Philanthropy Action News and Commentary

Social Networking and Mid-Size Nonprofits: What’s the Use?

2009-11-09T14:22:32-05:00

The use of social networking and social media in the nonprofit sector has exploded in the past few years, spurred by successful, widely profiled social media initiatives by organizations like Save Darfur and charity:water. The Obama campaign’s effective use of social technologies for both fundraising and organizing was the icing on the cake. Can there be any doubt given these examples that social networking and social media are must have tools for nonprofits?

Actually, yes.

In terms of fundraising and attracting volunteers, metrics that most nonprofit boards and executive directors highly value, the available evidence suggests that social media is not very effective. To be fair, that evidence is limited. To date, there are only two surveys that we know of, one which we conducted, that have sought to quantify the impact of social technologies in terms familiar to executive directors and boards. In both cases, the results show that social technologies are not delivering much in terms of fundraising or attracting volunteers. While advocates of social technologies rightly point out that these are not the only metrics by which social technologies should be judged, they are the metrics that the majority of respondents to our survey cited as driving their participation. Nonetheless, the overwhelming majority of respondents to our survey say they are going to increase their investment in the use of social networking.

The mismatch between perceptions, motivations, results and investment suggest a particular challenge for mid-size nonprofits (which we define as organizations with revenue between $1 and $5 million annually). Larger organizations have the resources to experiment, take risks and wait for long-term investments to pay off. If an experiment doesn’t yield immediate results, as for instance happened with Amnesty International’s failed efforts to gain traction in 2008’s “America’s Giving Challenge” , they can chalk it up to a learning experience and move on. Small non-profits, on the other hand, don’t have much choice. They typically can’t afford traditional channels of outreach, marketing and fundraising and so have no alternative but social media.

Midsize nonprofits are caught between a rock and a hard place. They lack the resources to commit to an unproven, and surprisingly expensive, strategy, but they fear being hopelessly “left behind.” For them, and indeed anyone else in the nonprofit space asking how to get value from social technologies, now is the time to take a deep breath and reconsider what social technologies can best be used for and what nonprofit executives can reasonably expect from them.

Our survey, conducted between July 2008 and March 2009 reached out to more than 1000 mid-size non-profits, more than 200 of which responded. We believe this to be one of the best sets of data on the use of social networking by mid-size non-profits and one of the only sets of data on the results they have achieved.

In summary, the survey shows that most users of social networking have had to scale back their expectations. While the majority began using social networking with an expectation that it would help the organization attract donors and volunteers, results have been particularly disappointing in those categories. More than 70 percent of respondents indicated that they had raised less than $100 or did not know whether they had raised any money. The figures for attracting volunteers were not much better. Surprisingly, despite the lack of results, most respondents indicated they planned to increase their investment in social networking over the coming year.

The full results of the survey—and a discussion of what it all means—can be found in our report: Social Networking and Mid-Size Non-Profits: What’s the Use?

Download Social Networking and Mid-Size Non-Profits (PDF)

Interview: IPA Project Director Nathanael Goldberg Talks About the Impacts of Microfinance

2009-09-06T23:43:55-05:00

Since the 1970s, development practitioners have believed that providing financial programs for the poor – mostly in the form of small loans – can have a positive impact. In some corners, proponents say that micro-loans alleviate poverty by increasing incomes. This belief has been backed up by significant on-the-ground observation, but no rigorous evidence – until now. In the past few months, the results from the first two randomized controlled trials designed to measure the impact of microcredit programs have been released.

The first study was conducted in Hyderabad, India by researchers Abhijit Banerjee, Esther Duflo, Rachel Glennerster and Cynthia Kinnan from the Abdul Latif Jameel Poverty Action Lab (JPAL) at MIT. This study aimed to measure the household impact of micro-loans given to individual borrowers by Spandana, a microfinance institution in India. We wrote about the initial results of that study in October of last year.

The second study was designed by Dean Karlan and Jonathan Zinman of Innovations for Poverty Action (IPA). Karlan and Zinman worked with FNB Bank in the Metro Manila area of the Philippines to offer individual loans to customers that fell just below the bank’s standard risk level. The study measured the impact of loans on the borrower’s income and consumption.

The studies were by design very focused on identifying a few narrow results around income and consumption. Neither study showed significant income gains from borrowing over 11 to 22 months.

Curious about what these findings might mean for donors, Philanthropy Action editor Laura Starita sat down with Nathanael Goldberg, Project Director for microfinance research at IPA, to ask for his interpretation of the study results.

Philanthropy Action: Can you talk briefly about why these two studies are important?

Nathanael Goldberg: A few years ago I catalogued for the Grameen Foundation what we knew about the impact of microfinance and I found that there was a ton of evidence showing it seemed microfinance was working. And so on the one hand we could feel really good about that. But on the other hand it was all sort of murky. Depending on how sure they wanted to be, people who wanted to be confident in knowing that their investment in microfinance was going to create a positive impact on the participants didn’t necessarily have enough to go on. A major reason why those studies taken together were murky was this problem called selection bias.

When we compare microfinance participants – borrowers usually, since most of the time when people talk about microfinance they are talking about microcredit – when we compare participants in microfinance programs to non-participants we have to ask what that comparison means. It would be easy to say, “Oh, well look, they are better off, so microfinance is great.” The problem is we don’t know what type of person is joining a microfinance program. If we think they are either more motivated to improve their lives or they have more resources at their disposal to find out about the program, or they have a good business idea, or they are more likely to get approved by the program – all these types of things might lead us to believe that the kinds of people who participate might be better off anyway, with or without microcredit. So that means if we see people doing better in those earlier studies compared to non-participants we are not exactly sure whether that is saying something about the program itself or the people who participate in it.

So for the last few years some of us in the field of development have been saying, we really need randomized trials of the impact of credit. Studies that can answer the question, if people participate in these programs and borrow to start a little business, what effect does that have on their welfare and on the welfare of their family?

