kiva
2008-03-29
Cockfighting
Filed Under:
Are you promoting or financing a cockfight? If so, you should really be aware of a few legal issues you might face along the way. I recently ran into them head on.
A while ago, our Peruvian partner posted this cockfighting loan on our site. Immediately, two things happened. 1) a swathe of lenders rushed to finance the cockfighter and 2) some very angry people wrote in to protest. Later, our sad weekly newspaper wrote about it.
Occasionally, I do customer service. I was doing it much more over the holidays. Things have slowed down a little bit since February so I only take the most controversial issues. I'm also an armchair attorney. The cockfighting loan has raised some interesting legal questions that our real attorneys helped answer.
First of all, is cockfighting legal in California? No sir. In addition to the state law, it's banned at a federal level. The (federal) Animal Welfare Act of 2007 came in part as a response to the Michael Vick case. In layman's terms, it holds that we must not (1) advertise or promote an animal fighting venture in interstate or foreign commerce (2) sponsor or exhibit an animal in a fighting venture in interstate or foreign commerce (3) buy, sell or transport an animal for fighting in interstate or foreign commerce (4) buy, sell or transport a weapon designed to be used by an animal in interstate or foreign commerce. This part of The Act specifically refers to any sharp instrument attached to the leg of a bird.
All of these points are bounded to the realm of "interstate or foreign commerce." Interstate commerce involves transport between two states. Foreign commerce involves transport between the USA and any foreign country. Thus, individual states may permit animal fighting, but federal government specifically prevents any animal fighting activity that crosses a state border.
In addition to Michael Vick, Amazon.com and the US Postal Service have recently been hit with animal fighting-related charges. Who would have thought? Amazon.com is accused of selling magazines that promote cockfighting. The USPS is accused of transporting them between states. The Humane Society leveled the charges and is seeking to forbid any periodicals which promote animal fighting.
So is it legal to send money abroad to further cockfighting in another country? I think so. Foreign commerce must involve the shipment of items to the USA or from the USA. In the Kiva cockfighting case, no such movement occurred. Sure, a Peruvian MFI staff member promoted a cockfighting venture on a website served up in the USA. Sure, funds flowed from PayPal accounts of lenders in the USA. However, no items were shipped. Thus, if we take the Animal Welfare Act as our guide, it seems pretty clear that Kiva did not run afoul of the law.
"Never lead with legal." That's a phrase I've heard a few times lately and I think it's right. Strategy should guide decisions with the law being a critical filter for approving such decisions. The fact that we can get away with cockfighting loans on our site shouldn't be the key driver of our decision whether to allow them in the future.
The real question is whether or not permitting these loans is a good strategic choice. In particular, does this somehow help Kiva achieve its mission of connecting people to alleviate poverty? It's debatable. I think that allowing our partner to decide which loans to post without much interference is a good thing. We can be paternalistic when we start imposing our moral framework upon societies half a world away. Cockfighting in Peru is legal and part of a rich cultural tradition. It may not be humane or palatable from a Western perspective, but that misses the point. Kiva, the organization, should not be making those decisions. Our lenders should be the ones voting with their dollars.
We've had tobacco farms, butchers, and taxi cab loans on the site. For these and more, our lenders have complained. I understand their disgust most of the time. Still, I also understand that Seitan is not such a hot commodity in Uganda and that the Prius is not the most practical option in Bulgaria.
A word of caution: Don't even consider promoting or sponsoring a cockfight in the USA. Especially don't try to transport anything related to the fight from a state to state or out of the country. Also, don't buy cockfighting magazines. Also, don't spend too much time thinking about cockfighting. To be honest, you are best to stay away from the subject entirely. I know it has wasted a lot of my time!
A while ago, our Peruvian partner posted this cockfighting loan on our site. Immediately, two things happened. 1) a swathe of lenders rushed to finance the cockfighter and 2) some very angry people wrote in to protest. Later, our sad weekly newspaper wrote about it.
Occasionally, I do customer service. I was doing it much more over the holidays. Things have slowed down a little bit since February so I only take the most controversial issues. I'm also an armchair attorney. The cockfighting loan has raised some interesting legal questions that our real attorneys helped answer.
First of all, is cockfighting legal in California? No sir. In addition to the state law, it's banned at a federal level. The (federal) Animal Welfare Act of 2007 came in part as a response to the Michael Vick case. In layman's terms, it holds that we must not (1) advertise or promote an animal fighting venture in interstate or foreign commerce (2) sponsor or exhibit an animal in a fighting venture in interstate or foreign commerce (3) buy, sell or transport an animal for fighting in interstate or foreign commerce (4) buy, sell or transport a weapon designed to be used by an animal in interstate or foreign commerce. This part of The Act specifically refers to any sharp instrument attached to the leg of a bird.
All of these points are bounded to the realm of "interstate or foreign commerce." Interstate commerce involves transport between two states. Foreign commerce involves transport between the USA and any foreign country. Thus, individual states may permit animal fighting, but federal government specifically prevents any animal fighting activity that crosses a state border.
