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.

Due Diligence is a new book on microfinance by David Roodman. We are fans of Mr. Roodman’s work in general (we’ve previously interviewed him for our blog, discussed his research and quoted him for a testimonial), so we were eager to read this book. We weren’t disappointed: it’s thorough, it examines the case for microfinance from multiple different angles, and (in our view) it is consistently - and refreshingly - driven by an evenhanded search for the full and complex truth of the matter, rather than by a particular agenda.

I found the strongest part of the book to be from Chapter 6 onward, where Mr. Roodman reviews the case for (or against) microfinance based on different conceptions of “development.”

• In Chapter 6, he reviews the literature on whether microfinance directly reduces poverty. His discussion is similar to the one in More than Good Intentions (which we reviewed previously), though it covers earlier non-randomized studies in more detail; as an aside, we’ve found his work on one of the better-known early microfinance studies to be an extremely interesting case study in the problems that can arise with complex studies. Mr. Roodman concludes that (as we have written previously, largely relying in his work) any direct poverty-reducing effect of microfinance remains undemonstrated, even after substantial attempts to demonstrate it.
• In Chapter 7, he examines the question of whether (and to what extent) microfinance “empowers” clients, giving them more control over their own lives. (There is some conceptual overlap here with our key questions for microlending institutions.) Mr. Roodman discusses interest rates (particularly their transparency to borrowers), the dynamics of group lending (both positive and negative), and some of the qualitative research that attempts to look informally at how microfinance impacts people’s lives. He concludes that (a) there are valid reasons to worry about microfinance as reducing freedom (by increasing debt), particularly when it comes to the traditional “stripped-down South Asian solidarity group loan” model; but (b) microfinance can also empower people by providing an additional tool for managing their financial lives, and the latter effect should be presumed to be the most prominent and basic one.
• In Chapter 8, he argues that the most impressive thing about microfinance may simply be the way it has proliferated, and led to the creation of self-sustaining institutions. Even without direct proof of the connection to poverty reduction or empowerment, this “industry building” effect could in itself be considered evidence that microfinance contributes to development.

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We often use academic research to inform our work, but we try to do so with great caution, rather than simply taking reported results at face value. We believe that if you trust academic research just because it is peer-reviewed, published, and/or reputable, this is a mistake.

A good example of why we’re concerned comes from the recent back-and-forth between David Roodman and Mark Pitt, which continues a debate begun in 1999 over what used to be considered the single best study on the social impact of microfinance.

It appears that the leading interpretation of this study swung wildly back and forth over the course of a decade, based not on major reinterpretations but on arguments over technical details, while those questioning the study were unable to view the full data and calculations of the original. We feel that this illustrates problems with taking academic research at face value and supports many of the principles we use in our approach to using academic research. Details follow.

1998-2005 studies by Khandker and Pitt

According to a 2005 white paper published by the Grameen Foundation (PDF), a 1998 book and accompanying paper released by Shahidur Khandker and Mark Pitt “were influential because they were the first serious attempt to use statistical methods to generate a truly accurate assessment of the impact of microfinance.”

Jonathan Morduch challenged these findings shortly after their publication, but a 2005 followup by Khandker appeared to answer the challenge and claim that microlending had a very strong social impact:

each additional 100 taka of credit to women increased total annual household expenditures by more than 20 taka … microfinance accounted for 40 percent of the entire reduction of moderate poverty in rural Bangladesh.

As far as we can tell, this result stood for about four years as among the best available evidence that microlending helped bring people out of poverty. Our mid-2008 review of the evidence stated,

These studies rely heavily on statistical extrapolation about who would likely have participated in programs, and they are far from the strength and rigor of the Karlan and Zinman (2007) study listed above, but they provide somewhat encouraging support for the idea that the program studied had a widespread positive effect.

2009 response by Roodman and Morduch

A 2009 paper by David Roodman and Jonathan Morduch argued that

• The Khandker and Pitt studies were seriously flawed in their attempts to attribute impact. The reduction in poverty they observed could have been an artifact of wealth driving borrowing, rather than the other way around.
• The Khandker and Pitt studies could not be replicated: the full data and calculations they had used were not public, and Roodman and Morduch’s best attempts at a replication did not produce a remotely similar conclusion (they demonstrated no positive social impact of microlending, even a slight negative one).