Those kinds of studies are also important for the ways in which they establish the counterfactual, which is to say, what would have happened in the absence of this program. When I catalogued the available studies for Grameen, the research pointed to a trend of positive impact from microfinance, but the studies had for the most part not established that counterfactual with a high degree of certainty. People who say that we already know everything we need to know, I don’t think are reading the research correctly. More relevant is the fact that, since I conducted that review, some of the more rigorous work has been dismantled. For example, David Roodman and Jonathan Morduch have recently shown that the results of one of the most widely cited studies on the impacts of borrowing, conducted by Pitt and Khandker in Bangladesh, were not credible. Most of the remaining studies I catalogued were smaller, less rigorous work.

PA: The fact that the term randomistas has evolved in the development lexicon to describe researchers who do randomized controlled trials suggests a certain mockery of the field. If there is a criticism of this kind of research what might it be, and what is the trade off?

NG: I prefer to take the term randomistas as gentle teasing of the popularity that randomized trials have acquired over the past couple of years. My assumption is that even those who are using the word randomistas will be turning to studies like this to see what in fact the impacts of microfinance programs are, because they know that these studies are the ones they can actually trust the results from.

So I would say there is no operational disadvantage – this is the right way to be doing research. But there are certainly limitations to it. The kinds of limitations that apply to randomized trials are the same limitations that apply to research in general.

Randomized trials solve what we call internal validity, which basically means that the study was well done and measuring what it intends to measure. With a randomized trial, as with any research, you have to pick a narrow target – a well defined product offered to a particular group of people in a particular place. You also have to define a starting point and an end point for the project.

All research is limited in its external validity, and that is the extent to which we think the results about a particular type of product might say something about another microfinance service that is being offered somewhere else in the world to different target clientele. Everybody will have to decide for themselves the extent to which they want to apply the results of our research to other situations.

PA: So how are these two studies designed to solve internal validity?

NG: They take two actually quite different approaches to finding a comparable group of participants vs. non-participants. They are both randomized trials. They are both randomly assigning some people to participate in the program and some people to serve as a control group. Because everyone was randomly selected and there was a large enough population for the study, the researchers can establish with confidence that the people who participate are just like people who don’t participate, except for the fact that the treatment group has been given access to this program.

For the one that was done in India, the researchers randomly divided Hyderabad into 120 different slums. They then randomly picked half of the slums to have access to microfinance through the microfinance institution Spandana and the other half to serve as a control group and not receive offers of Spandana loans. What that gets rid of is any kind of selection bias in terms of who participates, because they’re measuring the average impact across the entire slum.

What they ended up seeing is that Spandana going into the treatment slums created an eight percentage point increase in microfinance participation. So the impact on the population represented within that eight percentage points is going to be averaged out over all the households in the slums.

PA: Could you put into context what 8 percent means for this kind of a program. Is eight a large number or not so large?

NG: It is large, especially when you consider that these are percentage points, not percentages. The baseline data from the study showed that 18.7 percent of the population was already participating in some form of credit program, formal or informal. So an increase of eight percentage points, from that 18.7 up to 27, translates to something approaching a fifty percent increase in borrowing – so that is a huge increase, actually.

What we are finding across the world when people start to really document what the take-up rates might be of credit among micro-entrepreneurs, it is much lower than people had originally assumed. In some places we see take-up as low as four percent. So to achieve those eight percentage points across a whole slum shows a fair bit of demand for this type of service.

PA: What was the structure of the Philippines study?

NG: The Philippines study was individual randomization – somebody applies for a loan and they are either accepted or rejected. The way this individual randomization was achieved is very operationally convenient. There was a partner bank, FMB, a bank in the metropolitan area of Manila in the Philippines. FMB had a credit scoring system, where the profile of the applicant would be considered and the applicant would be assigned a score. If the applicant was above the baseline score required by the bank they would be approved for a loan and if they were below they would be rejected. There is nothing necessarily magic about that break point between being accepted and rejected. The bank can’t say for sure that the customer was going to repay their loan if they were above it and they were going to default if they were below it.

So the researchers worked with FMB to push that bar down a little bit and let in some marginal applicants who would have been rejected under the regular credit system. But we flipped a coin on this set of borrowers who would have been rejected and let some of them into the program. That is the target group for the study – marginal applicants.

The results were then measured just across this marginal group. That is essential, because we always want the treatment group to be exactly like the control group. If the researchers hadn’t only measured results in this marginal group, they would have had a biased sample, since the bank would have only let in the best performers, the ones they are always going to really want to lend to, and would have rejected the ones they thought had no chance of repaying.

This middle zone which the bank wasn’t sure was going to be a good credit risk or not was kind of an unknown case, business-wise. So among that group the researchers could randomly assign them to be offered credit or not, and the ones who were offered credit were just like the ones who were not offered credit, except that they were given this access – kind of like a second chance – at this loan.

PA: And this study found some surprising things about the impact of micro-credit on this group, correct?

NG: Yes, quite surprising. The authors found an increase in profits, but not for women and not for the very poor, which is the classic microfinance target group. Instead, this study showed an increase in profits among men and people in the higher income end of the spectrum – those who had more money to begin with.

PA: Any thoughts about why the impacts were greater for these populations?
NG: Usually research leads to more research. In order to unpack any of these curious findings we see here researchers will need to attack those specific questions to really get some solid answers about them. Sometimes we will speculate as best we can with the evidence we have, but I don’t think we have enough here to say too much about it. It is a finding that we’ve noted. It is surprising and it could lead to two types of research outputs in the future. One would be just answering something about why we think this is happening. The other would be, if we think women are an important target group to help, to ask if there may be a different type of product that would be more productive for women to use. So just to give an example, you could wonder if perhaps a smaller loan size would be more appropriate for women and test it.

PA: This result that men are seeing increases in profits but women are not is reinforcing some of the research that David McKenzie from the World Bank published last year – His study showed lower returns on capital for women than for men among micro-entrepreneurs in Sri Lanka.

