- We use the term "economic empowerment" for programs that seek to directly (not through education or health) help people raise their incomes and standards of living.
- We have not identified any particular approach that has a demonstrably strong/promising track record. Unlike health, this cause does not appear to be a matter of getting proven programs to those who can't afford them.
- We recommend: Small Enterprise Foundation (microfinance)
We use the term "economic empowerment" to refer to programs aiming
directly at raising people's incomes, as opposed to improving their health or education. Such programs include agriculture-focused interventions (training, improved irrigation, etc. for farmers), microfinance, support for small and medium enterprises, and distribution of goods such as cell phones and spectacles. All are discussed below.
Below, we review what we know about the track record of economic empowerment programs, and then lay out our principles for evaluating economic empowerment charities.
We find
health to be a more promising area than economic empowerment, but for donors interested in the cause of economic empowerment,
we recommend:
- Small Enterprise Foundation (SEF), a microfinance institution operating primarily in the Limpopo province of South Africa. SEF shows a strong focus on collecting the information necessary to assess its social impact, including (a) data on how many clients are dropping out of the program (and why) and (b) data on whether SEF is succeeding in its attempt to target people with very low incomes. Nevertheless, we have concerns about SEF's social impact, particularly regarding its substantial dropout rates.
Track records of different approaches to economic empowerment
Below we summarize what we know about the track record of different approaches to economic empowerment.
Agriculture
Many charities and official aid agencies have attempted to improve productivity and income for farmers, through programs including "rural extension" (education/knowledge sharing), irrigation, and provision of livestock and other inputs. These programs do not have a demonstrable track record of success. More at our
full review of agriculture programs.
Microfinance
While encouraging anecdotes about microfinance are common, we have many questions - and have found relatively little information - about whether these anecdotes are representative. The few high-quality studies on microloans' impact on clients' incomes have found little impact.
We would guess that a microfinance institution is improving clients' lives when it can be shown that (a) its clients are low-income and in need of assistance, and (b) its clients consistently repay their loans and stay in the program (i.e., do not drop out). However, generalizations about
how and
how much such services improve lives are extremely difficult to make, and we have had difficulty finding microfinance institutions that can convincingly address points (a) and (b).
Details at our
full review of microfinance.
Small and medium enterprise (SME) support
Some programs aim specifically to help businesses (as opposed to individuals) in the developing world, in the hopes that they will create economic growth and jobs. There appears to be very little public information on the track record of such programs, or on charities' ability to overcome the challenges of transferring investment/business knowledge from the developed world to the developing world (where we presume the environment is quite different). (For an example, see our
blog post on The Acumen Fund.)
Distribution of specific products
Some programs focus on distribution of corrective lenses, cell phones or other specific products that are intended to help people work more productively and raise their own incomes. The usefulness of these programs would presumably depend greatly on (a) whether they successfully reach the poor, rather than anyone who wishes to benefit from donor subsidies, and (b) whether the economic environment is such that these products allow improved productivity.
We have found very little research on the impact of programs in this category, aside from two studies attributing declines in local-market price variation over time to the use of cell phones (which may imply a beneficial effect on life outcomes from the natural proliferation of cell phones, but does little to answer question (a) at all or question (b) specifically for donor-subsidized programs).
No particularly promising programs
In the area of health, many programs have strong evidence bases, enough to lower the burden of proof (to some degree) on a charity running them. For example, if a charity demonstrated that it was raising vaccination rates, we would have a fair amount of confidence that it was improving life outcomes, even without separate documentation of changes in disease rates, mortality rates, etc. (For details, see our
report on the evidence base for vaccines.)
From what we have seen, no analogy exists within the area of economic empowerment. In fact, none of the programs above appear to be associated with either (a) multiple, rigorous "micro" studies tracking the impact on individuals, or (b) any large-scale "macro" successes. (
More on "micro" and "macro" evidence.)
