Profit of the payday loans made Aigars Kesenfelds millionaire and gave him a chance to spread wings internationally. The turnover of his businesses now approaches 400 million euros a year. However, the plain sailing has run into difficulties in Kosovo and Armenia due to “abnormal superprofits”, and the companies related to him have lost licences. For this story, the least known Latvian millionaire is forced to leave the shadows and answer unpleasant questions.
- Quick loans on the ruins of real estate
- Earnings from selling to Russia’s billionaire
- Mogo and Mintos are born
- Exporting “Wild West” practices
- Free phones in Kenya
- Kosovo and Armenia apply the brakes
Latvian businessman Aigars Kesenfelds (37) shuns publicity and interviews, but last year he made an exception. When the Kosovo press began portraying him and his business partners as a threat to national security and hinted at possible money laundering, the millionaire took a rare public stand, going so far as to fly Kosovan journalists to Riga to explain why he saw the accusations as unfounded.
A video of the media event, posted on Facebook, marked the first glimpse that people outside Kesenfelds’ inner circle got of the person who would top Latvia’s list of richest entrepreneurs if businesses abroad were included in the wealth tally.
At the time of this investigation, Kesenfelds was an owner or co-owner of about 150 firms working in at least 20 countries and employing around 4,000 people. Their turnover in 2019 was EUR 384 million, according to an Excel file provided by Kesenfelds himself. Their turnover is higher than that of the state forestry company Latvijas valsts meži or the gas company Latvijas Gāze.
In his personal dealings, Kasenfelds is pleasant, welcoming, and well-mannered. He prefers a low profile, although occasionally indulging in a few perks, such as having Latvia’s most famous rock-band Brainstorm play at his wedding or employing a chauffeur. He declined a face-to-face interview with Re:Baltica, which has long been one of the sharpest critics of his business, but agreed to a written exchange “to get everything right”. He responded to e-mails quickly and personally, rather than through his two assistants. In a short phone call, Kesenfelds worried whether we will mention all of his businesses, not just those negatively portrayed as connected with payday loans. He writes that he has invested in financial technology companies, the automobile trading and maintenance business, real estate, and jewelry trading.
“Financial technologies” in this case mean short-term, high-interest loans variously called “quick” or “payday” loans. Such loans, usually for relatively small amounts, are marketed as a means to tide borrowers over for no more than a week or two, with the expectation they’ll be repaid on the borrower’s next payday.
The loans carry hidden commissions and fees, as well as exorbitant interest rates, which can soar as high as 800 percent. Many borrowers find they cannot pay the loan off as quickly as they had planned, leading some into a crushing cycle of expanding debt that they may never be able to repay.
Payday loans typically attract low-income and unsophisticated borrowers who have little idea of what they are getting into. In several countries, people have become mired in debt, while Kesenfelds and his business partners have become millionaires. The Re:Baltica investigation shows that they used the same business methods to fish for customers abroad which are now prohibited by law in Latvia.
Rising from the ruins of real estate
“If any entrepreneur in Latvia has the potential to become a billionaire, then it is Aigars,” a former business partner, who wished to remain anonymous, told Re:Baltica.
His family played a major role in who Kesenfelds is now. His father Ivars Kesenfelds, who owned a small construction company in one of Latvia’s biggest cities Liepāja at the time, took his son with him to business negotiations when the boy was only seven. By the time he was 19, Kesenfelds Jr. ran a family-owned cinema in Liepāja and worked on his father’s real estate projects during summers.
“He became a movie theater manager not because he was my son, but because he understood those things well. He traveled from Riga to Liepāja on weekends and started working successfully,” Ivars Kesenfelds told Re:Baltica.
At that time, the younger Kesenfelds had moved to the capital to study at the best secondary school in Latvia – Riga State Gymnasium Nr.1. He was accepted without entrance exams as the winner of regional physics and mathematics Olympiads. Another plus was winning the national debate tournament in Latvian and English – so Kesenfelds told the local newspaper Kurzemes vārds almost two decades ago.
“It was rather strange at the beginning, I was giving orders to people who are twice as old as I, but everything can be worked out,” he said at the time.
After passing through the first forge of the elite, Kesenfelds joined the next: the Stockholm School of Economics in Riga (SSE Riga). There he stood out for his sharp mind, not a loud voice. In 2008, with three members of his class, he founded the company 4Finance, which made them millionaires.
The global crisis of that period proved to be good fortune in misfortune.