NG: That is absolutely right. These studies are raising a small but growing alarm. Innovations for Poverty Action believes in replicating studies before we can be confident about any particular trend or result holding across all sorts of different settings. We aren’t nearly there yet, but this could be the beginning of a growing concern about the impact of credit on women in particular and it is certainly something we need to continue to pay attention to across more studies. In the case of the McKenzie study, there was an issue about traditional male types of enterprises and traditional female enterprises – for example, auto repair for men – and it is not clear to what extent the differences in returns are driven by male types of industries having higher returns. That kind of dynamic would be different from saying that women are not able to profit from credit or enterprise in general.

PA: Another unexpected result from the Karlan/Zinman study in the Philippines was that the profits seem to come at the expense of the size of the business.

NG: People have been wondering for years about the effects of microfinance on employment, and here we see results that actually show businesses shedding employees after borrowing. That is a pretty puzzling result when you wonder, why would they need to borrow to spend less money on staff?

So the first thing you might think is these businesses are perhaps shifting into a different activity. They might be investing in some kind of mechanized process and therefore losing employees. But in fact we don’t see that kind of investment in this study. So we can only speculate with what we have.

The best explanation seems to be some kind of a household risk management story, where the employees potentially had been part of a risk sharing network which the employers found they no longer needed when given access to a more formal type of credit.

PA: It seems hard to interpret whether these are good results or bad results. Are the people better off, or not?

NG: It is certainly not negative. We don’t see harmful effects here. Just as people take on too much credit in developed countries, becoming too indebted in a developing country setting would be possible as well. The way we would measure that would be to look for a decrease in welfare, which could be measured as a decrease in consumption. But the results from the Philippines study don’t show a decrease in the types of consumption we would care about, like school fees and nutrition and those kinds of things – That would be a clear signal that there is a problem here.

What we do see in the India study is some decrease in consumption of the types of goods you could imagine households giving up because they are actually investing in their businesses. So in India, think of going out and purchasing tea. In the Spandana study, those are the kinds of purchases we do see less of, but only in the households that are found to be likely to start a business. So the story seems to be that the people who are likely to start businesses and given access to credit are actually cutting back a little bit on some non-necessary expenditures, because they are going to ramp up that investment to enhance it and put even more money into the enterprise. And that is exactly what microfinance advocates would be hoping to see.

What we aren’t seeing yet in the case of the Spandana impact assessment is any marked increase in profits within this group that is starting a business. Nor are we seeing any positive impact on education and health spending or on women’s empowerment, which is measured here by women’s power to determine how money is spent in the home. The lack of impact in those areas could be a matter of the study’s timeframe. The researchers went back after 15-18 months, and we see an increase in productive investment and a small decrease consumption, which would set up what we think will be an increase in consumption once the profits start coming in. It would be great to have that longer term measurement, but we don’t have that now.

Some critics have said, well you’ve only come in after 15 months, how could you possibly expect to see a positive impact. I would say to that, there are lots of people who have been telling a story about an immediate increase in people’s welfare based on participating in microfinance programs. It was important as a first step to check for that, and we don’t see that in this particular case. As a next step we need to see whether microfinance has this big impact and how long it takes to achieve that.

Now remember, that decrease in consumption is only among likely entrepreneurs. Among the ones that seem to be not the type of households to undertake an enterprise we see an increase in consumption. With the same type of financial product it seems some people are starting an enterprise and other people are using it as more of a consumption loan. What may happen is the ones who invest will enjoy future profits and the ones who have taken it on as a consumption loan will have to repay that money eventually – they may have a future decrease. So the effect may be reversed next year.

PA: Do the results from these studies mean anything from the perspective of the donor or the practitioner? How should the donor be donating his money? Or how should the practitioner be structuring loans or relationships with potential clients?

NG: These studies are the first of what needs to be a series of important randomized evaluations of different types of microfinance products and services. They are very important and they are very new, but I don’t think they are nearly enough to determine how investment decisions in microfinance should be made. They are the first round in exactly the kind of evidence we are going to need to see before we know if microfinance is a good investment in general and what types of microfinance services are the most effective at helping populations that we care about.

PA: Any particular studies coming out in the future that you are excited about?

NG: Some research that I am involved in is the Targeting the Ultra-Poor program. That research is focused on whether there are ways to start with a grant-based program to get the poorest families into entrepreneurship and food self-sufficiency. We have studies on different types of savings products, and we have studies on village savings and loan associations to see if savings-led community groups can raise their own investment funds to create impact within the community. It is going to take that kind of a range of studies to see all the different ways we can create impact and improve welfare.

Interview: MIT Economists Esther Duflo and Abhijit Banerjee

2008-11-17T16:26:00-05:00

At a recent microfinance conference hosted by Innovations for Poverty Action, the Financial Access Initiative and Yale University, the Philanthropy Action editors sat down with Esther Duflo and Abhijit Banerjee, two of the founders of the Abdul Lateef Jameel Poverty Action Lab (JPAL) at MIT. Duflo, Banerjee and the other JPAL economists apply the rigor of randomized controlled trial techniques (the same approach used by the medical industry to determine if a drug or treatment does what it was designed to do) to poverty interventions to identify whether or not a program is effective. Below, they highlight the poverty interventions they view as consistently effective and provide insight into where individual donors can make a true impact.

Philanthropy Action: One thing we always like to know from people like yourselves, who spend so much time in the developing world working directly with the poor, is what you would do if you had a million dollars to put toward any poverty alleviation cause.

Esther Duflo: At this minute I would give it to incentives for immunization. People in very poor countries spend very little on preventive care, maybe for not very good reasons. It is not that they are strongly opposed to immunizations, they just somehow don’t get around to it, or they have other things to do. And what you realize is that spending even a tiny amount of money to get them to invest in preventive care can do a lot. In one project we gave away a kilo of lentils for each immunization given to a child, and it had a huge impact on getting parents to bring their children in for immunizations.

Abhijit Banerjee: Ten times – the impact was a factor of ten.

