Hugh Sinclair's response to Triple Jump’s document “Facts about a book and its author” dated July 2012

Given BELOW is Hugh Sinclair's Response to My Earlier Triple Jump Post

Hugh Sinclair's Response:
 
Interestingly this is the first comment released by an institution implicated in my book, 6 weeks after its release. The facts I present speak for themselves and the reader is the best judge of the truth. The act of placing all supporting evidence on the website enables the reader to perform his or her own investigation. The book is complete, and I do not seek to enter into a diatribe of exchanges with those mentioned. However, if they wish to comment on the book, I reserve the right to respond, and this is a brief summary of the factual content of the aforementioned document. As usual, the facts serve as the basis of knowledge. I discuss only their most pertinent claims here (italicised).

Paragraph 3:

"Triple Jump allegedly tried to bribe the author to silence him" - The dismissal letter is reproduced in full on the book website. Triple Jump's lawyer raised the offer before proceeding to court. The letter, only 2 sides of A4, contained no valid grounds for dismissal, a pay increase, additional confidentiality clauses, and a 7-day ultimatum. I leave it to the reader to determine whether my summary of their letter is accurate: "It appeared they were firing me, offering me a job, threatening to take me to court, were very nervous about confidentiality, and issuing me with an ultimatum, all in a single letter." (page 124).

According to Triple Jump, "the judge approved the dismissal and awarded him less than the standard compensation applicable in the Netherlands". Once again, the court ruling is available on the website (excerpts on pages 131-2). The judge stated quite clearly that Triple Jump's refusal to discuss the pertinent matters created an unworkable situation; noted that Triple Jump did not actually dispute the negative findings I had raised; and awarded compensation, the details of which are clearly laid out in the document itself for the reader to form his or her own opinion. Beginning at the initial moment Triple Jump wanted to end the contract (mid-February 2008), the total compensation in the last resort amounted to 6 months salary, all translation expenses and all legal fees, for an employee with under two years of service. This was almost the maximum possible under these circumstances. Triple Jump’s statement appears at odds with the facts.

The court ruling also succinctly summarised the quality of my work: "Both parties [Triple Jump and Hugh] agree that Hugh in this sense was doing an excellent job.... Hugh had received a good appraisal and there was no indication that he would not complete the term of his contract."

Paragraph 4:

"Our principals [Calvert] have at the time all confirmed to have been correctly informed and still are very satisfied with the services Triple Jump provides them." Calvert subsequently removed LAPO from its website when the NYT contacted them, and both ASN Bank and Oxfam Novib ceased investing in LAPO shortly afterwards. Whether or not Calvert was fully informed of LAPO's actual operations is described in some detail in the book. The most transparent way for Triple Jump or Calvert to clarify whether the documents presented to Calvert did reflect a full and accurate description of LAPO according to information known at the time would be for either company to publish this document, and the original document presented to ASN Novib, which they have failed to do.

On a related point, Citi and Standard Chartered also invested in LAPO under guarantee from Grameen Foundation USA. I have not seen the information presented to these two banks by GFUSA. If a full and fair description of LAPO was presented to them, genuinely reflecting the information available at the time, then this may raise questions about why they invested in LAPO in full knowledge of its activities. If, however, an incomplete picture of LAPO was presented to them, this may raise questions about the validity of the documents. Until these documents are published there is no way to clarify this, but in some regards the issue is comparable to that of Calvert and Triple Jump. Calvert, Citi, Standard Chartered and GFUSA have remained silent on this topic.

Paragraph 5:

"Mr. Sinclair suggests that Triple Jump profits from interest rates that microfinance institutions charge to their end-clients." Alas it appears that Triple Jump have not read the book carefully. Pages 72-74 explain quite clearly the operations of an microfinance fund, where it is clearly stated "The microfinance fund then makes loans to MFIs, for which it earns a management fee, typically in the region of 1 percent to 4 percent; 2 percent is probably typical. As a manager of other people’s money, it disburses funds from this pot and all repayments and interest return to this same source." (page 73). I clearly state that interest and repayments (i.e. capital) return to the investors "pot", rendering their response "Triple Jump’s income is neither related to interest rates charged by any microfinance institution, nor to any other client revenue model" as both irrelevant and redundant. If this was not clear enough, on pages 173-174 I analyse the cost/profit structure of Triple Jump and compare these to those of Kiva. This is clearly stated in the book and source documents are available on the website.

