Microfinance and cookstoves

Two interventions that command a lot of attention are microfinance (financial services, particularly small loans, for the very poor) and improved cookstoves (with the hope of reducing air pollution). We’ve recently seen a couple of helpful summaries of relevant research:

  • David Roodman summarizes the most rigorous research on microfinance. There are now five randomized controlled trials on microlending that have at least published some preliminary results; it looks like there is very little in the way of direct poverty reduction or wellbeing improvements, though there is positive impact on “stimulating enterprise.”
  • Charles Kenny discusses a recent study that randomized heavy subsidies of cookstoves in India, and found that “Households failed to use the stoves regularly or appropriately, did not make the necessary investments to maintain them properly, and use ultimately declined further over time,” leading to no significant positive impact. According to Mr. Kenny, this result is consistent with previous literature on the matter. On the other hand, Aid Thoughts points to another study in Senegal reporting, after one year, that “households receiving an improved cooking stove used less wood, spent less time cooking meals, reported better indoor air quality and (for women, who presumably did all the cooking) were significantly less likely to have respiratory disease symptoms, eye problems. Nearly all recipients of a stove used it at least seven times a week.” We note that the latter study discusses only one-year effects, while the India study found “a meaningful reduction in smoke inhalation in the first year [but] no effect over longer time horizons.” Note that we haven’t carefully examined these papers and that cookstoves are not a focus of ours, but since the recent studies are both fairly rigorous we thought it was worth noting them and their conflicting results for interested readers.

Comments

Microfinance and cookstoves — 9 Comments

  1. Thanks for both of these links. I like both ideas. I hope those working on enabling these solutions can learn from both studies the problems faced in real world applications and find ways to improve results. I would think both modifying selection of participants and initial or ongoing support may be able to improve outcomes. Another thing worth trying would be some form of incentive for meeting objectives. I don’t know enough to know what form those should take but things like if behavior x is seen as key to success if behavior x is adopted the payments required decline by 10% (or some such…).

    It is not surprising to me that there are issues making these fairly new strategies successful. What is needed is real experiments and learning, I think. Don’t just hope they work.

  2. Has any consideration been given to the Zidisha model of microfinance? I haven’t seen any mention of it on this site. I’m just curious if anyone has any opinions or insights about it.

  3. Brian, is there any reason to think that Zidisha would be less susceptible to the problems that affect other types of microfinance? It looks to me like it is mainly a difference in terms of how it is funded.

  4. Ian, it is indeed simply a difference in how it is funded, but it seems to me like that would have considerable impact. Borrowers pay 5% interest rather than 20-30%. Of course this introduces more risk to the lender, since the loans are not guaranteed, but Zidisha reports a 97% repayment rate.

    I think one of the main advantages of microfinance is that the recipients have freedom to improve their lives (and their families) in any way they choose. I’m not convinced that increased spending on food is the best standard by which microfinance impacts on poverty should be measures, as it is in Roodman’s article.

    Further, Zidisha only lends to approved business owners. It’s goal is not to help the poorest of the poor. I see it more as a window of opportunity for a long-term move from poverty to financial self-sufficiency. I don’t think you can judge it based on how much money a borrower spent on food 12 months later.

  5. Brian, I responded regarding Zidisha on the other thread (“Cash transfers vs. microloans”), but I wanted to address a couple of points you brought up here as well.

    Regarding the repayment rate: This term doesn’t mean much because different MFIs use very different definitions. Givewell has blogged about this extensively:
    http://blog.givewell.org/2009/09/18/what-does-the-repayment-rate-really-tell-you-about-the-impact-of-microfinance/
    http://blog.givewell.org/2009/12/22/you-cant-take-the-repayment-rate-at-face-value/
    http://blog.givewell.org/2010/01/22/more-on-the-microfinance-repayment-rate/

    Regarding freedom, if the goal, as you put it, is to give people the “freedom to improve their lives in any way they choose”, wouldn’t cash transfers do an even better job of that?

    Regarding how to judge Zidisha, it appears to me that if they are going to target recipients with more resources than average (which they must be doing, if they require internet access, English communication, and accounting skills), then even if they generate above-average results, the burden would be on them to show that the results are not merely the result of selection bias. Certainly there are useful metrics other than food budget, but it does not take an expensive intervention to show that participants with above-average resources can attain above-average results.