This paper stood for the next two years as a prominent refutation of the Khandker and Pitt studies. Pitt writes that the work of Roodman and Morduch has become “well-known in academic circles” and “seems to have had a broad impact.” It appeared in a “new volume of the widely respected Handbook of Development Economics” as well as in congressional testimony.

2011 back-and-forth

Earlier this year,

• Mark Pitt published a response arguing that Roodman and Morduch’s failure to replicate his study was due to Roodman and Morduch’s errors.
• David Roodman replied, conceding an error in his original replication but defending his claim that the original study (by Khandker and Pitt) was not a valid demonstration of the impact of microlending.
• Mark Pitt responded again and argued that the study was a valid demonstration.
• David Roodman defended his statement that it was not and added, “this is the first time someone other than [Mark Pitt] has been able to run and scrutinize the headline regression in the much-discussed paper … If you anchor Pitt and Khandker’s regression properly in the half-acre rule … the bottom-line impact finding goes away.”
• We had hoped to see a further response from Mark Pitt before discussing this matter, but Roodman also wrote that Mark Pitt is now traveling and that “this could be the last chapter in the saga for a while.”

Bottom line: as far as we can tell, we still have one researcher claiming that the original study strongly demonstrates a positive social impact of microfinance; another researcher claiming it demonstrates no such thing; and no end in sight, 13 years after the publication of the original study.

Disagreements among researchers are common, but this one is particularly worrisome for a few reasons.

• Conflicting interpretations of the study have each stood for several years at a time. The original study stood as the leading evidence about microlending’s social impact between 2005-2009; the challenge by Roodman and Morduch was highly prominent, and apparently not commented on at all by the original authors, between 2009-2011.

• Disagreements have been technical, many concerning details that few understand and that still don’t seem resolved. David Roodman states that “the omission of the dummy for a household’s target status” is responsible for his estimated effect of microlending coming out negative instead of positive. Numerous other errors on both sides are alleged, and the remaining disagreements over causal inference are certainly beyond what I can easily follow (if a reader can explain them in clear terms I encourage doing so in the comments).
• Resolution has been hampered by the fact that Roodman and Morduch could only guess at the calculations Pitt and Khandker performed. This is the biggest concern to me. Roodman writes that he was never able to obtain the original data set used in the paper; that the data set he did receive (upon request) was (in his view) confusingly labeled; and even that one of the original authors “fought our efforts to obtain the later round of survey data from the World Bank.” As a result, his attempt at replication was a “scientific whodunit,” and his April 2011 update represents “the first time someone other than [the original author] has been able to run and scrutinize the headline regression in the much-discussed paper.”

  If I weren’t already somewhat familiar with this field, I would be shocked that it’s even possible to have a study accepted to any journal (let alone a prestigious one) without sharing the full details of the data and calculations, and having the calculations replicated and checked. But in fact, disclosure of data - and replication/checking of calculations - appears to be the exception, not the rule, and is certainly not a standard part of the publication/peer review process.

Bottom line - the leading interpretation of a reputable and important study swung wildly back and forth over the course of a decade, based not on revolutionary reinterpretations but on quibbles over technical details, while no one was able to view the full data and calculations of the original. For anyone assuming that a prestigious journal’s review process - or even a paper’s reputation - is a sufficient stamp of reliability on a paper, this is a wake-up call.

• Never put too much weight on a single study. If nothing else, the issue of publication bias makes this an important guideline. (On this note, note that the 2009 Roodman and Morduch paper was rejected for publication; its sole peer-reviewer was an author of the original paper that Roodman and Morduch were questioning.)
• Strive to understand the details of a study before counting it as evidence. Many “headline claims” in studies rely on heavy doses of assumption and extrapolation. This is more true for some studies than for others.
• If a study’s assumptions, extrapolations and calculations are too complex to be easily understood, this is a strike against the study. Complexity leaves more room for errors and judgment calls, and means it’s less likely that meaningful critiques have had the chance to emerge. Note that before the 2009 response to the study discussed here was ever published, GiveWell took it with a grain of salt due to its complexity (see quote above). Randomized controlled trials tend to be relatively easy to understand; this is a point in their favor.
• If a study does not disclose the full details of its data and calculations, this is another strike against it - and this phenomenon is more common than one might think.
• Context is key. We often see charities or their supporters citing a single study as “proof” of a strong statement (about, for example, the effectiveness of a program). We try not to do this - we generally create broad overviews of the evidence on a given topic and source our statements to these.