ED: So there are variants of these programs with various goods. I happen to think that immunization is something we know makes a huge difference in people’s lives so that is my personal favorite at this minute.

AB: I would go with that.

PA: That makes me think of what in technology is referred to as the “last mile” problem. Meaning, the problem so often is not that there isn’t enough money. It is not, for example, that there aren’t enough anti-malaria bed nets, but that there are not enough people using the bed nets, or in your example, taking the immunizations. Are there other interesting things out there aimed at solving the last mile problem?

AB: Within healthcare, one of the projects I think both of us saw some success with has to do with TB (tuberculosis) medicine and getting people to take them properly. This is a problem we have been thinking about for many years. We were asked to set something called the Yunus Challenge [named after the Nobel Prize winner] which challenges students to come up with designs of practicably implementable solutions which can solve a specific problem. The one we picked was how to get TB treatment compliance.

A bunch of students came up with a brilliant solution – at least conceptually brilliant – which is now being subject to a randomized evaluation in Pakistan. The idea is very self-incentivizing: we look for traces of the medicine in a patient’s urine. In the program the patient puts their urine on a test strip, and if they’ve taken the medicine it reveals a number or code which they can put into their cell phone and get extra minutes. In some ways it is a brilliant solution, but it may not work. The need for experimentation is based on the fact that theory fails often. But this is an idea where the concept is very clever and we are looking for the last mile – how do we incentivize people? If it works, it will create a model for more technologically sophisticated solutions for these kinds of problems, which I think it is a very good direction to go in general.

ED: There are other kinds of last mile issues as well to do with the people who are supposed to deliver the service: they need incentives too. I don’t know if you would call that the last mile…

AB: That’s kind of the first mile.

ED: [Laughs.] It’s sort of in between. The immunization project I spoke about suggests that even when you fully fix the supply problem and immunization services are available, you still need to nudge people a bit. You need to provide an incentive for the parent to bring the child and you need to provide an incentive for the service provider to be there as well. So this is also a very important area for research and projects – thinking about how to get the services to the people.

PA: When you read about where most private philanthropic dollars and official aid go, a lot of it goes into health, education and other areas that Oxford economist Paul Collier refers to as ‘photogenic subjects.’ Do you think the money going to these sectors is being used well?

AB: I think Collier’s implied criticism is in the wrong place. If you had to think about things that are unambiguously good, a lot of them are in this area of health and education. Especially in health, I think there are just a lot of dollar bills left on the ground and somebody needs to pick them up. Certainly, other programs might have more impact on economic growth, but if you think about the immediate human consequences it is hard to argue against health and education.

The real issue is often in program design. Our endlessly repeated line is that details matter infinitely. The difference between successful programs and unsuccessful programs is not the sector, it is how you do it. Has the implementer thought completely about the reasons why a program might not work? In my experience, even when you talk to very competent, well-meaning organizations, that is the step where you see the biggest gap. Perhaps because the paradigms are easily available to jump into, the last mile thinking just doesn’t happen.

Details unexpectedly and often in unfortunate ways determine everything. You get the details wrong and you got it all wrong. So we often end up ritualistically talking about big picture research, and how this didn’t work or this did work. But in practice those big picture issues probably do not matter. What matters is that some programs are well designed and some are not. Our goal very much has been to draw attention to the detailing of that.

Take water – within water there are any number of special solutions, and then a couple of things that seem like good ideas. The most valuable work is not in distinguishing water from health, but in separating the many meretricious ideas that get lots and lots of coverage and turning them into practical programs that are not overly complicated or unnecessarily expensive.

There is a tendency to think, “I have a hammer so everything is a nail.” Everyone has their own particular bias and everything has to go through that filter. Ideology is a huge reason why you get bad design.

PA: On that point specifically, what would you say is the biggest wrong belief currently present in development circles?

ED: The biggest wrong belief is that there is a magic bullet and I can find it.

AB: I can find it introspectively.

ED: That is the most dangerous line of thinking, because there are a lot of reasons why a person is poor and a lot of reasons why poor people stay poor. And to say that there is one program or one solution is just a problem.

AB: There seems to be a real axiom out there that says you can put people in charge of their own destiny and walk away. Yet when you think about it, these people are under enormous stress in every respect. Their child is sick, their parents are dying, they have no income. Every day they have to go out and find work. To expect them to be able to have the leisure or perspective to always be able to take charge of their larger destiny – to operate the political systems and find opportunities? I wouldn’t say that is the biggest wrong idea, but it is just a very untested idea.

I suspect that in the aggregate it is wrong. Meaning, that if you picked one or two things that you said people have to be involved in, they would probably do a pretty good job. But if you think of the number of things we are beginning to expect people to take care of themselves it quickly gets overwhelming. We want them to be on the forest maintenance committee, the environment maintenance committee, the water committee, the education committee, the village health committee. They have to take a microcredit loan and pay that down and start a small business, at the same time that they have to make sure the children are getting homework help. If you think of the number of things we impose by default on them, I think that is an enormous challenge.

PA: That speaks to this line of thinking that says, well, you can’t do everything so pick a focus. But if you don’t do everything then it’s just a drop in the bucket and you won’t have an impact.

ED: Not necessarily. There are many things that have a big impact. There are quite well targeted programs and they are designed to do one thing and they do this one thing very well. I think another untested and potentially wrong idea is that you have to do everything at the same time or else. This is a pretty convenient untested belief because if you live in that world, it is almost impossible to evaluate what you do.
Whereas if you say, I am going to press on this button and see whether it provides this result, you might find there are many things that do work surprisingly well with surprising consistency. So it is not that the world is so incredibly complex that every place needs a unique combination of five factors just to produce anything. I don’t know that we would have been able to say the same thing five years ago, but now we are starting to be in the position to say that a number of things, if well designed, just work pretty well in a lot of contexts.

For example, remedial education programs and more generally education programs that are explicitly targeted to deliver a specific set of competencies to children who do not have them. Or, as I mentioned, small subsidies or token incentives to get people to do things (mostly related to health and education) that are good for them but that for some reason do not get done without a nudge. Conditional cash transfer programs or deworming initiatives I would also place in that category.