In addition to Michael Vick, Amazon.com and the US Postal Service have recently been hit with animal fighting-related charges. Who would have thought? Amazon.com is accused of selling magazines that promote cockfighting. The USPS is accused of transporting them between states. The Humane Society leveled the charges and is seeking to forbid any periodicals which promote animal fighting.
So is it legal to send money abroad to further cockfighting in another country? I think so. Foreign commerce must involve the shipment of items to the USA or from the USA. In the Kiva cockfighting case, no such movement occurred. Sure, a Peruvian MFI staff member promoted a cockfighting venture on a website served up in the USA. Sure, funds flowed from PayPal accounts of lenders in the USA. However, no items were shipped. Thus, if we take the Animal Welfare Act as our guide, it seems pretty clear that Kiva did not run afoul of the law.
"Never lead with legal." That's a phrase I've heard a few times lately and I think it's right. Strategy should guide decisions with the law being a critical filter for approving such decisions. The fact that we can get away with cockfighting loans on our site shouldn't be the key driver of our decision whether to allow them in the future.
The real question is whether or not permitting these loans is a good strategic choice. In particular, does this somehow help Kiva achieve its mission of connecting people to alleviate poverty? It's debatable. I think that allowing our partner to decide which loans to post without much interference is a good thing. We can be paternalistic when we start imposing our moral framework upon societies half a world away. Cockfighting in Peru is legal and part of a rich cultural tradition. It may not be humane or palatable from a Western perspective, but that misses the point. Kiva, the organization, should not be making those decisions. Our lenders should be the ones voting with their dollars.
We've had tobacco farms, butchers, and taxi cab loans on the site. For these and more, our lenders have complained. I understand their disgust most of the time. Still, I also understand that Seitan is not such a hot commodity in Uganda and that the Prius is not the most practical option in Bulgaria.
A word of caution: Don't even consider promoting or sponsoring a cockfight in the USA. Especially don't try to transport anything related to the fight from a state to state or out of the country. Also, don't buy cockfighting magazines. Also, don't spend too much time thinking about cockfighting. To be honest, you are best to stay away from the subject entirely. I know it has wasted a lot of my time!
2008-03-01
Escheat me
Filed Under:
I'm on my way home from DC to SFO. The window seat right behind the exit row. You know the seat without any seat in front of it? Nice.
This blog entry is about stored value -- yours and ours. Kiva is an example of a "stored value system." By that, I mean that we are storing value on others' behalf. More specifically, we are holding funds for you. Other examples of stored value systems are Western Union, PayPal, Itunes, the New York Subway system and more. There are pluses and minuses involved in running such a system.
Just recently, Kiva formed an LLC subsidiary. A "for-profit", if you will. Let's let that sit in. Ahh.
I'm sure the euphemistically named KivaFriends community loves this idea. (I'm just playing around KF, you are not euphemistically named. You really are friends, right?)
The name of the LLC is "Kiva User Funds, LLC". It's a shell company that we now use to house every penny that belongs to our users. It has no employees and all revenue it generates is donated to the nonprofit "Kiva Microfunds" which owns the LLC. It has one revenue stream, the interest accrued off the funds stored in the savings account used to house the user's money. (some people call this "float")
Why did we form this entity? Not for profit's sake. We will accrue no additional revenue, only additional cost, because of this move. Kiva Microfunds previously housed our users' funds in a savings account of its own. This posed a risk, our accountant advised. By housing user funds in the same entity, their fate was intimately tied to the fate of our nonprofit. If our nonprofit ever encountered financial difficulty, the funds would be less protected. For instance, if an angry ex-employee sued us (victoriously) for millions, the funds could be seized. Creating a separate LLC was a preventative move in case something crazy like this ever happened.
Why do we have user funds to be housed at all? First, there is an up-to-30-day lag between when a user makes a loan and the funds are sent overseas. Second, alhough our users don't get their money back until the end of a loan (usually 10-12 months), Kiva is collecting repayments from our Field Partners quarterly. Third, often users leave money in the still in the system after it is repaid. When this happens, the funds stay stagnant in the US savings account.
The first point is relatively non-controversial, so I'm not going to elaborate. Point two is possibly controversial though, so I'm going to elaborate. The system was designed this way to reduce the number of bank wires between Kiva and Field Partner. Bank wires often cost around $40. So we decided to bill quarterly. However, we wanted our users to hear about entrepreneur repayments in real time. Thus, we we let our Field Partners post repayments at any frequency they chose. However, we bill them quarterly. The lag between recorded entrepreneur repayments and the funds arriving in our USA account means that we can't pay our users back at the moment a repayment is recorded on the site. We could conceivably have designed it so we paid out quarterly, but that seemed overwhelmingly complex for my burdened 2005 brain. I'm feeling a little lighter lately and we have many more brains behind us. Thus, later this year we will release a system that pays out monthly to our users. This will unleash an exciting amount of liquidity to the marketplace.
