The GiveWell Blog

Thoughts from Dharavi tour

| by Holden

Last week the staff of GiveWell went on a tour of the Dharavi slum, organized by Reality Tours. Consistent with the tour’s policy, we took no pictures, but here are some thoughts:

  • In some ways (and consistent with our understanding of relevant data), the standard of living seems below anything I’ve seen in the U.S., outside of being literally homeless (and not in a shelter). Many of the residences consist of a single 150-square-foot room, at the top of a narrow ladder, housing an entire family. The paths to the homes we saw are so narrow that we had to walk in single file. These residences (according to our guide) command rent of 1500-2000 INR (~$32-$43) per month, with a required deposit of 25,000-30,000 INR ($545.50-$654.60), and do not actually house the poorest people in the slums; the poorest are the factory workers, who live in what seem like health-risk-prone conditions in the slum’s factories (plastic, textiles, etc.)
  • Despite this, the slum is said (again by our guide) to be something of a destination, and not just a last resort.
    • People come from far outside Bombay in order to work in the slum’s factories and send money home. With stable incomes of 100-200 INR ($2.15-$4.30, not adjusted for purchasing power parity) per day plus lodging, these people may be in the category of the global “middle class”.
    • Many of those living in the slums could easily afford to move out, but choose to stay for the community. The guide told us about a friend of his who had become an airline stewardess and still spent most of her time living in Dharavi despite owning a relatively expensive flat; he also told us that many of those living in slums work in call centers (working in a call center is considered a relatively desirable and high-paying job). We ran into one young man who reported having a bachelor’s degree in physics and a job at a call center, and spoke excellent English.
  • Living in Dharavi does seem like a much better situation than that of many people I see living in shelters (or no shelters) on the street. According to the guide, many of the homes are legally protected against demolition (if the government demolishes them it must provide compensation), and receive electricity and water.
  • One of the things we’re very interested in, but have not come across any data on, is what job opportunities look like in different parts of the world, i.e., how much one can hope to make with different qualifications/skills/connections. This question has strong consequences for the what sort of education is helpful in different areas. Some notes on our guide’s responses to our queries:
    • The factory jobs in Dharavi are plentiful and require little other than a willingness/ability to do manual labor, which is why many come from outside Bombay for these jobs.
    • Some jobs in textiles (tanning leather; making clothing, paid by the garment) require more skill and pay upwards of double what the unskilled jobs pay.
    • The jobs that many people in this area hope to get are call center jobs, which pay relatively well and require a college degree. Still better-paying are accounting jobs, which require specific university-acquired training.
    • Overall the picture is very different from the picture I got on my trip to Africa, where nonprofit jobs seem to be seen as most promising and few/no options exist for those without the appropriate level of education for these jobs.
  • The guide mentioned that workers clean containers by dipping them in hot water, and have to be careful not to burn themselves. Natalie asked why they don’t wear gloves, and the guide responded (paraphrasing) “They are used to this way of working. You give them gloves and they stop using them after one day.”
  • Near the end of the tour, we visited a kindergarten run by Reality Gives, the sister nonprofit of Reality Tours. The children were participating in a spirited celebration of the Ganesh festival. There were 10 teachers present for 20 children; we were told that this was because we were in the transition from morning to afternoon classes, but even if there had only been half as many teachers present it still would have been far more than I’m accustomed to seeing in a kindergarten.

Nurse-Family Partnership and room for more funding

(updated on: ) | by Simon Knutsson

We are currently updating our review of Nurse-Family Partnership National Service Office (NFP NSO) (one of our top-rated charities). We did our main review of NFP NSO in 2008 and since then we have continued to develop our research process, and in particular our approach to assessing room for more funding, i.e., how much more money a charity can productively use. At this point we feel that NFP NSO has room for more funding only over the long term, and that potential donors should take this into account.

This conclusion is not final, but it seems like an observation worth sharing now. We plan to publish our updated review of NFP NSO, including our final take on its need for individuals’ donations, later this year.

