For law enforcement, regulators and financial institutions who have microlenders in their client pool, risk considerations should include:
- Transfers to, from, and between high risk geographies (and adjacent areas) with little oversight
- The minimal due diligence required for microloan donors and recipients
- Assuming a legitimate business purpose as a mitigating factor for transaction review
- The nature of microloans… small-amounts-transactions that inherently fall below reporting thresholds
- No collateral-backing required for loan transactions which creates high default rates, - an appealing prospect for terrorist financiers
- Potential for diversion of funds once they reach the destination
- False representation of loan recipients
- Use of correspondent banks with complex, non-transparent ownership structures in high risk geographies to disburse funds
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In a 2015 report, FATF highlights social media fundraising, non-profit organizations, and small wire transfers as key funding methods for ISIS. Microlending platforms can be used to facilitate all three of these typologies.
https://kyc360.com/article/microlending-and-crowdfunding-aml-risk/
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