I came across an interesting article on microfinance by Tyler Cowen. Like us, Cowen is skeptical about the common anecdotes focusing on the “entrepreneurial” aspect of microfinance:

For better or worse, microborrowing often entails a kind of ­bait ­and ­switch. The borrower claims that the money is for a business, but uses it for other purposes. In effect, the cash allows a poor entrepreneur to maintain her business without having to sacrifice the life or education of her child. In that sense, the money is for the business, but most of all it is for the child. Such life­saving uses for the funds are obviously desirable, but it is also a sad reality that many microcredit loans help borrowers to survive or tread water more than they help them get ahead. This sounds unglamorous and even disappointing, but the ­alternative —­ such as no doctor’s visit for a child or no school for a ­year —­ is much ­worse.

This account is broadly in line with the position we’ve taken on what microfinance is (likely a very good thing for many disadvantaged people) and what it isn’t (the “make a loan, expand a business” picture that is often used to market it). What’s great about the article is that having made this distinction, it then goes on to give a detailed qualitative picture of how microfinance can actually help people:

Commentators often seem to assume that the experience of borrowing and lending is completely new for the poor. But moneylenders have offered money to the world’s poor for millennia, albeit at extortionate rates of interest. A typical moneylender is a single individual, ­well-­known in his neighborhood or village, who borrows money from his wealthier connections and in turn lends those funds to individuals in need, typically people he knows personally. But that personal connection is rarely good for a break; a moneylender may charge 200 to 400 percent interest on an annualized basis. He will insist on collateral (a television, for instance), and resort to intimidation and sometimes violence if he is not repaid on time. The moneylender operates informally, off the books, and usually outside the ­law.

…if you want to know how much net saving is going on, don’t look at money. Banks may be a ­day­long bus ride away or may be plagued, as in Ghana, by fraud. A cash hoard kept at home can be lost, stolen, taken by the taxman, damaged by floods, or even eaten by rats. It creates other kinds of problems as well. Needy friends and relatives knock on the door and ask for aid. In small communities it is often very hard, even impossible, to say no, especially if you have the cash on ­hand…. Under these kinds of conditions, a cow (or a goat or pig) is a much better medium for saving. It is sturdier than paper money. Friends and relatives can’t ask for small pieces of it…. With a small loan, people in rural areas can buy that cow and use cash that might otherwise be diverted to less useful purposes to pay back the microcredit institution. So even when microcredit looks like indebtedness, savings are going up rather than down.

This qualitative account helps me understand how it is that microfinance can be a worthy intervention, even when clients are carrying persistent debt loads at high interest rates (as they often are). For any region where the picture painted by Cowen holds – i.e., when the only source of credit is moneylenders charging exorbitant interest rates and using the threat of violence – I would happily invest in a microlending program.

But I know there’s at least one good example of a microfinance program that came into a region where credit wasn’t already scarce – and consequently failed to have any noticeable impact. In my mind, this “what are you replacing?” question is one of the very most important questions for a microfinance program – and one that we haven’t seen any organization provide strong documentation on.

I believe that most discussion of microfinance – by nonprofits, by the media, and by donors – is frustratingly superficial, focusing on extreme success stories and simple statistics like the “repayment rate,” rather than on getting a real picture of where microfinance is helping and where it isn’t. Cowen’s take is refreshing, and with more conversation along these lines I hope we can get a better picture of an extremely promising intervention.

Our first year of research implied, to me, that donors can have more impact focusing their giving on the developing world as opposed to the developed world. In a nutshell, developed-world interventions are expensive and the case for their effectiveness is often questionable, while developing-world interventions are often inexpensive and seemingly more reliable.

However, the fact that people in the developing-world face a diverse set of complex, interrelated problems means that well-intentioned interventions can easily have little effect if they’re not properly implemented.

A recent paper (Hotez 2008) may describe a unique opportunity for donors, however. Hotez discusses the existence of Neglected Tropical Diseases (diseases that are by-and-large not life threatening but can significantly disable adults and impair children’s physical and cognitive development) in the United States.

Hotez finds that these diseases largely affect those living in extreme poverty in six regions of the United States: Appalachia, the American South, the Mississippi Delta (including post-Katrina New Orleans), inner cities, Native-American tribal lands in the Southwest, and communities along the U.S.-Mexico border (see his map here). Hotez emphasizes the problems of:

• Helminth (parasitic worm) diseases, which can lead to malnutrition, anemia, and growth and cognitive delays (Hotez et al 2007). These diseases affect a few million people in Appalachia, the American South, and inner cities (see his table here)
• Dengue fever (which can be fatal) and Chagas disease (which can lead to a serious heart problems, (Hotez et all 2007)), which affect a few hundred thousand people in Appalachia and post-Katrine Louisana (see table linked above).

Many of these conditions can be treated with simple, proven interventions that charities distribute in the developing-world. For example, Albendazole can treat helminths, and costs pennies (see Molyneux, Hotez & Fenwick 2005). In addition, basic efforts to control vectors (such as rats and mosquitoes) and improve access to water and sanitation infrastructure may significantly reduce the burden of these diseases.