The Kesenfelds family was forced to return around 50 properties worth almost €30 million to the banks. Those lost included his father’s favorite — the renovated Promenade Hotel in the Liepāja port warehouses — which combined a high-end hotel, exhibition hall, and restaurant. (Later, the son recovered some of the properties, including the hotel, which is now again owned by his father. The two are no longer working together, but they have “a very good father-son relationship,” says the younger Kesenfelds).
As banks were not lending money while people needed it more than ever, Kesenfelds and his business partners spotted a market opportunity and founded 4Finance. So, with the brands vivus.lv and SMS Credit, they began to lend small amounts for short terms, charging high interest.
The payday loan business was born in Latvia, soon to drive thousands into a credit trap.
Millionaire under 30
At the beginning, Kesenfelds funded the operation with earnings from the real estate business but by the end of 2008, seeing growth, he began to look for additional investors. He spoke to a number of local banks and successful Baltic entrepreneurs, but “practically everyone refused”, Kesenfelds told Re:Baltica. “However, in the end, we found local equity investors who believed in our idea.”
Kesenfelds doesn’t mention the names of his beneficiaries. For a long time, they hid behind companies registered in Belize, Cyprus, and Malta.
In 2017, the so-called Malta Files were leaked to international investigative journalists, which showed the true beneficiaries of 4Finance. Among the eight co-owners were relatives of people influential in Latvian politics (the son-in-law of thrice ex-prime minister Edgars Dupats) and later the backstage fixer, Māris Martinsons.
The former Vice Mayor of Riga, Andris Ameriks who was allegedly involved in corruption scandals, was an investor earning around EUR 100,000 a year in 2010. Such super-profits can ordinarily only be seen in large investment projects. His income tax declarations show that the yield on bonds from another lending company owned by Kesenfelds – Mogo – has earned almost a million in five years.
Around 2010 and 2011, several potential buyers showed interest in 4Finance. In 2013, the owners chose Russian billionaire Oleg Boiko, a casino and gambling entrepreneur, although Kesenfelds still refuses to name him in his e-mail responses. The Malta Files show that Boiko paid just over EUR 100 million for 4Finance. Kesenfelds also refuses to comment about this sum, saying the terms of the contract are confidential.
A team of journalists analyzing the Malta Files documents concluded that the 4Finance owners not only successfully sold the business but saved millions through Malta’s favorable tax policies. Journalists describe Malta as the EU’s “pirate base”, used by wealthy Europeans to avoid paying much higher taxes on profits in their home countries.
Kesenfelds does not deny Malta’s tax advantage but said that was not the main reason for registering there. Malta was chosen because Latvia had not yet joined the Eurozone, there were rumors of a devaluation of the Lat, but “for an international business the reputation on which it is built is essential.” Kesenfelds points out that his Malta registered companies at the time had paid more than one million euros in taxes.
The Malta Files made it possible for journalists to estimate that Kesenfelds’ share from the sale of 4Finance, including profit, was at least EUR 36 million. He was not even 30 years old at the time.
Mogo and Mintos are born
After selling 4Finance, Kesenfelds decided to expand internationally. He moved to London with his family to expand the look at the world and business. He returned to Latvia in 2018, when it was clear that Britain would leave the EU. The family was also expecting another child.
Today Kesenfelds runs his kingdom from an office on Skanste Street in Riga, where most of the companies he owns are registered. Currently he rents the premises there, although two years ago he was the sole owner of eight office buildings with 850 parking spaces. In 2018 he sold one of the largest office complexes in the Baltics to an investment fund registered in Latvia. The amount of the transaction is not disclosed, but information available to Re:Baltica shows that it was about EUR 60 million.
Kesenfelds estimates that his real estate business could be worth around EUR 25 million, a number confirmed by Re:Baltica’s calculations. He points out that money is important, but the thrill he gets from the opportunity to “figure out how to most effectively build different business solutions in different markets.”
4Finance’s terms of sale prevented former owners from developing the same kind of business for two years. As a result, Kesenfelds and his companions developed others. Among the most significant are Mogo, which now in 20 countries lends against collateral (basically auto loans), and Mintos, Europe’s largest peer-to-peer (P2P) lending platform.
Mintos was the brainchild of another SSE Riga student, Martins Šulte. On April 11, 2014 (which Šulte mentions to his employees as Mintos‘ birthday) he read about a P2P lending platform launched in the UK. At the time, 29-year-old Šulte had completed his studies at the prestigious business school INSEAD in France and Singapore and wanted to return to Latvia and “start something of his own”, he tells Re:Baltica. The British idea seemed adaptable, but it needed money. He wrote an e-mail to an old acquaintance, Kesenfelds. “I knew that at that point they were investing in several companies. I said, here’s the idea, what do you say?”