PA: You’ve said before, Dr. Duflo, that what happens often is that a theory about a program that might work gets developed and implemented in one environment and one group of people and one approach and then evaluated, and if results aren’t evident quickly then people throw up their hands and say, well that doesn’t work and move on.

ED: What I was more saying is that these theories come out and a program is tried, but we never really learn from it. And then somehow it goes out of fashion and we move on to the next program. I think already one experiment is a quantum improvement over zero. More is better, but it is not usually what we have. Look at microfinance. There is no evaluation yet of the impact of a microfinance loan – we have the first preliminary results ever of the impact of a plain vanilla, group lending microfinance model. That’s it. It is not as if there have been mixed results before now. The studies don’t exist. And that is microfinance, where there are already a hundred economists studying it.

Microfinance fortunately did not go out of fashion before [randomized evaluation] came into fashion, so we have a chance to have a meeting of minds here. But other things did. Take fertilizer subsidies: at first they were fashionable, now they are unfashionable. In the meantime we have not learned what fertilizer subsidies do. They might be good or bad, at this point I don’t know. They’re coming back in fashion, by the way. All of this without a single piece of evidence about whether a subsidy changes the demand for fertilizer. This is just one example of what to me is the biggest mistake, which is doing the same things over and over and over again without learning from the experience, whether it is fertilizer subsidies or microfinance.

AB: It seems to me part of the issue is that the expectations are also set too high. If the goal of microfinance is to change people’s lives it will have been deemed already to be a failure, despite the fact that results are showing it is doing some reasonably good things. I think this comes from a particular development mindset, also untested, which is that all that is needed is one big thing to happen and things just—

ED: The “big push”…

AB: —explode. I don’t think there is any evidence that things ever happened that way. Look at the US. Growth was very slow over a long time and accelerated slowly over time. It wasn’t seen then as a disaster; the view was generally that the US was doing fine. But suddenly we are in this world of accelerated expectations, so it is easy to fail.
So, if microfinance suddenly doesn’t make all babies do calculus by the age of five, it is deemed a failure. I think if we just accept that in the end a few things work and somehow that gives people the spirit or the enthusiasm or the hope to act a bit more and enable those things to accumulate on their own.

We don’t really have levers to make everything work and I don’t think anybody ever did. I think a few things worked. In the US, public education did some work. It took time, and then things accumulated. I don’t think we really know which things cumulate with which other ones and getting all of them to fit together and start moving along the same trajectory – that just seems real pie in the sky.

ED: Going back, I want to return to that perception that if you don’t do everything at once what you are doing is nice, but will not have any real impact on development. I accept that there are certainly big ideas, and then there are small ideas. But the notion that development and improvement in welfare is not an accumulation of small things is—

AB: —As yet untested.

ED: The small thing often is what there is.

AB: Maybe that is what you can do – a few small things – and hope that somehow people’s innate desires are sufficiently aided by those things. That is not at all an unfair reading. It is untested as well. But there is this presumption that big changes need big levers. There is no evidence that big changes were ever wrought by big levers.

PA: Speaking of big levers, many people talk about education as a big lever. So there has been a lot of attention on increasing attendance rates for children. Certainly improved attendance has shown to be a good first step but it’s not translating into improved performance for those kids. The small, overlooked thing seems to be to improve the instruction, improve infrastructure, improve teacher attendance. What is your latest work showing in this area?

ED: The bottom line on that is that I don’t think it is so hard to get students and teachers to come to school if you give them incentives to come to school. The problem is that a lot of the teachers don’t have those incentives. One thing we are finding is that pedagogy is very important. One problem that seems to be common across a lot of the curricula is that they are just not adapted to the students.

AB: All this in one direction: they are too hard.

ED: Too hard for the students, and therefore I think very depressing for the teachers. Part of the teachers’ lack of intrinsic motivation is a feeling of helplessness: What can they do? They have illiterate children to which they are expected to teach multivariate calculus, and it is just not happening.

So there are a number of things people have done – I’ve done some work on computer assisted teaching and on tracking teacher attendance. I’ve also done some work with Pratham [an Indian NGO] on below-remedial education such as reading programs. Along those lines we are now working on ways to cut the curriculum into pieces that are achievable by people at various levels. Maybe it is not rocket science, but children will be able to learn and teachers will be able to teach if the goal is achievable. In part, a lot of these countries have inherited curricula that are really colonial curricula designed to take the elite among the native children and teach them enough of what they need to become tax officials or something. It’s often completely not relevant.

PA: So we need to save the world by lowering our expectations?

ED: Well…for example take the health service in India. One reason it is a disaster, and I am talking about truly a disaster – 30 percent presence, five percent immunization – is because some bureaucrat in the office dreamed up all these things that the nurses have to do, which nobody can accomplish. They are required to be in five places at once. So if you have so many things to do it is very easy to tell a visitor, I am sorry I had to be somewhere else, and that is why I was not doing my job.

AB: I think, even less cynically, in a system which is totally unrealistic you feel you are a failure in any case, so then you might as well be a total failure.

PA: It is very easy to create cynics in development.

AB: Absolutely. And I think the system is very good at creating cynics, because it creates a set of models which are beautifully sketched out by some ministry or the WHO, people who sit in their offices and tell workers on the ground what steps to take on which issue. Once the worker has done it they will have to write a memo to be evaluated by the ministry. But there are two million of these things, because everyone has their own idea of what you should be doing. And then you get cynical very quickly, because the deal is that implementing these things is not practical and nothing bad happens to you anyway if you don’t do it.

ED: And I don’t think it is a matter of lowering expectations, because the WHO official is so far removed, and the Indian bureaucrat does not have any expectation at all – in a way his are the lowest expectations. So we are trying to raise expectations but make them real.