Details: In 2007, NFP NSO launched a campaign to raise money so that NFP NSO could become, over a ten-year period, self-sustaining on the fees it collects from local NFP programs. In 2007, NFP NSO successfully got commitments of approximately $50 million for this purpose, the full amount it sought (see Annual Report 2007 (PDF), page 31, and our phone conversation with NFP NSO (DOC)).

Since then, NFP NSO has revised its cash flow projections, making the projections less optimistic in light of the weak economy. It has shared these cash flow projections for our eyes only. The projections anticipate that donations will be needed for several years to cover the gap between earned revenues (from local NFP programs) and expenses, and that it will take until 2021 to get to the point where earned revenues cover 98% of all expenses.

From these projections, it appears to us that existing commitments can sustain NFP NSO through 2015, at which point the organization will likely need more donations in order to continue operating. It also seems likely to us that any additional donations in the meantime will be essentially “held for a rainy day,” i.e., saved for the point at which they are needed to cover this gap. Because NFP NSO’s goal is to become self-sustaining on earned revenue, it seems unlikely that it would use more donations to directly increase the reach of its program (e.g., through providing its services to local NFP offices for free or reduced prices).

We feel that NFP NSO is an outstanding organization, with a stronger case for its effectiveness than any other organization we know of doing work on U.S. equality of opportunity. Therefore, we very much hope that it raises the funds that are necessary to continue operating, and in plenty of time. However, it seems important to note that its need for more funds – and ability to translate them into more outcomes – is fairly far off, when compared to that of (for example) VillageReach. (Note that we don’t mean to compare NFP NSO to VillageReach in terms of outcomes, or in general. We’re simply contrasting longer-term vs. shorter-term room for more funding.)

Note: NFP NSO reviewed and approved this post prior to publication.

Should I give out cash in Mumbai?

(updated on: ) | by Holden

We mentioned before that we were planning a trip to Mumbai (also known as Bombay, in India). At this we have been here for a few weeks. We will be coming back to the U.S. between mid-November and mid-December.

From a GiveWell perspective, one of the things that is very different about being here vs. in the U.S. is that here we are in close proximity to extreme poverty. We have written before that we see promise in giving cash directly to the poor; here, more than in NYC, I could arguably carry out a mini “cash transfer” program on my own. The question is whether I should.

Below I lay out a few possible options. My interest is not in whether these options are better than giving nothing, but whether they are better than reserving the same funds for my annual donation to a GiveWell top-rated charity (last year I gave to Stop TB Partnership).

Option 1: give to the children who chase after me.

I pass people asking for spare change in NYC, but in Mumbai I am chased after by children, which is a very different (and more emotionally difficult) experience. It seems pretty clear that these children are legitimately poor, and I’m tempted to give to them.

However, I think this option is clearly inferior to Option 2 below.

  • These children, poor though they may be, are probably better off – and bringing in more money every day – than the children deep in the slums who are not venturing out to the nicest parts of town to chase after Westerners. (When we walk around in Churchgate, an upscale area, children run after us. When we walked along Juhu beach and ended up in a slum, people just asked if us we were lost, though I’d guess that they are at least as poor as the children we see daily.)
  • There is also an incentive problem: I’d rather minimize the degree to which my gifts turn begging into a profitable operation. It’s possible that parents are keeping their children out of school to beg, or even that the children are essentially “employed” by someone in far less need; I don’t want to contribute to that dynamic.

Option 2: walk deep into the slums and give out cash more or less at random (or to people who “look busy”)

This is the approach apparently favored by Tyler Cowen. It has the advantage that it seems more likely to reach the people most in need, and that it seems less likely to contribute to bad incentives.

I still find myself hesitating to do this, and the primary reason is that cash transfer programs are so rare among nonprofit organizations. (I believe a nonprofit, while not giving out cash “at random,” could still find designs that minimize the negative effect on incentives, such as requiring proof of both low income and employment and using an EITC-like scheme). We have in the past vigorously questioned the fact that nonprofits don’t tend to give out cash, and we think it’s possible that this has more to do with self-serving attitudes toward their own value than with a considered judgment that such programs are not promising. Still, in the end I think it’s more likely that there’s just something I’m missing.