Kesenfelds replied that his business partners might also be interested. They agreed to invest a million euros to start the business. Initially, the platform was to issue loans against real estate collateral and investors would be able to invest in financing these transactions.
In May, the company was founded, in June the team was assembled, but the actual work of Mintos began in January 2015. Over time, Mintos evolved into a virtual marketplace in which non-bank lenders invited primarily individuals to invest money in companies with 10 percent or higher profits per year.
Mintos was quickly popular at a time when banks paid virtually nothing for deposits. Five years later, Mintos has grown into the largest P2P lending platform in Europe, whose success story has also been described by the international business media Bloomberg. Šulte himself is a millionaire, at least on paper.
The Mintos website states that around 350,000 investors had invested almost EUR 6 billion during the platform’s time in operation.
Financial blogger Kristaps Mors, himself a Mintos investor, says those figures are “inflated”. He says an investor can invest EUR 100, withdraw money in a week and invest again, and Mintos will say that EUR 200 has been invested, but in reality, it will be 100. He also criticizes the choice of firms on the platform.
Mors says only about half of the 70 firms provide qualitatively audited annual reports to verify their financial stability. The annual accounts are essential because Mintos only works as an intermediary – investors assume the risk in choosing which firms they invest in. In addition, about 40% of the lenders on Mintos are owned by Mintos’ main shareholders, the largest of which is Mogo.
Then came the coronavirus crisis.
While several firms offered on the Mintos platform experienced financial difficulties, Mors was able to withdraw his investments before suffering any losses. By the end of 2020, investors’ holdings of EUR 100 million were questionable. In internet comments, disgruntled investors expressed their outrage at the possibility of losing their money. Mintos’ reaction was laconic: if you invest in a business that promises tens of times more return than a bank deposit, you should also take into account the higher risk.
“The risk-return ratio is adequate,” the head of the company Šulte told Re:Baltica.
Exporting “Wild West” methods
Among the Mintos lenders in difficulty are two Kesenfelds-owned payday loan firms in Kosovo and Armenia. Local regulators in both countries have rescinded their licenses and frozen some EUR 24 million. The official reason was a failure to follow local rules.
To understand what has happened in Armenia and Kosovo, rewind to 2008 in Latvia, when 4Finance was founded.
It took Latvian authorities a few years to realize that the glossy advertisements encouraging people to borrow money and live beautifully right now in fact dragged them into an endless debt trap. There were a growing number of tragic stories about young people who had taken easy money without having any income, or gambling addicts who borrowed at night.
The sector was new and poorly regulated, and 4Finance spent millions on its ads. In the media, on the Internet, on the sides of trams, they called on people to take loans – and get pizzas, cinema, and concert tickets as a bonus.
Lenders did not provide customers with clear and comprehensible information on the cost of loans, which fooled the financially ignorant. Borrowers believed that the loans were issued free of charge, but the lenders hid commissions and other fees. The loans were deliberately advertised as short-term loans, creating a false feeling that the customer would be able to repay them on next payday.
But it wasn’t so simple.
The loans were structured with a “balloon payment” — the principal must be returned in one payment, not in installments. As a result, customers who couldn’t manage to come up with the whole amount tended to extend the repayment period, and it was in the extensions that the profits for the lenders were hidden. In 2015, almost half of the industry’s customers extended their loans. The annual interest rate could jump up to 800%.
The state regulator of the business fined 4Finance for unethical advertising, and for failing to check whether borrowers would realistically be able to repay the loans. And not only in Latvia – for similar violations penalties were also imposed in Lithuania. However, the size of the fines was tiny compared to the company’s turnover.
Attempts to regulate the sector more closely got stuck in the Latvian parliament, where proposed rules were blocked by the specially established industry lobby. Powerful political connections and influence in highly visible areas – sport and culture – helped too.
In 2016, the first restrictions were finally adopted, stating that lenders could not charge more than twice the principal amount of the loan. Two years later, ads were restricted, payday loan lenders were required to assess the solvency of customers, and loans could be extended no more than three times. Several players appealed to the Constitutional Court, and lost. The court ruled that public wellbeing was more important than the consequences of the restrictions on lenders.
But the impact of non-banking loans had already proved devastating.
In 2018, regulators fined Kesenfelds’ part-owned Mogo EUR 80 000 for insufficiently estimating the solvency of its customers. In the decision regulator mentioned that the “inadequately huge” debt could lead to involuntary emigration, increasing addictions, additional borrowing, and stress, which can even result in suicidal thoughts.