PA: We see the exact same dynamic happening between donors and NGOs. The donor won’t give unless the NGO sets this unrealistic expectation, but then the donor becomes a cynic because the unrealistic expectation that he forced the NGO to accept fails to have any impact.

ED: That is exactly right and that is exactly this culture that we are trying to change. To say, okay, you are going to see what the impact of this program is and you can agree to make mistakes.

Part of the unrealistic expectation is also the inability to fail. You can not admit that you got it wrong, ever. If you’re a government with the wrong program you won’t get reelected, if you are donor or an NGO you can never admit it either and that is a real problem. Because for a donor, even a big donor, the amount of money given is very small compared to what developing country governments spend. So the best thing to do with that money really is to use it in an experimental way. Take risks. Accept failure. Try things. Because for a government, it is always going to be hard – governments cannot fail, they have to be elected. Donors are allowed to fail. They should act as venture capitalists, try things, let people fail, but at least be accountable to documenting either success or failure and learn from the mistakes.

New Survey and Report on the Use and Effectiveness of Social Networking by Non-profits

2009-11-09T15:23:12-05:00

Today we published the results of a survey that Philanthropy Action conducted on social networking and non-profits. Unsurprisingly non-profits reported that their primary reasons for using social networking were marketing, fundraising and attracting volunteers. But very few of them have seen results.

Scams, FarmVille and Embedded Giving

2009-11-05T15:47:02-05:00

It’s “giving season” again and so we’re about to see a huge ramp-up in embedded giving—the practice of embedding a donation into the purchase price of something you buy (e.g. “a portion of the proceeds will go to cancer research/plant a tree/build a space hotel”). Joining Lucy Bernholz, we’ve been critical of embedded giving schemes for a variety of reasons including their ability to obscure what is really going on.

A case-in-point is a series of recent stories about Zynga, a company that makes online social games including FarmVille that have become wildly popular on sites like Facebook and MySpace. A few weeks ago Zynga announced that it had raised nearly $500,000 for children’s programs in Haiti via an embedded giving scheme in FarmVille. Essentially users had the option of purchasing (with real money) virtual seeds for their farms, and a portion of the money paid was directed to the Haiti program. Zynga was praised and a number of commentators pointed to virtual goods as a big part of the future of giving.

Then a few weeks later, Michael Arrington, an enterprising reporter from the blog TechCrunch, did some digging on how social gaming companies like Zynga were making their money. It turns out that in addition to selling game players virtual goods, a big chunk of their revenue came from being a conduit for consumer scams. In Zynga’s case about 30 percent. The scams involve offering players “free” virtual goods in return for filling out surveys or the like. What the game player doesn’t know is that filling out the survey ends up subscribing them to a monthly subscription of some sort without their knowledge. The scams are run by separate companies but they pay Zynga for access to their game players. The revelations have led MySpace and Zynga to change policies in relation to the games, and to one of the leading conduits for the scams, OfferPal, to replace their CEO.

So this story has a generally happy ending, but the point remains that embedded giving programs like Zynga’s often cover up the reality of what’s happening in the background and the general practices of the company. In this case, while feeling good about giving to children in Haiti, players were also supporting a company that earned a substantial portion of revenue by turning a blind eye to scams.

But this is just one of the more egregious examples of the problems with embedded giving. The real problem is a near complete lack of transparency (who gets the funds? when? how much?) in the industry.

Lucy Bernholz has kicked off a project to start gathering data on the embedded giving industry. When you come across examples of embedded giving that seem particularly dubious or opaque, please let her know.

Microfinance: Autism or Hormone Replacement Therapy?

2009-10-29T01:46:11-05:00

This has been a banner year for gathering real evidence about microfinance. There have been two randomized control trials (in India and the Philippines) of the standard microcredit product released, the publication of Portfolios of the Poor with its groundbreaking survey work, and several more studies using rigorous methodologies looking at various aspects and variants of microfinance including savings, vocational training, group vs. individual liability, comparing men and women, and even revisiting the most often cited prior studies and discovering that the positive effects found were probably errors.

All of the evidence from these rigorous studies points if not to a precise conclusion, at least in the same general direction: the story we’re all familiar with about microfinance isn’t really true. First let me say in no uncertain terms that the evidence does not point to harm—where there is a difference it tends to be positive. At the same time, large numbers of poor women are not escaping poverty by starting businesses with a small loan. The evidence (all drawn from the studies linked above) we have tells us:

* Borrowers aren’t much more likely to start a new business
* Many borrowers do not invest significantly in business goods
* Most borrowers do not raise their incomes dramatically
* Borrowers don’t spend more on food or education
* Women are not better users of capital than men
* Group liability does not necessarily have an impact on repayment rates

But does all of this research matter? Will it change what donors believe about microfinance?

In other words, is microfinance more like autism or Hormone Replacement Therapy?

To explain, consider the history of the belief in a relationship between vaccination and autism. More than a decade ago now there were several studies done that showed a link between the MMR vaccine and autism. Those studies had, in hindsight, glaring and obvious methodological flaws. Since then there have been a flood of high quality, large-scale studies with gold-standard methodologies which have shown no link whatsoever between vaccination and autism (for a great survey of the history of autism research see this). A recent survey in the UK suggests that the incidence of autism has remained constant for decades (it’s just terminology and diagnosis that has changed). How many minds have been changed by the research? To an outside observer it certainly seems as if the answer is zero. The anti-vaccine crusaders are as vocal as ever.

On the other hand, you have the example of hormone replacement therapy. A very well-done study a number of years ago concluded that HRT held health benefits for post-menopausal women, helping them avoid not only discomfort but bone loss and heart disease. Then a second, even better study was run that showed that HRT, in fact, raised the incidence not only of heart disease but of stroke and invasive breast cancer (for a good review of the history of research about HRT see this). What was the result of this research? The use of HRT stopped nearly instantaneously. One study was enough to change everyone’s mind and permanently change the practice of medicine. As far as I know there are no large, well-funded organizations of post-menopausal women demanding the return of HRT.

