We are concerned about the way repayment rates are often reported. We’ve written about this issue before, arguing that different delinquency indicators can easily be misleading and pointing to one example we found where a microfinance institution’s reported repayment rate substantially obscures the portion of its borrowers that have repaid loans. Following the links from…
The GiveWell Blog
All Microfinance charities Posts
Where we stand on microfinance charity
We’ve thought and written a lot about microfinance lately. As of now, here’s where we stand. What microfinance is and isn’t First, it’s important to recognize that most of what you’ve heard about microfinance is false. It isn’t primarily about funding business expansion.. It isn’t a “proven solution” to poverty. And it doesn’t leverage your…
Incentives for microfinance charities
I’m very concerned about the incentives for microfinance charities. As I see it, these are the things that they are “rewarded” for: Profitability, for obvious reasons. Any for-profit investors in microfinance institutions are presumably putting great pressure on them to produce a good bottom line. (We believe it’s not safe to use profitability as a…
You can’t take the “repayment rate” at face value
We’ve written before about problems with the way a microfinance institution’s “repayment rate” is commonly cited. We’ve been surprised to find that most institutions do not report what most of us would think of as a “repayment rate,” i.e., the percentage of loans/dollars due that have been paid on time. Instead, they report proxies such…
Is borrowing good for the borrowers?
Just because someone is repaying their loans doesn’t mean they’re benefiting from the loans. We have given some conceptual/anecdotal support for this idea in the past, linking to David Roodman’s posts on possible “overlending” and comparing microloans to payday loans. Lately we’ve been investigating something a bit more concrete: how often, and why, do microfinance…
Estimating the cost-effectiveness of microfinance charity
Note: I’ve responded to the most recent batch of comments. A lot of work has been put into estimating the “bang for your buck” in health initiatives. In the area of microfinance, though, things appear very murky. Microfinance advocates say things like “As our clients repay the loans, the money is loaned again and again…