Our framework for evaluating economic empowerment charities
One way that any charity in this area might secure our recommendation is through a
direct impact evaluation - i.e., a rigorous examination of its own programs' effects on people's standard of living, along the lines of many of the evaluations published by the Poverty Action Lab. (Running a program with "similarities" to another evaluated program would not be sufficient; the charity would need to evaluate its own impact).
Such evaluations are generally rare, particularly in the area of economic empowerment. The remainder of this section outlines some other things we look for in economic empowerment charities.
In our view, a program aiming to raise people's incomes should be accomplishing some combination of the following:
- Transferring wealth to low-income people. This may mean literally
giving out cash or providing other things of value – including spectacles, cell phones, livestock, or loans – at donor-subsidized prices.
- Creating wealth by providing knowledge, technology, etc. to people and markets that can benefit from it.
Each of these goals comes with its own questions and concerns.
Transferring wealth to low-income people
One approach to raising people's incomes is to transfer wealth directly to them. However, programs that are explicitly giving away cash (or equivalents) would seem to be logical targets for exploitation by people with higher incomes. Therefore, we feel it is important for any wealth-transfer program to have a
strong process for ensuring that its clients are truly in need, and to provide documentation that this is the case.
Note that
many programs can effectively be "wealth transfer programs" even if they don't involve cash handouts. Any durable good – such as spectacles, cell phones, or rickshaws (or livestock) – that can potentially be re-sold for cash has both the advantages (giving low-income people the ability to determine their own needs) and the disadvantages (risk of exploitation by people with higher incomes) of cash transfers.
Low interest loans may fit in this category as well, if a heavily donor-subsidized loan can be informally re-loaned at a market rate, generating a profit.
Bottom line: a program that gives away valuable products (including cash, loans, or durable goods) -
or sells them for below-market prices – has a burden of proof to show that its clients are likely to be low-income. If a program could demonstrate that it is transferring wealth to relatively low-income people, we would accept this as ample evidence that the program is improving lives.
Creating wealth
Creating wealth may come in many different forms, including:
- Educating farmers to improve their productivity.
- Providing previously unavailable products (such as spectacles or irrigation products) that people can use to directly raise their productivity.
- Providing startup businesses with capital and support so that they can add value over time.
In many cases, it may be possible for a wealth-creating program to charge its beneficiaries, such that it is (at least eventually) able to sustain itself without donations. For example, it seems logical that if spectacles provide more value (in terms of increased earning power) than they cost (all costs including distribution), a program may be able to sell the spectacles at (or slightly above) what they cost and thus sustain itself.
In these cases, donations may still be helpful at the early stages of a venture, before it reaches the scale where it can cover its costs. In other words, donors may absorb the risk of starting a venture, though the venture aims eventually to be creating enough wealth to sustain itself indefinitely.
We would consider recommending a charity with a credible case that it was using donations in this way – i.e., to take on the risks associated with starting ventures that eventually become self-sustaining. We would not necessarily require direct evaluation of such a program's impact on standard of living; an ability to fund its own costs might serve as ample proof that it is creating wealth and therefore improving the world. Considerations of who its clients and employees are, and how exactly this wealth is created, would still be relevant. The mere fact of profit does not guarantee benefit, but in combination with other factors it could substitute for impact evaluation.
Importantly, it is not enough for a charity to be
planning a self-sustaining endpoint. Due to our focus on proven programs, we would want to see a track record of obtaining sustainability with past ventures.
Bottom line: what we require to recommend an economic empowerment charity
When evaluating an economic empowerment charity, we look for any of the following:
- A direct and rigorous evaluation of its programs' effects on clients' standards of living.
- Strong evidence that it is transferring wealth (cash, loans, or durable goods) specifically to people with low incomes/standards of living.
- A business plan consisting of using donations to start up ventures that eventually become self-sustaining, accompanied by a track record including some past successes in this area.
For donors interested in the cause of economic empowerment, we recommend:
- Small Enterprise Foundation, a microfinance institution in South Africa. For more, see our full review of SEF.
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