About this pageGiveWell aims to find the best giving opportunities we can and recommend them to donors. We tend to put a lot of investigation into the organizations we find most promising, and de-prioritize others based on limited information. When we decide not to prioritize an organization, we try to create a brief writeup of our thoughts on that charity because we want to be as transparent as possible about our reasoning. The following write-up should be viewed in this context: it explains why we determined that we wouldn't be prioritizing the organization in question as a potential top charity. This write-up should not be taken as a "negative rating" of the charity. Rather, it is our attempt to be as clear as possible about the process by which we came to our top recommendations.
A note on this page's publication dateThe last time we examined DAMEN was in 2010. In our latest open-ended review of charities, we determined that it was unlikely to meet our criteria based on our past examination of it, so we did not revisit it. We invite all charities that feel they meet our criteria to apply for consideration. The content we created in 2010 appears below. This content is likely to be no longer fully accurate, both with respect to what it says about DAMEN and with respect to what it implies about our own views and positions. With that said, we do feel that the takeaways from this examination are sufficient not to prioritize re-opening our investigation of this organization at this time.
SummaryDAMEN is a microfinance institution in Pakistan. It offers 12-18 month loans to entreprenuers.1 It does not offer savings services.2 Our review of DAMEN consisted of reviewing materials DAMEN submitted to us and a phone conversation with Jehan Zaib, DAMEN's Human and Institutional Development Manager. When we reviewed DAMEN, we sought to answer our questions for evaluating microfinance organizations. We do not currently recommend DAMEN, feeling that the Small Enterprise Foundation provides a better opportunity for donors interested in supporting microfinance.
Table of Contents
Key questions about social impactIn evaluating DAMEN, we asked our key questions for evaluating microlending charities. The sections below cover its answers to our key questions (see the previous link for why we consider these questions important).
Is the organization focused on social impact?
How frequently do borrowers drop out of the program?DAMEN calculates its drop out rate as the number of loans to repeat clients during a period divided by the number of loans closed during that period. DAMEN's drop out rate between January 1, 2009 and July 31, 2009 was 30%.3 DAMEN also provided a drop out rate for the same period based on the formula: (Number of new clients during period - change in total number of clients over period) divided by number of clients at the beginning of the period. Unlike the formula above, this rate will include clients who are in the middle of a loan (and thus are not deciding whether of not to drop out) in both the numerator and denominator, yielding a lower drop out rate. DAMEN's drop out rate by this formula was 13%.4 We have not seen drop out rate data for other periods. For more information on microfinance drop out rates and how they are calculated, see our microfinance glossary.
Does DAMEN monitor why borrowers drop out?In 2009, DAMEN conducted surveys of 262 former clients in two of its areas of operation.5 Respondents were selected randomly from all former clients within the two areas.6 We are concerned about the validity of the data collected, as the study noted that many of the selected respondents could not be found and that loan officers provided answers for them.7
Does DAMEN prevent client over-indebtedness?DAMEN told us that it does not currently have a way to know whether clients are taking on too much debt.8
Are borrowers protected against harassment by loan officers and group members?DAMEN told us that each branch has a complaint box to allow clients to voice concerns about loan officers. However, since these complaints are not communicated to the central office, DAMEN does not know what complaints have been voiced in the past or how these have been dealt with.9
What interest rates does DAMEN charge?DAMEN charges 18% flat annual interest on loans of 12-18 months in duration, plus a 2% fee at the beginning of the loan. It does not require clients to save a portion of the loan. Thus, its monthly interest rate is 2.9-3.0% (equivalent to about 35-36% APR and 41-42% EIR), depending on the duration of the loan.10 Comparing these rates to the the State Bank of Pakistan's "policy" or "discount" rate (12.5% per year as of November 2009, equivalent to about 1% monthly),11 there appears to be a strong case that DAMEN is primarily providing services, not handouts. For more information on microfinance interest rates and how we calculate the cost of a loan to borrowers, see our microfinance glossary.
What is DAMEN's repayment rate?DAMEN provided data on amounts "scheduled," "overdue," and "recovered" for every month of 2007-2009. We have a number of questions about this data, including: How does DAMEN define each of these categories? How are written off loans and rescheduled loans (if any) dealt with? Dividing scheduled by recovered amounts yields 102.5% for 2007, 99.2% for 2008, and 98.5% for 2009.12 It appears that rates over 100% indicate that more overdue payments were recovered than there were new payments becoming overdue. Note that by this formula, overdue payments that are repaid within the year are treated the same as payments received on time. DAMEN had low portfolio at risk and write-off ratios in recent years, and does not appear to reschedule loans.13 For more information on collection rates and other forms of microfinance repayment rates, see our microfinance glossary.
What are DAMEN clients' standards of living?DAMEN provided data on what percentage of its clients fell into each of 6 income brackets for the years 2005 to 2008. We do not have details of how clients' income levels were determined. The majority of clients in 2008 were classified as "quasi" poor or "non-poor" (61%). This percentage is up from just 6% of clients in 2005, a year in which 61% of clients were classified as "extreme" or "ultra" poor.14 DAMEN also provided data for 2009 on what percentage of its clients live on under $1 and under $2 per day. It appears, however, that this data has not been adjusted for purchasing power. In addition, the calculation assumes that each household consists of 7 members, and no explanation is given for this assumption.15 For more information on standard of living surveys of microfinance clients, see our microfinance glossary.