While a basic fact can be researched, verified and cited quickly, interpreting an impact study with appropriate care takes - in our view - concentrated time and effort and plenty of judgment calls. This is part of why we’re less optimistic than many about the potential for charity research based on (a) crowdsourcing; (b) objective formulas. Instead, our strategy revolves around transparency and external review.

Updated 10/19/10 to reflect new information, submitted by a Grameen Foundation representative, regarding encouraging developments on LAPO since mid-year. To be clear, we stand by the main message of this post, which is not about LAPO’s current situation but about its funders’ and partners’ behavior over the last several years, prior to the public controversy that occurred in late 2009 and early 2010.

We’ve recently released research aiming to identify microfinance institutions (MFIs) with a strong focus on social impact. We have chosen to focus on finding individual MFIs largely because of our concerns about large microfinance-funding charities - specifically, that their due diligence seems focused on financial performance to the exclusion of social impact - i.e., on scale and revenue rather than effects on borrowers’ lives.

A controversy from earlier this year, over a Nigerian MFI called Lift Above Poverty Organization (LAPO), provides a good example of what we’re concerned about. LAPO has been funded and celebrated by many of the big names in microfinance, yet for years there have been many causes for concern about its social (as opposed to financial) performance. From what we’ve seen, it is not clear that these concerns have been on the radar screen of LAPO’s funders and partners.

LAPO’s funders/partners

LAPO’s funders/partners have included:

• Grameen Foundation, which has partnered with LAPO since 2003 and gave it its 2006 Excellence in Microfinance Award.
• UNDP, Ford Foundation, and USAID, all of which have provided grant funding (Planet Rating 2009, Pg 2).
• The Oxfam Novib fund, a member of Oxfam International (see LAPO’s Partners page).
• Deutsche Bank (according to the New York Times)
• Two “giving marketplaces”: Kiva and Microplace (again see LAPO’s Partners page).
• LAPO’s founder also received the Schwab Foundation’s Regional Social Entrepreneur of the Year award.

Controversy and reaction

In August 2009, MicroRate was the first to hint at concerns about LAPO, stating in a press release: “MicroRate notes that the integrity of the information provided to it by LAPO, as well as LAPO’s financial disclosures since the rating, have come into question. As a result, MicroRate’s rating of LAPO is no longer valid.” (MicroRate 2009)

In December 2009, Planet Rating released a “C+” rating report for LAPO that raised substantial concerns about LAPO’s legal licensing, governance, and data integrity, as well as noting an effective annual interest rate in excess of 100%. (Details below.)

In April 2010, The New York Times published an article citing the Planet Rating report on LAPO’s licensing issues and interest rates, while also noting the expiration of the MicroRate rating. Within weeks of this article’s running, both Kiva and MicroPlace had suspended their relationship with LAPO. (See Kiva’s page on LAPO, which discusses the suspension - Kiva’s loans through LAPO appear to have ended in early May - and Microplace’s discussion.) However, the Schwab Foundation award came after the article.

Update 10/19/10: between May 2010 and the present, several encouraging changes at LAPO are reported by a Grameen Foundation representative (via this comment and a followup email on the specifics of dates):

• May 2010: LAPO “hired Deloitte and Touche to audit its 2010 financials and review the audit that was conducted in 2009.”
• June 2010: LAPO “received its license from the Nigerian Central Bank and also hired a new Chief Financial Officer, with extensive experience in microfinance management, through the UNDP Africa Management Services Company (AMSCO).”
• June-September 2010: LAPO “reconstituted its Board of Directors, which now comprises seasoned microfinance, banking and economics professionals from Nigeria and Benin.”
• October 2010: LAPO “retained the services of consulting firm MicroFinance Transparency (headed by noted expert Chuck Waterfield) to review its interest rates and related policies.”

Below we discuss some details of the concerns, and why we feel they are relevant to our concerns about the due diligence done by LAPO’s funders/partners.

Forced savings and savings without the appropriate license

These issues were a major focus of the Times article, which stated:

LAPO, considered the leading microfinance institution in Nigeria, engages in a contentious industry practice sometimes referred to as “forced savings.” Under it, the lender keeps a portion of the loan. Proponents argue that it helps the poor learn to save, while critics call it exploitation since borrowers do not get the entire amount up front but pay interest on the full loan.