No hard figures are available on how many borrowers have been adversely affected, how many emigrated or are working in the grey economy to repay their debts. But it is possible to get an inkling. When the Ministry of Justice started to work last year on a debt remission law for loans of up to EUR 5,000, the Financial Industry Association estimated that up to 55,000 people could take advantage of this option.
Giving away phones in Kenya
What is clear is that Kesenfelds and his partners have exported business tactics approbated in Latvia to other countries. To attract customers to the Kesenfelds co-owned payday loan firm Zenka in Kenya, local Instagram influencers gave away phones to their followers who persuaded their relatives and friends to take loans. Zenka boasts that it attracted 700,000 new customers in seven months and even received an award as the fastest growing mobile app.
When the governor of the Central Bank of Kenya said that the fast-growing consumer credit market should be regulated, the industry – like in Latvia – formed an association. Its first head was the director of Zenka.
Kosovo and Armenia step on the brakes
One of the countries where Mogo set up shop was Armenia. Mesrop Arakeljan, the local head of Mogo, was an advisor to the president of the country on the payday loan business model. Like the Latvian association, he encouraged banning night-time loans and giving money to customers under the age of 21. Yet his proposals did not contain any interest ceilings that might reduce the profits of lenders.
Meanwhile, another firm, which also is co-owned by Kesenfelds – Varks AM – encouraged young Armenians by text message to take a loan on their 18th birthday. In 2020, the Central Bank of Armenia withdrew the company’s license for insufficient capital. A member of parliament wrote on Facebook that she was “every day approached by thousands of citizens who have been hostage to Varks AM” and parliament should help solve their problems “because of the abnormal super-profit” that the lender has gained over the years.
Re:Baltica found out at the Central Bank of Armenia that the quick loan business is still not regulated.
Kosovo’s Central Bank took more direct action. At the end of 2019, it withdrew its license for Kesenfelds’ payday loan company, Monego. The reason was excessive interest rates and a threat to national security, which was not publicly explained in detail.
Zekirja Shabani, editor-in-chief of the Kosovo news site Infocus, told Re:Baltica: “We are talking about interest rates of over 50%, 70% or 200%. In one case, according to the central bank, it was 2,000%.” Monego also did not check the solvency of customers and, contrary to local law, granted loans to people who live on social benefits.
The Central Bank also vaguely points to the threat to the country’s national security posed by Kesenfelds and his business partners in a press release. Shabani states that the suspicion is based on the entrepreneurs’ “ties to people involved in money laundering activities.” He does not elaborate but states that he is prepared to prove his allegations in court if needed. “They were operating in countries with no sustainable legal framework. They are using countries like Kosovo and other small countries, where the rule of law is not well applied,” Shabani concludes.
Re:Baltica does not have any independently confirmed information that Kesenfelds is linked to money laundering.
Kesenfelds denies being involved in criminal activities. For similar allegations in another publication in Kosovo, his lawyers approached the local media ombudsman. It acknowledged that journalists’ allegations lacked sufficient evidence and violated the Code of Ethics for Journalists.
He also rejects the claim that he deliberately chooses poor countries with weak regulations for his loan business. “This is not true,” Kesenfelds writes in his response, pointing out that he has invested in companies working in different countries, including Scandinavia and “other EU countries where there are very high requirements from a regulation point of view”.
In addition, Mogo continued its activities successfully in both Armenia and Kosovo. The company has gone to court in Kosovo and is considering doing so internationally to “represent its interests and recover funds”, Kesenfelds wrote to Re:Baltica.
He emphasizes that in virtually all companies in which he holds shares, he is only a financial investor and does not engage in their day-to-day operations. And he doesn’t feel guilty about part of society sinking into debt because of payday loans.
“As in any other industry, there may be cases where a product is misused and has negative consequences,” Kesenfelds wrote. Although at the beginning of the industry “one could have talked in some way about the Wild West”, today quick loans are the standard financial service in many countries around the world, the millionaire said.
Ivars Kesenfelds defends his son’s business. “An entrepreneur does what is allowed,” he says. He compares this to banking and believes that the state should have determined from the outset how to protect those who should not borrow. “People also directly tell me that it [his son’s business] wasn’t good. I answer to them that I believe the banks were just as cruel.”
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Rudīte Spakovska and Baiba Kļava participated in gathering and analyzing data.
Editors: Sanita Jemberga, Jody McPhillips
Translation: Juris Kaža
Illustrations: Madara Eihe
Thanks to the newspaper Kurzemes Vārds for photos.