The third point is growing in importance. Our users are leaving their money in the system too much. Too much for what? Too much for the good of the entrepreneurs we are trying to serve. Last time I checked, approximately 40% of all repaid monies were unused and remained in our bank account -- in the form of "Kiva Credit". 50% has been relent and 10% withdrawn. That means that a sizeable amount of users have money that needs to be used. They could lend it to help someone who needs it, or they could at least withdraw it and buy a meal. Either would be better than the present reality of stagnant funds.
We have no expiration policy for this kind of stagnant Kiva Credit. In the last year, as an amateur lawyer, I've waded into the area of law we know as "escheatment" (pronounced uh-sheet-mint). escheatment has to do with what you do with other people's money when they don't claim it. For instance, what should a landlord do with a renters' deposit if the renter leaves without claiming it? In some cases, the landlord might need to "escheat" it to the government. It all depends and the laws vary state by state. Right now, we escheat your money to nowhere. It just sits there...for all eternity, and we remind you to use it. Once I get our General Counsel hired, we might fix this. We might figure out how to escheat it to someplace much more useful.
And now a final point. Hey you, reader of this blog. You have a lot of value -- stored value. And it doesn't accrue interest. So just do something with it. OK?
This blog entry is about stored value -- yours and ours. Kiva is an example of a "stored value system." By that, I mean that we are storing value on others' behalf. More specifically, we are holding funds for you. Other examples of stored value systems are Western Union, PayPal, Itunes, the New York Subway system and more. There are pluses and minuses involved in running such a system.
Just recently, Kiva formed an LLC subsidiary. A "for-profit", if you will. Let's let that sit in. Ahh.
I'm sure the euphemistically named KivaFriends community loves this idea. (I'm just playing around KF, you are not euphemistically named. You really are friends, right?)
The name of the LLC is "Kiva User Funds, LLC". It's a shell company that we now use to house every penny that belongs to our users. It has no employees and all revenue it generates is donated to the nonprofit "Kiva Microfunds" which owns the LLC. It has one revenue stream, the interest accrued off the funds stored in the savings account used to house the user's money. (some people call this "float")
Why did we form this entity? Not for profit's sake. We will accrue no additional revenue, only additional cost, because of this move. Kiva Microfunds previously housed our users' funds in a savings account of its own. This posed a risk, our accountant advised. By housing user funds in the same entity, their fate was intimately tied to the fate of our nonprofit. If our nonprofit ever encountered financial difficulty, the funds would be less protected. For instance, if an angry ex-employee sued us (victoriously) for millions, the funds could be seized. Creating a separate LLC was a preventative move in case something crazy like this ever happened.
Why do we have user funds to be housed at all? First, there is an up-to-30-day lag between when a user makes a loan and the funds are sent overseas. Second, alhough our users don't get their money back until the end of a loan (usually 10-12 months), Kiva is collecting repayments from our Field Partners quarterly. Third, often users leave money in the still in the system after it is repaid. When this happens, the funds stay stagnant in the US savings account.
The first point is relatively non-controversial, so I'm not going to elaborate. Point two is possibly controversial though, so I'm going to elaborate. The system was designed this way to reduce the number of bank wires between Kiva and Field Partner. Bank wires often cost around $40. So we decided to bill quarterly. However, we wanted our users to hear about entrepreneur repayments in real time. Thus, we we let our Field Partners post repayments at any frequency they chose. However, we bill them quarterly. The lag between recorded entrepreneur repayments and the funds arriving in our USA account means that we can't pay our users back at the moment a repayment is recorded on the site. We could conceivably have designed it so we paid out quarterly, but that seemed overwhelmingly complex for my burdened 2005 brain. I'm feeling a little lighter lately and we have many more brains behind us. Thus, later this year we will release a system that pays out monthly to our users. This will unleash an exciting amount of liquidity to the marketplace.
The third point is growing in importance. Our users are leaving their money in the system too much. Too much for what? Too much for the good of the entrepreneurs we are trying to serve. Last time I checked, approximately 40% of all repaid monies were unused and remained in our bank account -- in the form of "Kiva Credit". 50% has been relent and 10% withdrawn. That means that a sizeable amount of users have money that needs to be used. They could lend it to help someone who needs it, or they could at least withdraw it and buy a meal. Either would be better than the present reality of stagnant funds.
We have no expiration policy for this kind of stagnant Kiva Credit. In the last year, as an amateur lawyer, I've waded into the area of law we know as "escheatment" (pronounced uh-sheet-mint). escheatment has to do with what you do with other people's money when they don't claim it. For instance, what should a landlord do with a renters' deposit if the renter leaves without claiming it? In some cases, the landlord might need to "escheat" it to the government. It all depends and the laws vary state by state. Right now, we escheat your money to nowhere. It just sits there...for all eternity, and we remind you to use it. Once I get our General Counsel hired, we might fix this. We might figure out how to escheat it to someplace much more useful.
And now a final point. Hey you, reader of this blog. You have a lot of value -- stored value. And it doesn't accrue interest. So just do something with it. OK?