Perhaps the risks of money being used on alcohol and similar purchases are too high. Perhaps the recipient of the cash will incite jealousy or even get robbed (see the comment by Tom Womack on Marginal Revolution’s post on the subject). Perhaps highly unpredictable cash transfers creates another kind of bad incentive, encouraging people to focus on trying to manipulate their luck (for example, via superstition).

I’m ready to discuss, but not ready to execute on, an activity that I don’t see being carried out by anyone who clearly knows what they’re doing, has seen the effects up close over years, has seen unexpected consequences and learned how to deal with them, etc.

Option 3: give to local nonprofits.

This option is pretty far from the original idea of handing cash to the poor, but it’s the one that appeals to me most of the three. It seems that there are vast numbers of relatively small nonprofits here, focused on working directly and tangibly with a small group of people rather than on trying to run large-scale bureaucratic operations. Most of the people we’ve met have at least one such nonprofit they recommend, and the recommendations overlap to produce several nonprofits that I would bet pretty strongly are spending money responsibly and being as helpful as they know how to be with people they know fairly well. This seems to me to be a pretty reasonable alternative/equivalent to handing out cash.

My biggest concern with these organizations is room for more funding, an issue that has been raised even by the people recommending the organizations. The advantage of an organization’s staying small is that the people running the organization stay very directly connected to their work and its results; the disadvantage is that they aren’t built to scale, and it’s unclear how much good an outsider like myself can really do with an extra one-time donation.

What are your thoughts? Would you take any of these options or just save the money for my annual gift?

New research and recommendations for microfinance

(updated on: ) | by Elie

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.

Answers to GiveWell questions

Organization Focus on dropout Interest rates (monthly/APR/EIR) Repayment rate (Collection rate/PAR>30/Write-off) Clients’ standard of living Room for more funds
Small Enterprise Foundation Excellent 7% / 84% / 126%*** 99%*** / 1% / 1% Very poor** $1.1m for lending programs
Chamroeun Above average 4-5% / 51-61% / 65-81%*** 99%*** / <1% / <1% Poor*** $564k for lending and non-lending
CUMO Above average 13% / 156% / 354%*** N/A / 3% / 0% Poor* Possible for lending programs
MicroLoan Foundation Moderate 12% / 144-149% / 304-326%** 98%*** / <1% / 1% Very poor* $600k for lending programs
ID-Ghana Limited Not asked (see note below) N/A / 4% / 27% Very poor** For lending programs
AMK Strong 3% / 30-37% / 34-45%*** 97%* / 3% / 0% Poor** Likely does not need additional donations
DAMEN Moderate 3% / 35% / 41%** N/A / 5% / 2% Less poor* $520k for lending programs
FMFB Limited Insufficient information N/A / 1% / 1% Less poor* $1m for lending and non-lending
FINCA Peru Moderate 69-80% “effective” annual interest* N/A / 2% / 1% Less poor* Possible for non-lending programs
Fundación Paraguaya Moderate Insufficient information N/A / 6% / 3% Less poor* Not for lending programs
Progresar Unknown 10-13% / 128-151% / 237-341%* N/A / 5% / 2% We have not seen information on this $101,000 for lending programs

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.

Bottom line

Organization Country Summary Rating for microfinance
Small Enterprise Foundation South Africa Strong answers to all questions Recommended
Chamroeun Cambodia Strong answers to all questions Recommended
MicroLoan Foundation Malawi Strong answers to most questions Notable
ID-Ghana Ghana Notable for transparency regarding repayment rate Notable
CUMO Malawi Strong answers to most questions Notable

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).

Responses to blog comments

| by Holden

We’ve had lots of thoughtful comments on the blog lately, and we haven’t had a chance to respond because we’ve been in the process of moving to Mumbai. So I wanted to give a heads up that I’ve now had a chance to respond as appropriate to all comments; see “Recent comments” on the left for my responses.

