More Than Good Intentions:

Improving the Ways the Worlds Poor Borrow, Save, Farm, Learn and Stay Healthy

In More Than Good Intentions, Dean Karlan and Jacob Appel discuss how to ensure that the ways we aid
the poor actually work. Karlan and Appel open the book with the parable of Buddhist monks who would
go each morning to a market, buy recently caught fish, and release them back into the ocean. Though the
monks had wonderful intentions, they were not expending their resources in the most efficient waythe
released fish could be caught again the next day or the monks could have pre-emptively paid the
fishermen and spared the fish the trauma of being caught. The monks could have even been releasing the
fish to fulfill their own subconscious needs. Just as the monks could have done good better, Karlan and
Appel ask how we can do good better. The authors discuss important ways to measure impact, including
the crucial practice of Random Control Trials (RCT). An RCT is an experiment where a variable is
changed and we measure effects in the test subjects. An effective RCT will:

Always have a control group where no change is made. This shows how the subjects would
change normally for other variables and clearly presents the effects of the test.
Randomly allocate subjects for testing between the groups and the control group. This ensures
against any bias (seen or unseen) that could change the results.
Take place in the field and use a large enough sample.

Though the authors discuss a wide variety of areas where these principles can be effectively applied,
some of the most relevant topics covered are micro-finance and education.

To Learn

In the chapter entitled To Learn, Karlan and Appel highlight the benefits of the RCT in educational aid.
The book focuses on elementary education as a necessary stepping stone to any kind of secondary or
tertiary education. Each of the studies discussed below primarily aims to get and keep students and
teachers in schools.


In 1997, Mexico instituted a program called Progresa, which paid low-income mothers to send
their children to school. 495 communities originally participated, with one-third of those
communities as a control group for the programs first two years. After two years of these
conditional cash transfers, the RCTs showed significant improvements in attendance.
Participants had an average of 12-26% fewer absences compared to control students. Variants of
the program were then implemented in multiple countries, with even greater success. However,
the programs were very costlyabout $1,000 per student per year.

Researchers in Ghana found a much cheaper way to encourage primary school attendance. They
found that in areas with high rates of parasitic worm infection, offering deworming pills at
schools was a powerful attendance incentive. About 80% of parents signed their children up for
deworming, and RCTs showed a 25% drop in absences. Incredibly, a year of deworming (and
resultant school attendance) costs about $3.50 per student.

Each of the above programs demonstrated similar attendance gains, but with obvious differences in cost.
Such differences were brought to light by careful evaluation, and demonstrate its importance. Though
critics often say that large-scale tests like RCTs are too costly and time-consuming, they are extremely
effective in measuring impact. Like any other good thing, RCTs can be overused, but selectively used
RCTs can be a powerful tool for any organization wishing to know if their program (a certain variable) is
really making a difference.


To Borrow

Much of this chapter discusses microcredit, a very popular subject in poverty alleviation. Begun in 1976
by Muhammed Yunus, various forms of microcredit continue today in many third-world countries.
Traditionally, small loans are made to groups of people to invest in some sort of new enterprise. This
means that if a group member backs out or disappears, the others are responsible for that members
portion as well. Micro-loan interest rates are very high by U.S. standards, usually from 40 to 150%.

Karlan points to several studies and what they demonstrate about the effect of microcredit. As expected,
it is not a fix-all and many times the money is not used as intended or to generate new business. Among
the key points demonstrated by RCTs and other studies are the following:

Borrowers can have a cap to how much they should borrow. After that cap, the extra money is
not used and they either spend it or save it. This usually happens under pressure from lenders to
expand.
The money is likely to be spent on travel-related costs and on aid for families. Otherwise, a client
may be fired or unable to perform because of a lack of transport, or because they would otherwise
leave their job to help their families far away. (As proven in an RCT with Credit Indemnity, a
micro-credit lending organization)
An RCT in the Philippines showed that the largest growth in profits from businesses using
microcredit often comes from businesses downsizing. This downsizing lowers costs and drives
profits up, but does not help employ others in the community.
Not everybody wins, and some are worse off after the loan.

Though microcredit may have its downside, there are definite benefits. The group model of meeting
together, traditionally to ensure that the loan is repaid and to save time for the collectors, has in the past
included behavior requirements from the debtors and classes for instructions in business or health.
RCTs explained in the book showed that:

There was a measurable impact on income in bad months because of basic business training
taught in group meetings. Those with the training were able to use seasonal strategic plans to
increase profits in months when income is more difficult to create. No difference was recorded in
good months between the groups with training and those without.
Rule of thumb business training, featuring basic business techniques, was much more effective
than specialized accounting training.
More specialized training was more effective than general training.

According to these results, the group meeting has many advantages and is an additional tool to fight
poverty. However, the requirement to lend to groups excludes many potential creditees who are sure they
could create a flourishing business but do not want to be responsible for the additional financial burden of
others. The authors suggest that a better model would be mandatory group meetings to collect payments,
but with loans made to individuals instead. Such a program could be set up by the PEF in an effort to
educate people in groups but to continue to make individual loans to offer the opportunity to grow.