LAPO collected these so-called savings from its borrowers without a legal permit to do so, according to a Planet Rating report. “It was known to everybody that they did not have the right license,” Ms. Javoy said.

It appears to us that LAPO has been putting off getting the appropriate license for several years and that its funders have not held it accountable in this regard (though to be clear, it seems possible to us that this failure did not literally constitute breaking the law - we are not sure based on the information we have).

• The 2005 MicroRate report stated that LAPO was planning to (and should be planning to) become licensed as a Microfinance Bank: “by law, [Community banks] will have to transform into a Microfinance Bank (’MFB’) by December 2007 … As yet there is no deadline for the transformation of NGOs. However pressure from the central bank is expected and LAPO will have to transform sooner rather than later … The MFI is fully committed to doing so and plans are in place to convert into a private company by the proposed deadline” (page 3). Thus, at this point LAPO appears to have been targeting December 2007 for obtaining its license.

• A letter from the Calvert Foundation concerning its investment in LAPO says the license is hoped for by year-end 2009: “we have been working with the Creditor Taskforce to encourage the transformation of LAPO into a depository institution regulated by the Central Bank as soon as possible. LAPO has received initial approval by the Central Bank for their application to transform into a ‘Microfinance Bank.’ Their goal is to secure the banking license by year-end 2009.”
• The Planet Rating report, in December 2009, is clear that LAPO still did not have the license at that time, and that it planned to get one in January 2010, a plan that Planet Rating did not find realistic (Planet Rating 2009, Pg 7). Planet Rating stated that “LAPO does not have the appropriate legal structure to … disburse credit or collect savings … Although illegal, this has been so far tolerated by the [Central Bank of Nigeria]” (Pg 7).
• LAPO still apparently did not have the license as of Kiva’s April 2010 update. This is the most recent discussion we can find of this issue.

High interest rates

The other point emphasized in the Times article is the high rates of interest charged by LAPO, which seem to contradict the stated goals of some of its partners:

Under outside pressure, LAPO announced in 2009 that it was decreasing its monthly interest rate, Planet Rating noted, but at the same time compulsory savings were quietly raised to 20 percent of the loan from 10 percent. So, the effective interest rate for some clients actually leapt to nearly 126 percent annually from 114 percent, the report said. The average for all LAPO clients was nearly 74 percent in interest and fees, the report found.

…

Until recently, Microplace, which is part of eBay, was promoting LAPO to individual investors, even though the Web site says the lenders it features have interest rates between 18 and 60 percent, considerably less than what LAPO customers typically pay.

…

At Kiva, which promises on its Web site that it “will not partner with an organization that charges exorbitant interest rates,” the interest rate and fees for LAPO was recently advertised as 57 percent, the average rate from 2007. After The Times called to inquire, Kiva changed it to 83 percent.

We don’t have much to add on this point. The Planet Rating report specified an effective annual interest rate of 123.9% (Planet Rating 2009, Pg 6).
We have argued against reading too much into high interest rates, but funders and partners ought to be clear on what these rates are and whether the rates are consistent with their own values. We feel it is very important that anyone funding or partnering with an MFI do the full due diligence required to understand the true effective interest rate, from the beginning of the relationship.

The two issues raised by the Times article - concern over LAPO’s license and over its interest rates - are both valid issues, and both issues could be easily identified years before the controversy came up.

Other concerns

We note other concerns about LAPO’s impact not mentioned in the Times article:

• Integrity of governance and audits may be compromised by family relationships and other issues. The 2009 Planet Rating report states,
  • “Although the Memorandum of Association states that BOD [Board of Directors] members are to be reelected every year renewed every two years (three years for the chairman), all BOD members have been in the BOD for at least four years” (Pg 4)
  • “One of the [Board of Directors] members is related to the external auditor, creating a risk of lack of transparency. Family relations within the management team create another conflict of interests that have not yet been mitigated by appropriate policies” (Pg 7)
  • “External auditors are not sufficiently independent and do not have enough knowledge on the risks specific to microfinance” (Pg 10)
• Data is unreliable.
  • “Loan tracking and accounting systems are not integrated and the system is prone to error” (MicroRate 2005, Pg 2)
  • The Planet Rating report stated that information management left room for mistakes and manipulation (Pg 8-9), and that “A sample of six branches by Planet Rating resulted in inconsistencies of up to a 6% difference in the amounts of PAR, arrears and number of clients (as of September 2009)” (Footnote 22). The report warned that “Due to insufficient data reliability, Planet Rating’s opinion on LAPO’s credit risk and credit risk coverage is subject to reserves” (Pg 11).
• LAPO may lack the tools to assess, and create incentives based on, its social as opposed to financial performance. The Planet Rating report states:
  