Interestingly this tactic, of claiming I wrote something which I did not and then refuting it, is the same method employed by the Friends of Grameen when attempting to refute the claims made in Tom Heinemann's documentary, described on page 210. Usual operating procedure when facts cannot be refuted, and once again, not entirely consistent with facts.

Paragraph 6:

"Triple Jump, together with other international investors, has advocated for a reduction of interest rates at the Nigerian microfinance institution LAPO. LAPO is currently one of the most respected microfinance institutions in the area and has reduced its interest rates in recent years."

The issue of LAPO's apparent interest rate reduction, combined with an increase in forced savings resulting in an overall increase in the cost of capital to the poor is discussed on pages 180 - 181. The Effective Interest Rate increased from 114.3% to 125.9%, as cited on page 157 and referenced from page 6 of the 2009 Planet Rating report of LAPO, also available on the website. Whether LAPO is one of the most respected institutions in the area is a subjective comment. This may suggest the other institutions are even less ethical or more expensive, or this may refer to the Grameen Foundation USA logic that they are cheaper than the evil moneylenders and therefore “a bargain”, as Alex Counts suggests (see page 183). Regardless, Triple Jump are no longer listed as investors in LAPO.

Final paragraph:

"Part of Triple Jump’s mandate is to specifically target small entrepreneurs in difficult African countries to provide them with affordable credit." Would Triple Jump be able, or willing, to explain the portion of their portfolio that is directed to entrepreneurial activities at all, versus that directed to consumption loans and repaying loans to other institutions? I see no evidence of them acknowledging the common finding that much microfinance is not used in any entrepreneurial activity whatsoever. See "Beware Bad Microfinance" in the Harvard Business Review, also on the website and discussed in the book. Whether the rates are "affordable" is a subjective matter as the microfinance community is unwilling to define unaffordable, exploitative or extortionate interest rates. As Chuck Waterfield's analysis of the interest rates charged at LAPO demonstrates, rates could reach as high as 144% (page 181, quoted in the Planet Rating report of LAPO). In the absence of a definition of "affordable" this question cannot be answered objectively, and therefore I leave it to the reader to form a subjective decision as to whether such rates are “affordable”.

Conclusion

If this is the strongest defence Triple Jump has, this is an interesting observation alone. It is also worth stating that this document was not a public press release, but provided privately to Ramesh who then posted it in the public domain, an act of transparency which I applaud. If and when Triple Jump does issue a public press release (there has been a notable decline in news posts on their website since the book was released), I assume they will do so on the basis of having actually read the book carefully. The likely reason for the continued public silence of those mentioned in the book is that they wish to neither dig their graves any deeper, nor draw additional attention to their activities. The purpose of publishing all evidence on the aptly named website is to enable the reader to form his or her own opinion of the claims made in the book. Analysing the Triple Jump document posted by Ramesh reveals that almost every sentence contained within it is flawed. If they have valid concerns about the factual contents of the book, I look forward to debating them publicly. Indeed, if the other players mentioned in the book would care to refute any of the findings, I will do likewise. Alas, silence appears their wisest strategy now. Analogies to ostriches are too obvious to state explicitly.

Many MIVs are endorsers of the SMART Campaign, MFTransparency etc., - the transparency initiatives of the sector. If they adhere to such principles, where is the transparency now? Deutsche Bank, Triple Jump, BlueOrchard, Calvert Foundation etc. endorsed the SMART Campaign, and client protection principle number 3 discusses transparency and number 4 discusses responsible pricing. Presumably they will be delighted with the current discussion surrounding precisely the topics they endorse? Interestingly Grameen Foundation USA did not endorse the campaign. It appears these players enjoy transparency only when it suits them.

Regarding Triple Jump’s claims of a rigorous due diligence, they fail to describe this in any detail. Who actually visited LAPO? How much time was spent on-site? How many branches did they visit? Did this due diligence analyse the interest rates, the extent of forced and voluntary savings, or the family connections within the institution, its board and its external auditor? Indeed, did the due diligence report contain repeated spelling mistakes including, at one point, actually getting the name of the institution incorrect (see pages 116-117)? What claims did they make about the integrity of the internal control and Management Information Systems at LAPO? Did they compare, or even detect, the stated interest rate with the interest rate openly used to generate the actual loan repayment schedules? Did they bother to find out if the software LAPO was apparently using was in fact pirated (confirmed by the former CEO of the software company in a recent Amazon review of the book)? Did they even do a site-visit for the Calvert “due diligence”? In short, I believe their due diligence was sloppy at best.

