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Escheat me
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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?
No Escheatment
Personally I can't stand the idea of escheatment (BTW, what a crazy word) and someone else getting my money without my explicit permission. Gift cards seem to be the prime example of this. If you don't spend the money soon, they start charging ridiculous monthly fees, confiscate your money for lack of activity or both. Now I understand you're in a complex situation. It does cost money to keep the cash (it shouldn't be a substantial amount though) and you want to get this money back to use. Taking the money permanently away from the lenders doesn't seem like the best plan. Instead how about setting it up so that money left more than a set period of time gets put into a low risk investment, like government bonds or what not. That way you're going to be making money to help cover your costs (or for lending) and not pissing off lenders who might want to use it at some point in the future.