Back in December, we expressed concerns about LAPO, one of Kiva‘s largest microfinance partners. Last month, the New York Times ran an article implying criticism of LAPO. Now, Kiva has suspended its partnership with LAPO. A couple of questions this raises:

Which of the several objections to LAPO have led to the suspension?

Several concerns have been raised about LAPO:

• The New York Times article focuses largely on the high interest rates and forced savings (which cause the interest rates to be higher). We have argued that focusing on interest rates in isolation is a mistake.
• The Times article also raised concerns about LAPO’s transparency/accountability, including the question of whether it is collecting savings without the right legal license and the question of whether it is misleadingly presenting its interest rates to the outside world.
• To us, the most compelling concern about LAPO is its 49% dropout rate.

How many more of Kiva’s partners might have similar problems, and what is Kiva doing to address this concern?

As the case of LAPO shows, the interest rates reported to Kiva may not fully capture what clients are paying. More broadly, it appears to me that Kiva’s due diligence on partners is intended to assess the risk of money being lost and/or going to illegitimate organizations, but not the more difficult-to-assess risk encountered with LAPO: that a partner’s activities may be leading to overindebted, misinformed, and/or dissatisfied clients, and thus result in financial success but not positive social impact. The stories posted on Kiva’s website do not, in my view, help to address these risks either.

When the New York Times discovers a problem, makes it very public and causes change, this is a good thing. But I don’t think we can expect this mechanism to reliably address the broader issue. Kiva has had enormous success getting people excited about microfinance and getting capital to MFIs; I would like to see more work go into making sure those MFIs are benefiting the people they serve.