Our advice re: donations for Pakistan flood

(updated on: ) | by Holden

We’ve been researching the cause of disaster relief, with the goal of doing a better job than we have in the past serving the donors who come to us for help in the wake of a crisis. At this point our research is still in progress, but we can offer some basic advice to donors interested in helping as effectively as possible:

  1. Give money; don’t give anything else. This has been one of the strongest and most agreed-upon recommendations of the “smart giving” community in general, and we join the broad consensus. Money enables organizations to provide what’s most needed. By contrast, “in-kind donations” need to be transported overseas; then agencies need to sort what’s useful from what isn’t; finally, they need to deal with non-useful supplies. This can worsen already-formidable logistical challenges, and in the end the costs of transportation and allocation can be greater than the value of the goods themselves.

    For more, see our argument against in-kind donations from earlier this year (including a citation of USAID’s statement that in-kind donations are “most often inappropriate”), Alanna Shaikh’s discussion of in-kind donations on Aid Watch, and Saundra Schimmelpfenig’s 32 posts on the topic.

  2. Don’t give to an organization you’ve never heard of or an organization that calls you on the phone. This is common sense, a matter of being proactive with your giving (seeking to do as much good as possible) rather than reactive (giving to whoever approaches you and thus making yourself an easy potential victim for scams). We think it is especially risky to give over the phone, or in direct response to a mailing.
  3. Consider the following key issues for an organization you’re donating to: (a) transparency and accountability – giving details on how much they seek, how much they’ve raised, how much they’ve spent, plans for any excess funds, and as much detail as possible on how they’ve spent funds and what they’ve done; (b) response capacity – having significant staff on the ground in relevant areas prior to the disaster striking; (c) quality of response – doing competent work that is well-matched to local needs; (d) quality of everyday activities – since your donation may effectively fund non-disaster-relief efforts, we think it’s important that an organization disclose information about what its other activities are and how they are evaluated.
  4. Consider that disaster relief may not be the best use of your donation. We have argued before that disaster relief may be less cost-effective than everyday international aid, especially when the disaster in question is a heavily publicized one (and thus one that may have money pouring in past the point of diminishing returns). Preliminarily, it appears that the Pakistan effort has been much less well-funded than the Haiti effort, but it’s worth keeping an eye on the numbers, and it’s always worth considering giving to an outstanding organization that is helping people in need on a day-to-day basis, without the media coverage that comes with a disaster.

Our recommended organizations

Our key questions for organizations are listed above. Generally, we’ve found that most large, reputable organizations score fairly well on two of our criteria: they are fairly strong on the transparency/accountability front, and they often have existing field presences in at-risk regions. The level of disclosure about non-disaster-relief activities varies widely but is often weak; we have not yet found a good way of determining the quality of aid. With that in mind, the organizations that have stood out to us so far (very much subject to change) are:

  • Population Services International (PSI). PSI is one of our top charities for its everyday work; its level of transparency about its activities and the evaluation of them is outstanding. (See our review for details.) It has been in Pakistan for over 20 years (source).
  • Medecins Sans Frontieres (MSF). We have been impressed with MSF’s past transparency about its limited need for funds, something we haven’t seen in any other organization. Its activity reports give a fairly clear picture of its activities around the world, and we are impressed with its public site publishing field research, something we’ve seen from few other large/diverse international aid organizations (PSI and CARE are others). We find its field news to be more detailed and specific than the press releases of most other organizations (a notable exception is the Red Cross, discussed immediately below).
  • Red Cross. The International Federation of the Red Cross and Red Crescent Societies seems to freely provide the most specifics on exactly how much money it has sought and has spent and exactly what it has done. See its country list for links to all of its many past reports. Donating to the Red Cross (whether the American Red Cross or the Red Cross in another country) may be an “obvious” choice, but we think it is also a very defensible one; the Red Cross probably receives more scrutiny, and pressure to be clear about what it is doing, than anyone else, and because of its size and name recognition it may also be particularly well-positioned to carry out a lot of relief while staying coordinated with the government.

These are only preliminary impressions – much more is coming on the topic, and we may change our conclusions about which organizations are best to give to – but as there is a disaster unfolding now, we thought we’d share what we’re thinking.