Room for more fundsDAMEN told us that additional donations would be used to create housing, emergency, and consumer loan types for established clients. This program is expected to cost about $520,000 in start-up costs and $1.5 million in its first year of operation.16
- Repayment rate. How does DAMEN define "scheduled," "overdue," and "recovered" amounts? How are written off and rescheduled loans dealt with within this framework?
- Drop out. What have DAMEN's drop out rates been in the past? What are the reasons that clients across the organization as a whole have dropped out?
- Clients' standard of living. How does DAMEN determine clients' daily incomes? Who is surveyed? Can DAMEN share other standard of living data?
- Client indebtedness. How often do DAMEN's clients become over-indebted?
- Client protection. Are clients pressured to repay? How is the performance of loan officers evaluated?
- DAMEN. Annual report (2008) (PDF).
- DAMEN. Client dropout-retention. DAMEN asked us not to publish this document.
- DAMEN. Client exit survey report. DAMEN asked us not to publish this document.
- DAMEN. Poverty analysis (2008). DAMEN asked us not to publish this document.
- DAMEN. Proposal. DAMEN asked us not to publish this document.
- DAMEN. Recovery rate (2009). DAMEN asked us not to publish this document.
- DAMEN. Social performance standards report (2008) (XLS).
- GiveWell. DAMEN interest rate calculation (XLS).
- GiveWell. Questions for microfinance charities.
- Langeman, Tim. Calculating interest rates with excel (accessed April 27, 2010). MFTransparency blog, February 24, 2010. Archived by WebCite® at http://www.webcitation.org/5pJ4ffoh6.
- Mix Market. DAMEN: Data, Indicators. http://www.mixmarket.org/mfi/DAMEN/data (accessed May 27, 2010). Archived by WebCite® at http://www.webcitation.org/5q41Ht16O.
- Mix Market. Data on DAMEN (2002-2009) (XLS).
- Glossary. http://www.mixmarket.org/en/glossary (accessed May 18, 2010). Archived by WebCite® at http://www.webcitation.org/5pomL0lun.
- State Bank of Pakistan. Structure of interest rates (PDF).
- Zaib, Jehan. DAMEN Human and Institutional Development Manager. Phone conversation with GiveWell, May 28, 2010.
- 1. Jehan Zaib, phone conversation with GiveWell, May 28, 2010
- 2. Number of active borrowers (2008): 36,897 Number of voluntary depositors (2008): 0 Mix Market, "DAMEN: Data, Products and Clients."
- 3. DAMEN, "Client Dropout-Retention."
- 4. DAMEN, "Client Dropout-Retention."
- 5. "The universe for the present study consisted of the exit clients of Lahore Area I & Area III. A sample of 87 ex-clients for Lahore Area I whereas 175 was selected for Area III was selected by using proportionate systematic random sampling." DAMEN, "Client Exit Survey Report," Pg 2.
- 6. "In order to select a representative sample the researchers got the lists of drop out clients from Loan Tracking System (LTS) and to ensure the equal representation of all the ex-clients proportionate systematic random sampling was used to select the sample from the universe." DAMEN, "Client Exit Survey Report," Pg 6.
- 7. "The researchers had to face the difficulty to meet the targeted number of ex-clients due to their unavailability at homes because most of them have moved away from the area to other. In order to overcome the faced problems field staff resolved the problem by providing history of the client why they left DAMEN credit program." DAMEN, "Client Exit Survey Report," Pg 6.
- 8. Jehan Zaib, phone conversation with GiveWell, May 28, 2010.
- 9. Jehan Zaib, phone conversation with GiveWell, May 28, 2010.
- 10. Loan terms data from Jehan Zaib, phone conversation with GiveWell, May 28, 2010. Annual percentage rate (APR), effective interest rate (EIR) and monthly rate were calculated by GiveWell. Note that the APR is equal to 12 times the monthly interest rate, while the EIR fully incorporates "compounding," whose relevance to microloans is debatable. Calculation available in GiveWell, "DAMEN Interest Rate Calculation." For more information on calculating interest rates for microfinance banks, see Langeman 2010.
- 11. State Bank of Pakistan, "Structure of Interest Rates," Pg 1.
- 12. DAMEN, "Recovery Rate (2009)."
Portfolio at risk > 30 days:
- 2004: 8.82%
- 2005: 5.79%
- 2006: 6.68%
- 2007: 2.07%
- 2008: 0.78%
- 2004: 0.00%
- 2005: 3.24%
- 2006: 2.53%
- 2007: 1.98%
- 2008: 0.61%
Number of renegotiated loans:
- 2004: 0
- 2005: 0
- 2006: 0
- 2007: 0
- 2008: 0
- 14. DAMEN, "Poverty Analysis (2008)."
- 15. DAMEN, "Poverty Analysis (2008)."
- 16. Jehan Zaib, phone conversation with GiveWell, May 28, 2010.