  Group discipline is generally sufficiently ensured. However, for Regular Loans, the evaluation of the borrower’s capacity is not always complete and the actual use of the loan rarely formally monitored. Moreover, LAPO has not defined clear rules for the use of identification papers, which will be necessary to prevent multiple lending as the microfinance market matures and given the multiplication of MFBs … Moreover, the incentive system for Credit Officers mostly relies on their caseload, which creates a risk of excessive disbursements at the expense of portfolio quality. (Page 11)

• High dropout rates. This is the issue that most worried us when we expressed concern about LAPO in December 2009. We cited its 49% dropout rate; as early as 2005, MicroRate stated, “client attrition remains unacceptably high at around 27%” (MicroRate 2005, Pg 5).

Bottom line

We aren’t sure whether/to what extent

• LAPO’s funders/partners have been largely unaware of/indifferent to the concerns raised above (in some cases, possibly due to prioritizing financial over social returns).
• LAPO’s funders/partners have been aware and concerned, but have had other, positive information on LAPO’s social impact that they have felt outweighs the concerns.
• LAPO’s funders/partners have been aware and concerned, but have made a strategic decision to prioritize building sustainable, profitable financial institutions over focusing directly on social impact.

We feel there is at least some evidence for the first possibility. Two partnerships were suspended in the immediate wake of the Times article, whose major concerns could easily have been identified years ago; and the only public record of due diligence we’re aware of, USAID’s discussion from 2007 (see page 5), discusses only financial/”efficiency” indicators, with no mention of concerns like those listed above.

The possibility that social performance is essentially being overlooked seems strong and worrisome enough to us that, for the time being, we are more comfortable with the idea of giving directly to MFIs that are clearly focused on their social performance. We are open to changing this view, if and when major microfinance organizations become more open about what factors and concerns they are weighing and how they are conducting their due diligence.

Sources

• MicroRate report on LAPO - December 2005
• USAID Nigeria Audit of Microfinance Activities - November 2007
• MicroRate press release on LAPO - August 2009
• Calvert Letter regarding LAPO - November 2009
• Planet Rating report on LAPO - December 2009 (this report is not publicly available; we purchased one license and cannot post the document)

Over the past few months, we’ve been continuing our search for outstanding microfinance organizations (in addition to the one we’ve already identified). Below are the results.

Overview of our process and key questions

In brief, our take on microfinance is that offering credit and other financial services is likely an effective way to improve people’s lives in the developing world. At the same time, providing credit carries with it the risk of causing harm to clients. Donors therefore should carefully choose the microfinance institutions (MFIs) they choose to support, focusing in particular on an MFI’s demonstrated focus on (a) effectively providing credit while (b) assessing clients’ well-being and avoiding causing harm.

When we contact an MFI, we ask them a set of questions to evaluate them on these criteria. In particular, we assess:

• Focus on social impact. The primary issue we ask MFIs about is whether and to what degree they track clients who drop out of the program (i.e., complete a loan cycle and choose not to take out subsequent loans). As we’ve written before, high dropout rates may be a sign that clients are having bad experiences and/or finding that the benefits of loans don’t compensate for the (often high) interest rates. We try to determine an organization’s degree of focus on dropouts by asking about (a) the dropout rate and how it’s calculated, (b) how the dropout rate is used in internal evaluation (e.g., is it used to inform employee compensation? branch-level performance?), and (c) whether the organization performs in-depth surveys that focus on the reasons why borrowers drop out. We believe that MFIs who thoroughly track those who choose to leave the program are most likely to identify and address problems clients have with the MFI’s services.

  We don’t only ask about the dropout rate. Some MFIs take other measures to determine whether they’re causing clients problems - for example, MFIs may attempt to ascertain whether clients are borrowing from multiple MFIs (e.g., taking on too much debt), or they may conduct regular surveys of clients’ satisfaction.