In the case of autism, evidence hasn’t made a whit of difference in many people’s beliefs and practices. In the case of HRT, evidence changed everyone’s minds immediately. Now that we are starting to have evidence on microfinance, will it change minds and practice? Will microfinance behave like HRT? Or will the microfinance industry behave more like autism, with an ever loyal army of defenders of the mythic masses of entrepreneurial women who climb out of poverty on the back of a $100 loan?

It’s a non-trivial question. The perpetuation of the myth of vaccination causing autism is bad for everyone, including those who espouse it. They and their children, friends and neighbors are now more exposed to potentially life-altering diseases. It also distracts funding and research from pursuing the actual causes of and treatments for autism. If supporters of microfinance dig in their heels and continue to peddle the myth, harm will also be done. That harm will come in the form of misdirected donations, missed opportunities for innovation and experimentation, and in the form of large numbers of poor people with continued limited access to the financial services that will make the most difference to them. The biggest risk is that it will do harm because as the gap between the reality and the myth of microfinance becomes clearer, more and more people will reject microfinance entirely for “failing.”

This isn’t a plea to shut down microfinance, nor an attempt to unfairly tarnish it. It’s a plea to recognize what microfinance really does and to figure out how to make it more effective—and that requires rejecting the myths and taking the evidence seriously. That’s why I hope microfinance is more like HRT than autism.

On a related note, I’d be very interested to hear any opinions on why some things are susceptible to evidence and others are not. I’m at a loss to explain the different reactions to research on autism and HRT. What do you think?

Kiva, Transparency, Connections and Conduits

2009-10-16T04:27:07-05:00

There’s been a great deal more conversation about the gap between the Kiva story and the Kiva reality since my post on Monday. You can see a mostly comprehensive guide to the conversation here (and I really recommend reading through the first several articles there if you’re not familiar with the debate). The most important update is that Kiva tonight posted a new, more complete description of how it operates. I want to react to various points made in the debate and to Kiva’s update, clarify where I stand and ask a few more questions.

First, Sean Stannard-Stocton and Sasha Dichter have pointed out that one of the reasons that people are upset to find out how the process actually works is a perception that non-profits are simply a conduit of money from donor to beneficiary. The non-profit is not given any credit for adding value in the process. I think this is absolutely true in general—and it’s one reason that I’ve argued in the past that donors shouldn’t be upset that a cow isn’t a cow. The non-profit on the ground needs to have the discretion to assess a particular situation and shift resources to what will do the most good. However, this argument doesn’t apply to Kiva. Unlike child sponsorship agencies and alternative gifts purveyors like Heifer International, Kiva is just a conduit. They are not making loans or assessing needs on the ground. They are simply connecting their users to microfinance organizations.

Which brings us to the second point, and Kiva’s updated description of its operations. I think the new version is pretty well-done, accurately depicting how the Kiva process really work, though the language about repayments could be clearer. But as you read it through, it becomes quite clear that in fact Kiva is a conduit between its users and microfinance organizations, not individual borrowers. The big question outstanding is do Kiva’s users want to be connected to a microfinance organization or do they want to be connected to a specific borrower? The huge difference in popularity between Kiva and Microplace (which, by the way, should take a page from Kiva’s new document and provide a much better description of how it works) would indicate the latter. Given Kiva’s new description, if a user wants a connection to a specific borrower, then it is now clear that Kiva does not do that. If they want a connection to a microfinance organization, why do they need Kiva? Why not just give the money to a microfinance institution (presumably many of them have caught on to the power of connecting to individual donors)? Kiva’s role so far has been to prove a market no one knew existed. Now they’ll need to figure out what additional value they can add.

Third, I think it’s important to point out that there are two very different sets of questions being raised in the debate. The set that’s gotten the most attention is the transparency question. The other set, which I raised in my “Even More Questions About Kiva” post, is whether there are problems with Kiva’s process. I don’t think this set of questions has gotten enough attention. The fact is that Kiva’s repayment process is open to abuse. Commenter Tim Rann on David Roodman’s original post makes it clear that people in the industry have noticed this. Elie Hassenfeld’s analysis of the differing repayment rates that MFIs report to Kiva and to MixMarket shows that MFIs are shifting repayment funds around (and Kiva’s new document acknowledges this). Right now they are shifting in favor of Kiva but they could just as easily shift funds to Kiva’s detriment. Kiva’s more transparent description of their operations does nothing to change this.

Finally, I want to make it absolutely clear that, in general, I think Kiva is operating the way that it should if it wants to do the most good for people in need. My critiques are about very specific issues that are fixable (some of which Kiva has now fixed). Kiva should be separating loans from the vicissitudes of the funding process and should be minimizing transaction fees on the transfer of funds. I hope Kiva comes through this controversy intact. But that’s going to require donors to start operating the way that they should. Throughout the debate I’ve tried to draw attention back to the ultimate source of the problem: donors who demand that non-profits provide a person-to-person connection no matter what the cost and the negative consequences. It’s this demand that leads well-meaning non-profits to create an illusion to placate donors. But then the donors tend to turn on the non-profits when the illusion is pierced. I truly hope the outcome of all of this conversation is lots of Kiva users, and lots of other donors, who are willing to accept less connection in favor of more effectiveness.

Water Tabulations

2009-10-15T12:37:23-05:00

Water use and preservation may be going increasingly high tech. In Mali the government has promoted a three-year project to seed clouds with chemicals using the same technology employed during the ski season in Aspen or Zermatt. The chemicals cause the clouds to create snow, which then melts and falls as rain. In a country that has seen a 20 percent decrease in rainfall over the past three decades, cloud seeding has enabled a 50 percent increase in agricultural production in affected regions since the program began in 2007, at a price tag of $32.5 million dollars, much of which, the government claims, were one-time start-up costs.

