Over the years, I’ve been really impressed with the stuff I’ve heard about microfinancng charities like KIVA. The idea of helping people in developing countries launch and support small businesses, changing their lives and the lives of their children, makes a lot of sense. And the personal stories that go with microfinancing are pretty appealing.
I’m starting to re-think my opinions on microfinancing, however, after reading some of the research done by GiveWell.org, an organization that casts an evidence-based eye on what different charities do and whether they actually get the results they claim.
It’s not that microfinancing is bad, per se, GiveWell says. It’s just that the system doesn’t measure up to the hype. And if you’ve got a limited amount of money to spend on helping other people, there might be more effective ways to do it that produce more bang for your buck.
GiveWell has written a ton on this, but I’d recommend starting with a blog post of theirs from a couple of years ago called 6 Myths About Microfinance Charities that Donors Can Live Without. This piece provides a succinct breakdown of what questions you should be asking about microfinance charities, and provides lots and lots of links for deeper digging. The myth that surprised me the most:
Myth #6: microfinance works because of (a) the innovative “group lending” method; (b) targeting of women, who use loans more productively than men; (c) targeting of the poorest of the poor, who benefit most from loans.
Reality: all three of these claims are often repeated but (as far as we can tell) never backed up. The strongest available evidence is limited, but undermines all three claims.