial statements. The poor often stump up eye-watering interest rates while the Kivans settle for 0%, with the intermediating microfinance banks pocketing the spread, which can approach 100% per year interest. Kiva also picked up the GuideStar award for transparency, despite having never actually published a single one of these interest rates. However, Kiva is, debatably, the only means for US citizens to lend directly to the coca-leaf sector of Peru or to animal-cruelty sports, without being prosecuted, thus cornering this market. They also pumped $5m into LAPO before they were named and shamed by the New York Times. Kiva’s operating expense ratio of 20% makes it possibly the least efficient mechanism for a microfinance investment ever invented by mankind, while most funds manage to cover costs with only a 2% management fee, and still make a profit (though not necessarily better-informed or more ethical investment decisions).
Anyway, how can we explain this strange result? Well, some clues may lie with the judges. If we extend the analysis to three other winners of the award, Pro Mujer, Freedom From Hunger and Opportunity International, an interesting result emerges:
|Judge||Relation to winners|
|Amulya Champatiray||IFMR – GFUSA partner in India|
|Anne Hastings||CEO Fonkoze, GFUSA partner, GFUSA award winner|
|Beth Rhyne||MD of the Center for Financial Inclusion at ACCION|
|Bobbi Gray||Freedom From Hunger|
|Camilla Nestor||Vice President GFUSA|
|Carmen Velasco||ProMujer Founder, award winner, receive GFUSA funding|
|Chris Baker||Kiva Fellow|
|Chris Dunford||Freedom From Hunger|
|Kyle Salyer||MicroCredit Enterprises, investors in GFUSA partner LAPO|
|Lisa Kuhn (3 mentions)||Ex-Finca, Freedom From Hunger and Opportunity International|
|Mark Lutz||Opportunity International|
|Mohammed Khaled||Consultant to GFUSA|
|Tim Geisse (2 mentions)||Opportunity International and Accion|
So, of the 72 judges, there are 25 mentions of these 6 “winners”. The website states that judges cannot vote for their own organisations, but does not state whether they can vote for their former organisations. However, this does provide supporting evidence for the “inner-club theory of microfinance”, aka the cult hypothesis, by which most achievements claimed for microfinance are in fact claimed by those involved with microfinance, with no need for even a shred of evidence. I’ll vote for you, you vote for me, we’ll all win the top prizes, all look good to the outside world, and everyone will applaud us and ensure the flow of capital to the beleaguered sector. Everyone’s a winner.
Except, as usual, the poor. I wonder how they may have voted.