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The Charitable Loan: Why Kiva’s Concept of Microfinance Must Be Regulated (Clemons M.)

Bank Lending Bank Products and Diversification Regulation

Abstract The Supreme Court has asserted that the term security embodies a flexible rather than a static principle, one that is capable of adaptation to meet the countless and variable schemes devised by those who seek the use of the money of others. Microfinance is such a scheme. The concept of microlending has existed since at least the 1970s, but Dr. Muhammad Yunus and his Bangladeshi project, Grameen Bank, did not win the Nobel Peace Prize until 2006. Microfinance institutions, or MFIs, seek to ‘include the excluded’ in the provision of financial services by allowing the poor in developing countries to build small businesses and escape poverty. Average Americans serve as creditors by lending money to poor people in developing countries. These people use the money to help start or to further develop their small businesses. The borrowers abroad pledge to pay back the money to the creditors. Lenders through Kiva receive no interest on their loan to borrowers but only the principal, while lenders using Microplace can receive up to 3% interest on their loans with a repayment length that may be over three years. Microplace has registered as a broker-dealer with FINRA while Kiva considers itself a charitable organization; the federal government regulates Microplace because of its dealings in securities while Kiva remains unregulated. This discrepancy presents a problem because "the Securities Act prohibits the sale of securities unless the company issuing securities (the issuer) has ‘registered’ them with the SEC." Kiva, like Microplace, is a member of the financial services industry, is involved with issuing securities, and should register the securities. Kiva is issuing securities for three reasons. First, Kiva’s status as a nonprofit organization is not consistent with its own professed aims. Second, Kiva does not fall into any of the exceptions under the act, and finally, the loans are either an investment contract or a note under the Securities Act of 1933.
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Libref/ Clemons M. (2010) "The Charitable Loan: Why Kiva’s Concept of Microfinance Must Be Regulated", pp. 1 - 34
© Программирование — Александр Красильников, 2008
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