DATELINE: November 9, 2009, Chicago
Stephanie Strom of the New York Times reveals an apparent violation of the public trust by Kiva.org, a charity that Strom describes as “the country’s latest celebrated charity.” Confusion on Where Money Lent Via Kiva Goes (Nov. 8, 2009). Kiva.org raises funds to finance international micro-lending programs. The gimmick: In the past, Kiva.org has seemingly informed individual lenders that they are lending money to specific individuals--at least that has been the perception. Nicholas D. Kristof, the New York Times columnist, wrote in a 2007 column that:
I lent $25 each to the owner of a TV repair shop in Afghanistan, a baker in Afghanistan, and a single mother running a clothing shop in the Dominican Republic... .
According David Roodman, a research fellow at the Center for Global Development:
The person-to-person donor-to-borrower connections created by Kiva are partly fictional.
According to Strom’s reporting, dollars being lent are not actually...
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matched to specific borrowers, but are pooled and provided to micro-finance intermediaries. So Mr. Kristof and others apparently have been misled by what might be characterized as a slick marketing campaign, if the facts support Strom’s reporting.
This campaign appears to be no different than earlier campaigns by certain organizations that led donors to believe that their donations were being used to assist specific children in third-world nations. Many lenders probably don't care whether their funds are lent to a specific person just as long as the funds are available to intended class of individuals, but some might, which makes full and fair disclosure a necessity.
Strom’s report appears to be accurate—no surprise there. According to Strom, Premal Shah, Kiva.org’s president, has said that "he could foresee a day when Kiva really did provide person-to-person connection, once some legal hurdles are cleared and when people in the developing world began using their mobile phones to use credit and make payments." [that is quote from the article, not a direct quote from Mr. Shah] In other words, today there isn't a person-to-person connection.
Kiva apparently has changed its documentation to clarify what it does. According to a person quoted in Strom’s article, the documentation now indicates that Kiva connects individual lenders to micro-finance institutions. That would great if it were true but we aren’t so sure it is true. If you go to Kiva.org’s Web site, you will see that the home page still tries to induce people to lend by focusing on individuals. There are featured entrepreneurs and a graphic at the top of the page showing a drawing of a head with “You” stamped on it. There are “to” and “from” arrows. The other side of the graphic shows a picture of a woman at a sewing machine labeled “entrepreneurs.”
When we looked at the site there was a graphic labeled “Latest Activity” with a picture of Ann from Houston, Texas with an arrow pointing to Maria from Peru.
When we clicked through to “How it Works, we found the following description:
Lenders like you browse the entrepreneurs’ profiles and choose someone to lend to, using PayPal or their credit cards.
Later, the site says that the loan is made by a microfinance organization rather to an individual, but the description suggests—at least to us—that repayment is traced to the ultimate borrower. Kiva.org may be doing great work, but their marketing warrants a formal investigation rather than just a newspaper story.
Everybody in the philanthropic sector hates the police and veteran fundraising organizations that line the pockets of the promoters rather than directing most of the solicited funds to wounded police officers and veterans, and their family members. We don’t believe Kiva.org should be placed in the same class as those organizations, but regulators must abide by the rule of law. If regulators fail to act consistently in allegations of deceptive marketing practices, they will undercut their ability to proceed against the truly bad guys. We would hope that regulators will consider launching formal investigations, with a consent decree, if the facts warrant, that would permit all lenders to have their funds returned to them.
Strom shines a light on what appears to be a gaping hole in the regulatory regime applicable to charities. The new philanthropy looks for different ways to involve would-be philanthropists and donors. Kiva.org structures its cash payments from the philanthropist as loans rather than as donations. That raises an obvious question: Do state charity regulators have jurisdiction over this activity. From a policy stand point, one can make the case that they should have jurisdiction given the philanthropic cloak that covers Kiva.org. These loans appear to be on par with program-related investments referred to in the regulations governing private foundations. Yet, one must always look at statutory language to determine whether the regulator has jurisdiction.
We obviously aren’t going to review the charitable solicitation statutes of every state, but examining New York’s statute is instructive. Section 171-a provides as follows:
Contributions: The promise or grant of any money or property of any kind or value, whether or not in combination with the sale of goods, services, entertainment or any other thing of value, including a grant or other financial assistance from any agency of government, except payments by members of any organization for membership, for services or other benefit, other than the right to vote for directors or trustees, elect officers, or hold offices.
Solicit: To directly or indirectly make a request for a contribution, whether express or implied, through any medium. A "solicitation" shall be deemed to have taken place whether or not a contribution is made. For purposes of this article, a "solicitation" or a "solicitation of contributions" includes any advertising which represents that the purchase or use of goods, services, entertainment or any other thing of value will benefit a charitable organization. Provided, however, that the printing and the mailing of a written solicitation for funds or any other thing of value to benefit a charitable organization shall not alone constitute soliciting on the part of persons who printed and mailed such solicitation if such persons do not otherwise solicit, receive or have access to contributions.
These definitions obviously focus on and anticipate contributions (outright gifts), but the statute doesn’t use the term “gift.” Instead, it uses the term grant, which could be construed to be loan, although that is admittedly a push.
Even if the charity regulation side of an attorney general’s office lacks jurisdiction, we would assume that the consumer affairs side of the office has jurisdiction over what might be construed to be “false and deceptive practices.” There also is the question of whether state security regulators might have jurisdiction.
In any event, we don't think state regulators can or should let this one go. Mr. Shah told Strom:
It’s highly imperfect, but it’s like a 3 1/2-year-old child: it has a lot of potential.
The potential to do good doesn't justify misleading those funding the operation in the here and now.
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