• We have not accused MLF of misleading clients.
• We do not believe it is wrong for MLF to charge high rates of interest (and our post above states this).
• We have a high opinion of MLF overall and find its transparency and explicit focus on social impact (not just financial sustainability) to be superior to that of most other MFI’s we have seen.
• That said, as you acknowledge there are still gaps in the information needed by an outsider to assess MLF’s likely social impact. That’s why we don’t currently recommend MLF.

GiveWell’s goal is to recommend demonstrably great charities to individual donors; a lack of recommendation is different from a positive claim that good isn’t being accomplished.

To look at microfinance trends broadly across the world, comparing one “MFI” working within one region of the world to another working in a different region is intrinsically misleading.. The key part of the term microfinance is ‘micro’ – this means looking at each MFI in respect to its beneficiaries country’s economies and the actual demographic of the beneficiaries.

In other pages of the GiveWell site GiveWell criticise MicroLoan Foundation for only providing information back to 2006 or 2007, whilst other organisations provide information stretching much further back. There is a simple reason for these differences, MicroLoan Foundation is a much younger organisation than those to whom GiveWell seek to compare it to (started in 2002 in one of the poorest regions of Malawi with one man, a bike and $15,000), it has never received any major one off donation from any organisation and has built itself up incrementally valuing every $ donated – at our stage of development we feel our priority should be to support the thousands of needy people in Malawi with small loans and business training, rather than spend thousands of dollars on a sophisticated MIS

At MicroLoan Foundation we work primarily in Malawi, one of the 10 poorest countries in the world the countries infrastructure is limited, the majority of people live subsistence livelihoods and the level of education is low. We focus our work in the rural areas with people who literally have next to nothing and have never previously had access to financial services and up to 50% of whom are illiterate. In addition we only make loans to poor women who want to start or develop existing businesses. We do not make high value loans to salaried employees, favoured by the MFI’s to drive sustainability.

We don’t simply see ourselves as a traditional “MFI”; we insist that each loan group receives 8 modules of training before they receive their loans, we equip our staff with motorbikes so that they are able to travel significant distances from population centres to visit our client groups (who otherwise would not be aware of our existence nor be able to afford to travel to our branch offices). We could break out the cost of the service that we provide between signing on, education and training and interest, but we choose not to for the ease of understanding for our clients. Our interest rates are in place to create financial sustainability i.e. to cover the cost of providing the above service and are calculated in accordance with CGAP’s standard method for interest rate setting. Whilst experience in Malawi would concur with the findings of Schmidt and Tschach (2001) and Rosenberg (2002) referenced in the above posters paper – that our clients are able to generate profits of many times the amount that we loan to them - we would posit that there is likely a causal link between the level of development of the community and the rates of profit that its micro entrepreneurs are able to yield from micro finance.

Givewell’s calculation of MicroLoan Foundation’s rates is based on the assumption that clients pay back exactly on time every time, however elsewhere on their site they have questioned our repayment rate, despite us explaining our repayment rate to them on several occasions. In the last 3 years 98% of our clients have paid back the money that they have borrowed from us. However a small % of our clients take longer than the agreed repayment terms. than the agreed period to repay.. Rather than penalise the clients with fines, levies an additional interest for late repayments we take a more understanding approach and allow them flexibility to repay. Their failure is our failure. We currently do not undertake complex tracking of this in our MIS, we keep things simple and allow these clients to simply become clients in arrears, who experience tells us will repay when they are able to. Applying the Givewell interest calculation in these circumstances would see the effectve/annualised rates fall significantly, probably somewhere in line with the Mix market rates they refer to in this article. We have more important things to do than to spend our time calculating this exact figure under our flexed repayment terms - REMOVE

But of course it is not the input to the micro finance borrowers that are important, it is the outcomes of those loans on the clients and their families. In our ongoing dialogue with Givewell we have provided the evidence of detailed studies to show our social impact in Malawi. This is coupled with case studies and frequent visits from donors and donor groups has confirmed to us that the work we do is having a positive impact on the communities in which we operate. Having recently undertaken successful pilot studies to try to standardise our social impact reporting, we are now ready to start investing in this in the knowledge that our funds are being spent in a way which will further our aims.

There is a natural life cycle to micro finance organisations as they grow in sophistication which is also dependent on the communities in which they’re based. Microfinance in more developed countries and the higher valued salary loans will inevitably have a lower interest rate, be able to reach scale quicker and be able to produce more sophisticated documentation to justify its existence. To look at these in isolation without taking the conditions above into consideration risks donors opting to support microfinance projects that are the most sophisticated, not necessarily those supporting the most needy.

Givewell’s interest rate calculations generate such high rates of interest for MicroLoan because they deduct the moneys that we facilitate clients to save with local Malawian banks from the amount that they borrow from us. We understand the logic behind this approach but do not think that the outcome it generates is a fair reflection on us. We require that clients save a set amount of their loan values with local banks, partially as collateral against default (our high repayment rate means instances of this are limited) but also to introduce them to the formal banking system and to provide them with a savings facility

We acknowledge it is our challenge for the coming year to prove that the work we do reaches the most needy and have a 2 year project in hand to prove it. it would be good to hear a similar commitment from GiveWell in which they take into account nuances between different developing country situations and the stage of the MFI in their lifecycle.. We are always available for comment and questions and seek to be 100% transparent to donors and beneficiaries.