Modern technology is also being applied to water usage and rights. The University of Idaho and the Idaho Department of Water Resources teamed up to create a tool that uses satellite technology and a series of algorithms to measure the amount of ‘evapotranspiration’ that takes place on a particular piece of land. A certain percentage of water used on land is absorbed back into the water table, while the rest evaporates and goes into the atmosphere. In essence, evapotranspiration is the water that is truly ‘used.‘ By measuring it, governments, communities, farmers and other users get a more accurate measure of what they used and whether they are over or under their allotment. This tool offers an objective picture of who is using what when. It can allow communities or entities to prove when they use less water than they had rights to, and bank the surplus for drier times. According to the Post, the information from the METRIC tool (Mapping EvapoTranspiration with High Resolution and Internalized Calibration) has already settled water rights disputes between states, allowed for the conservation of salmon habitats through cooperation with ranchers; and prevented an expensive effort to eradicate invasive saltcedars in Texas (it seems, they use less water than expected).

Good News in Neglected Tropical Disease Control

2009-10-15T12:13:48-05:00

Some good news from the world of neglected tropical disease control: Researchers from McGill University in Canada have identified the mechanism used by the leishmania parasite to survive in human cells and disable the human immune system. Neglected tropical diseases are a group of thirteen parasitic and bacterial diseases which collectively affect more than a billion people around the world. They include lymphatic filariasis, guinea worm, a range of intestinal worms and leprosy, among others. There are known treatments or preventatives for many of the thirteen diseases, but leishmania is one for which there is no known treatment. The disease is acquired through the bite of a female sandfly, which allows the parasite to enter the bloodstream and suppress immune function. By understanding the mechanism used by the parasite, researchers are hopeful that they can develop a prophylactic treatment that prevents it from taking hold.

In other positive developments, the Global Network for Neglected Tropical Disease Control (GNNTDC) announced at the Clinton Global Initiative its partnership with the Inter-American Development Bank (IDB) to mobilize $30 million dollars from the private and public sectors for neglected tropical disease control in the Americas. The partnership includes technical assistance from the Pan-American Health Organization, the regional arm of the WHO, as well as involvement from GlaxoSmithKline, the Miss Universe Organization, and other partners. It should be noted, of course, that the $30 million represents the amount these organizations are committed to raising (or in the case of the IDB, managing), not the amount of money in hand. Yet this announcement is the first substantive effort among established organizations to tackle the problems of NTDs specifically for the Americas. For that reason, as a start, it is worth our attention.

Even More Questions About Kiva

2009-10-12T20:14:06-05:00

See A Mostly Comprehensive Guide to the Kiva and Donor Illusions Debate for links to the debate on this topic from around the web.

Update: See the bottom of the post

David Roodman of the Center for Global Development recently wrote a brilliant post on how Kiva, the “person-to-person” microlending site, is not exactly what it seems. The quick version: while it appears that Kiva lenders are choosing who they loan to, in reality the loans to the borrowers on Kiva’s site have already been given. Roodman rightly points out that Kiva operates the way it should it if wants to be maximally helpful to both borrowers and MFIs. The problem is the subtle misleading of Kiva’s users.

In Kiva’s defense, this subtle misleading is not unique to Kiva; most NGO’s operate this way especially in disaster relief, child sponsorship, and alternative gifts (like giving a cow or a goat). The reason it’s so prevalent is that the donors demand it—and they vote with their dollars if the NGO is unwilling to provide the illusion of a person-to-person connection. Kudos to Roodman for exposing the illusion in a comprehensive and thoughtful way. While I think trafficking in such illusions is wrong, I understand why they are perpetrated in the name of the “greater good.“ I wish Kiva and others would abandon this practice, but I also acknowledge that they can’t until donors stop requiring NGOs to mislead them.

But today I saw a Kiva document that, for me, points to a far bigger problem. Roodman shared a document Kiva uses to explain its operations to MFIs. Two points in the document floored me. First, all losses from Kiva-securitized loans are borne by the Kiva user. Second, Kiva’s monthly repayment reports are not based on actual repayment data.

The first is a problem because of fungibility. MFIs have no liability for delinquent loans underwritten by Kiva users, while they often are liable for capital from other sources. I’m sure I’m not the only one who immediately saw that this encourages MFIs to book delinquent loans to Kiva rather than to other capital providers. It seems to me we have pretty recent experience with what can happen when you separate liability from lenders.

The second, in my mind, isn’t subtle misleading of users—it’s just plain misleading. Essentially, Kiva is not receiving reports from the MFIs on whether specific loans are being repaid. Kiva is reporting repayment to its users based on the assumption that the loan is being repaid—and Kiva will assume that the loan is repaid until the MFI decides to notify Kiva otherwise. For anyone who has been inside the books of an MFI this should be really disturbing. No two MFI’s define default the same way and often default is up to the discretion of a particular loan officer. Combined with the zero-liability noted above, these are accounting loopholes big enough to drive an entire fleet of trucks through.

In the big picture, this is just another illustration of the dangers of the illusion model of person-to-person connection in charitable giving. Like little white lies there is often a perfectly plausible, even good, reason for creating the illusion. And like little white lies, the illusion has to keep growing to continue to be credible. And as the illusion becomes all encompassing you open the door to deception, corruption and fraud. That’s what happened with child sponsorship back in the ‘90’s. Is that what will happen to person-to-person microfinance in the ‘10’s?

Update: Thanks to David Roodman for his comment below, helping clarify two things: one, I’m not suggesting that lenders are currently booking loses to Kiva; two, there’s already some evidence that MFIs are shifting losses around to benefit Kiva lenders, so this is not just a theoretical discussion.

But that led me to thinking more about how Kiva is handling repayments. The linked document says that MFIs don’t necessarily repay Kiva. Kiva deducts repayments from the next loan to the MFI. What that means is that some new lenders money is not just not going to a specific borrower, it’s never leaving Kiva’s bank accounts. It’s being shifted from one Kiva user’s account to another. Now, because of the fungibility of money there’s technically nothing wrong with this. In fact, it’s a good thing because it minimizes overhead costs (such as wire fees and currency conversion). But it is different from the story and it seems pretty clear that many Kiva users would not be happy if they knew the reality of the situation.