• Interest rates. Borrowers at MFIs pay interest rates that most of us would consider unthinkably high. “Normal” rates tend to be in the 40-100% range (that’s the annualized equivalent in the terms used in the U.S.); and we’ve seen rates as high as 150% annualized. Because the way MFIs report interest rates varies — some require clients to save to effectively create collateral in the event they default; others add fees on the front of loans which may not be included in the headline rates — we’ve asked all the MFIs we’ve considered to provide us with enough detail to calculate their APR and EIR so that we can provide donors with information about the rates borrowers are paying at each institution.
• Room for more funding. As with any organization we look at, we assess whether the institution can effectively utilize additional funds and how those funds will be used. In many cases, we’ve found MFIs that can support continuing operations with revenues and don’t require donations to maintain or expand their operations.
• Repayment rate and clients’ standard of living. We seek evidence that clients are repaying their loans consistently and that MFIs are generally serving people who have low incomes. Most of the MFIs we’ve contacted can provide reasonable evidence that the people they’re serving are poor and that those who borrow generally repay their loans (note, however, that one of our major criteria for contacting MFIs was that they report collecting evidence on clients’ standards of living, so it isn’t necessarily the case that most MFIs in general meet this criterion).

Results

We chose to contact MFIs listed on Mix Market that we thought would have a good chance of answering our questions well. For more detail on how we chose MFIs to contact and which MFIs we contacted and spoke to, see the page explaining our process for finding microfinance charities. In all, we’ve contacted 43 MFIs; we were able to speak with 18, and 11 provided us with enough information to complete an in-depth review.

The first table below shows each MFI’s answers to our key questions. The asterisks represent the quality of the information we received: *** = high quality information; ** = medium quality; * = low quality. The table also links to our review pages for each MFI in cases where the review is complete and we have permission to publish it. We haven’t yet completed our review of AMK.

Notes:

• PAR>30 and write-off ratios are not given quality ratings because they are all taken directly from Mix Market, and thus we are not aware of any variation in quality. They are for the most recent year for which data is available (2008 or 2009). They do not describe the current portfolio of any MFI.
• For more information on what we mean by a “collection rate,” see our blog post, “More on the microfinance repayment rate.”
• For more information on different methods for calculating interest rates, see our post, “Microfinance interest rates.”
• For more information on the standard of living information we used for each MFI, see this excel file.
• We didn’t ask ID-Ghana for information on their interest rates. At the time we reviewed them (late-2009), interest rates were not a key step in our process.

Based on this information, there are certain MFIs that we think stand out for the purposes of an individual donor seeking a group with a strong focus on social impact.

Note: AMK appears strong on all factors we investigated (to the extent we investigated them), but informed us that it was recently sold to an equity fund, and it is therefore unclear to us what role donations will play in AMK’s operations in the future. Note that AMK is listed as one of Kiva’s largest partners, and likely “effectively” receives donations through that vehicle (since it charges substantial interest while not paying interest in Kiva loans).

It seems like no one is sure why Unitus is closing its doors. That said - what can we learn from this situation if, as stated, Unitus is closing down because it has accomplished its mission and no longer needs to exist?

“We have always thought of Unitus as a project, and that when we completed the project, we would have the integrity to say we were done,” says Joseph Grenny, one of the seven founders, and the chair of Unitus’s board. (From the Chronicle of Philanthropy’s report on Unitus)

From a donor perspective, what this quote is describing is the issue of room for more funding, which we’ve discussed at length (see our page and blog post series on this issue). No matter how successful a program is, there are limits to how much it can be productively expanded.

In December, we argued that room for more funding is a key question few others are asking charities. The Unitus case – if they did in fact shut down because they “completed the project” – lends support to our argument.

• Last year, Philanthropedia polled 130 professionals in the sector; Unitus came up as a top recommendation.
• The Omidyar Network has granted $11.7 million to Unitus since 2005. (See the Chronicle story.)

We can’t find evidence that Unitus itself gave an indication that its use for more funds was limited. According to the Puget Sound Business Journal, Unitus was “interviewing potential candidates for its vacant top fundraising post as recently as a month ago.”

Donors shouldn’t rely on a charity to tell them when it’s running out of room for more funding. We believe that the issue of “room for more funding” is one of the most under-recognized issues in the field of charity evaluation, especially for individual donors.