Likewise, in the call with Calvert they explained in detail the proprietary method of due diligence they performed, which appeared to amount to little more than taking funds from the US general public predominantly, and hand these to Triple Jump to lend on their behalf, and accepting a minimal due diligence report littered with factual errors and spelling mistakes. According to Triple Jump the likes of Calvert are in fact satisfied with the service they received – one can only speculate as to what would constitute an unsatisfactory service in their opinion.

While I admire Ramesh’s rigorous analysis of Triple Jump in this case, let’s not assume that Triple Jump is the only MIV that does minimal due diligence, nor that LAPO is the only such case. BlueOrchard (who’s CEO was replaced recently without explanation) admitted to not having even bothered with a site-visit. How many of Deutsche Bank’s investments have they historically visited? Which MFIs has Calvert visited? How thorough were the due diligences of Citi and Standard Chartered of LAPO, which were done under the protection of guarantees from Grameen Foundation USA? Kiva pumped $5m into LAPO – on the basis of what information? Kiva explicitly announced that they were “comfortable” with LAPO, and yet withdrew all funding to LAPO two weeks after this announcement – how come they were so comfortable only a fortnight earlier?  And as Ramesh points out in the context of Triple Jump - but the argument applies to all MIVs involved – these investments were done either with prior knowledge of the nature of LAPO (publicly available information), or with so little due diligence that even publicly available documents did not reach their rigorous due diligences. Either way they face tough questions. Let’s also not forget that the MIVs and P2Ps mentioned in the book represent a substantial proportion of the entire MIV sector.

Triple Jump are keen to brush this under the carpet, by stating that this is no longer relevant because the events took place some years ago (and we are therefore to assume that this was a one-off, isolated case that has never occurred subsequently?); and that the claims I make in the book are fictitious despite being rigorously documented. Their modest efforts at denying my claims are trivial and clearly refuted above, but in actual fact the astute reader will observe that the substantial claims made in the book have not actually been denied, even by Triple Jump. As the Dutch judge also pointed out explicitly – they haven’t actually denied anything – for one rather obvious reason.

The MIV sector is a total mess. I am hard-pressed to think of a single MIV that I would entrust my money to, having worked directly or indirectly with many over the last decade. One cannot generalise, but one can state an opinion. In my opinion the probability of an investor in an MIV being deceived is extremely high, and the probability of their funds being deployed for the tangible benefit of the poor is extremely low. I believe the MIVs are a principal menace of the sector, and in urgent need of regulation. But, let’s not hold our breath. Political protection and support of the microfinance sector as it currently stands extends to the highest levels. Ab Engelsman, for example, is the head of the Netherlands Platform for Microfinance, a former senior manager at ASN Bank, board member of both the Foundation of ASN Investment Funds and the Oikocredit Nederland Fund, and president of the Board of Triple Jump. Princess Maxima of Holland is closely associated with the Dutch microfinance sector. Not a single newspaper in Holland has run with this story, although the Dutch investigative documentary show “Reporter” is airing a documentary in September precisely on this topic, which will be worth watching. Muhammad Yunus is a board director of Grameen Foundation USA. The political connections in the US may stretch higher still. The point is not that the microfinance sector is run by cronies (although that is the case to some extent), but that those with an interest in preserving its present structure can mobilise political support to protect their interests.

I anticipated fierce retribution from those implicated in the book. I was wrong. They have remained entirely silent. Triple Jump’s weak and not openly public response is, in my opinion, pathetic. I expected they would at least read the book thoroughly. Wrong again. Ramesh reproduces Figure 1 from the Triple Jump 2007 Annual Report (Dated May 2008) to contextualise the funds at Triple Jump. However, an interesting additional fund has subsequently been added to this list: MicroBuild.This is financed by Habitat for Humanity and OPIC (the US Government's development finance institution). Thus Triple Jump is investing funds provided by Habitat and the US taxpayer. What controls are in place to ensure these are invested wisely? Although the US regulators seem relatively uninterested in regulating the MIVs, do they take any additional precautions when US government funding is involved? What does Habitat think about the findings in my book about the fund manager they selected? What due diligence did they do when selecting their fund manager for this fund?

Expect a lot more “no comments” – it’s their only defence. Those with nothing to hide have nothing to fear. I believe these guys are hiding because they have a lot to fear.