  6. Ian: Thanks for your response. I haven’t found a lot of data or studies concerning Zidisha, which is exactly why I brought it up here, as I believe this site does an excellent job of compiling available research and presenting practical conclusions. I agree that the burden is on them if they want to prove effectiveness, but I can’t fault them if they don’t choose to perform extensive follow-up research. In my eyes it doesn’t make what they do any less impactful or genuine.

    As to your point on freedom, yes I believe cash tranfers would do a better job of that. I was stating why I prefer Zidisha over traditional microlending. There are also reasons why I prefer Zidisha to cash tranfers.

    Regarding recipients, they do not need to speak English. Most of the recipients speak only French, and everything is translated by volunteers (I understand that volunteer work isn’t considered self-sufficient, but we’re talking about a charity). Still, your point about recipients having more resources than average is true, and that’s exactly the kind of thing I would like to see more research on. As I said earlier, I think more well-off recipients have a chance to become financially self-sufficient. Not that this is better than giving to the poorest of the poor, it’s just different.

  7. Brian:

    Here’s the thing. As a donor, you have to allocate your limited resources somehow. In order words, you have to answer the question, “Should you give to charity A or should you give to charity B?”. The way I see it, Givewell is about answering this question in the way that will lead to the greatest positive change in the human condition.

    When you write things like ” I amin no way saying this method is better than GiveDirectly, or that GiveDirectly is a poor choice for a charity”, or “Not that this is better … it’s just different”, what you are really doing is denying that choice. Either GiveDirectly is a better charity than Zidisha or it is a worse one (assuming a consistent utility function) — although it may be very difficult (or even impossible) to know for certain which is actually better. What we, as impact-oriented donors, need to do is to not deny the choice but to embrace it — to find the use for our funds that will leave the greatest positive impact on the human condition. “Different” is not interesting, it’s specifically “better” that we need to focus on.

    Another way to think about this is that the question is not really “is Zidisha a good charity”, or “is GiveDirectly a good charity” (although those are certainly relevant), but rather “which one is the better charity?”. In that context, the relative merits of the two are absolutely relevant. Whatever positive aspects Zidisha has must be measured in direct comparison to other charities, including GiveDirectly.

    Thus, to get back to the slightly more concrete, to the extent that Zidisha is a combination of microfinance and cash transfers (which I believe is a fair decomposition), the cash transfer component is probably worse in impact than GiveDirectly, simply because of the decreasing marginal value of cash. Money creates more satisfaction for someone without a roof over their head than it does for someone who can’t afford to replace their worn-out clothes.

    With respect to the microfinance portion of Zidisha, it’s not clear to me why it would compare favorably to GiveDirectly (as noted in Givewell’s post) or even to other microfinance charities (who might be better-positioned to identify the best recipients, regardless of writing ability or access to a camera or to the Internet). Note that I’m not saying it couldn’t — just that I don’t see how it would.

    Cheers,

    –Ian

  8. Ian,

    Philosophy lecture aside, I think you are diving too far into the world of semantics. The reason we are here is to accumulate information and opinions so the we can all form our own opinion on what the “best” charity is. The “best” charity will have different qualities for different people. It seems that you put a lot of emphasis on how much immediate (and measurable) satisfaction money creates, and I look more at the staying power and iterative benefits of entrepreneurship. I’m not going to tell you that my opinion is better than yours. If you truly believe that the few marginal studies here paint a definitive picture of GiveDirectly’s superiority to Zidisha in all aspects, then perhaps I am wasting my time.

    On to the concrete, I don’t believe that giving money directly to the poorest of the poor is going to lead to an eventual class shift. I think it provides more of a temporary relief, treating symptoms rather than causes. These benefits are more easily measured, so they appear more impactful. I prefer microfinance because it offers the opportunity for a permanent demographic shift that can permeate through a community, and my initial investment can be recycled indefinitely. I think the way Zidisha goes about its financing is superior to other microfinance institutions because it is constructed more like a charity than a for-profit bank.

    I believe that Zidisha’s low-interest loans for underpriveleged business owners is a unique charity, and the best way to allocate my money. I am here to both share my opinions and learn of others, understanding that “impact” and “best” are subjective terms, no matter how objective we would like them to be.

    Thanks for debating,
    Brian