Since we just came across this paper, we know little about how viable an option this is for individual donors – a quick Google search didn’t turn up any charities obviously attacking these problems in the United States – but we’ll keep our eyes open for one. Fighting these diseases in the developed-world seems like a great option for a donor seeking the biggest impact by using the triage approach: helping those who can benefit most easily.

References:

1. Hotez PJ (2008) Neglected Infections of Poverty in the United States of America. PLoS Neglected Tropical Diseases 2(6): e256 doi:10.1371/journal.pntd.0000256 (Available online)
2. Molyneux DH, Hotez PJ, Fenwick A (2005) “Rapid-impact interventions”: How a policy of integrated control for Africa’s neglected tropical diseases could benefit the poor. PLoS Med 2(11): e336. (Available online)
3. Hotez, PJ., Molyneux, DH., Fenwick, A., Kumaresan, J., Sachs, SE., Sachs, JD., Savioli, L. (2007) Control of Neglected Tropical Diseases N Engl J Med 357: 1018-1027. (Available online)

Would you rather hear about a good charity or a bad one?

When I’m explaining GiveWell to someone, there often comes a moment where his/her eyes suddenly light up, and s/he says something like, “So you bust the bad guys, eh? Can you tell me about a really bad one you’ve nailed?” (Paraphrased.)

This sort of person is usually pretty disappointed if and when they look at our actual reviews. “I don’t get it – you said you didn’t grant this organization because you didn’t have enough evidence to assess them. So you don’t KNOW that they’re bad …”

Finding bad charities is a fundamentally different endeavor from finding good ones. In some ways, it’s more fun and more exciting to find bad ones. Scandals are juicy; qualified statements that an organization appears to be improving lives, though many factors remain unexplored, are less so. “Good vs. evil” makes headlines and produces adrenaline in a way that “Proven vs. unproven” doesn’t.

But if you’re looking to accomplish as much good as possible with your donation, and you’re looking for an organization that you can be confident is changing lives for the better, I submit that you’re much better off focusing your energies on the few charities that might be able to convincingly document their effectiveness. Evaluating well-documented charities is more than enough work. Trying to nail down the effects of charities that don’t have strong self-documentation is an enormous undertaking, one that I think is worth your time only if you have a personal connection or other strong reason to believe you’re already dealing with an exceptional organization. Spending any time on organizations that don’t stand out in any way – and bothering to make distinctions between “bad” and “worst” – doesn’t seem like a good use of time at all. The question is, are you trying to make a good story or make a donation?

From 2004-2006, I gave all my donations to organizations focused on helping inner-city youth (particularly academically). Equality of opportunity was my favorite cause, and I assumed (without having time to really look into it) that inequality stemmed from the gap in quality between different grade schools. I now believe that this assumption was badly wrong, and that as a result, my donations were mistargeted.

The most surprising thing I’ve learned about the achievement gap between black and white / low-income and high-income students is how early in life the gap is present. Every source I’ve looked at is consistent in this regard: children from different socioeconomic and ethnic backgrounds have large, systematic differences in academic performance in kindergarten, and these differences grow only slightly as children get older. In other words, most of the systematic academic inequality we observe is present by age 5. There is a good deal of literature on this subject, but the paper I’d recommend for starting to take a look is “Understanding Trends in the Black-White Achievement Gaps during the First Years of School” by Murnane, Willet, Bub, and McCartney (Brookings-Wharton Papers on Urban Affairs, 2006).

This is a relatively simple observation, but it completely changes the way I think about promoting equality of opportunity in the U.S.

• It makes me much more interested in interventions that focus on early childhood, the period during which most of the “achievement gap” appears.
• It makes me much more skeptical of the idea that equalizing children’s schools will equalize their educations, something that once seemed obvious to me. It makes me much less optimistic about what one can accomplish with “small schools” (a Gates-backed initiative that has produced disappointing results), private-school scholarships, etc. (The Murnane paper also references research on disappointing results from programs in this category.)
• It makes me especially skeptical of low-intensity grade-school or high-school interventions such as after-school tutoring. I find it very possible that a few hours of extra help a week just aren’t enough to make a dent in deep-rooted disadvantages.

I think it’s interesting that this extremely basic, fundamental, and important fact about the achievement gap – how much of the gap is present by age 5 – has not come up in any of our conversations with (or applications from) charities themselves. That includes both education charities and child-care charities. It seems to me that most development and fundraising professionals are focused on reinforcing and serving donors’ existing assumptions; if you want to challenge your assumptions to get the best understanding possible, you have to look elsewhere.

A new study sponsored by several major foundations (Gates, Packard, Hewlett, Irvine, and Robert Wood Johnson) found that among “engaged”* Americans, only:

• 43% can name a foundation on their first try
• 15% can cite an example of a foundation’s impact in their community
• 11% can cite an example of a foundation’s impact on an issue they care about

Individuals – who don’t have access to information about how well charitable programs are working – donate over $220 billion dollars to charity every year. Foundations retain expert staff to evaluate programs and make grant decisions. If foundations want to increase their relevance to individual citizens (and those citizens’ awareness of them), one good start might be addressing this information gap: using their expertise to help donors make more informed giving decisions.

* U.S. adults aged 18 and older who have held a leadership, committee or board level role in a group or organization working on a community or social issue within the past year.