A few years ago four grad students from Harvard and M.I.T. decided they wanted to use their brains and dollars to improve the lives of some of the poorest people in the world. They researched different strategies of philanthropy, looked at the data available, and based on the evidence they chose a novel approach. No microlending, school-building, or vaccination campaigns for them: they would just give away cash, no strings attached. They called their new charity, simply enough, GiveDirectly.
This is how it works: money is transferred from the organization to pre-identified families in Kenya via cell phones. GiveDirectly’s selection of recipients is based solely on need as signaled by mud or thatch roofs, as opposed to more durable materials. The standard amount is $1,000 over one to two years, about as much as a poor Kenyan family might spend in a single year. There are no restrictions on what a family can buy with money from GiveDirectly. Unlike with more traditional philanthropic efforts, there are no mandatory health check-ups or vaccinations, no obligatory training programs, and no mandates of any kind. The cash is completely unfettered. It is a “UCT”: unconditional cash transfer.
One common use of GiveDirectly cash transfers is the purchase of a metal roof. Mud and thatch don’t hold up well to weather elements and must be repaired or replaced often. There are major savings to be had with the purchase of a metal roof, which typically lasts at least a decade.
That’s not the only way in which recipients spend the money, however. If you own a motorbike in Kenya that can withstand the terrain, won’t break down on long journeys, and can carry a passenger, you can be a taxi driver. With an influx of cash, you can literally buy yourself a livelihood.
These sorts of purchases improve quality of life and increase earning capacity, and some even have a ripple effect beyond a single family. A cow, for example, can provide milk for an entire village, an income stream for the owner, and can create more cows to continue to multiply the benefits.
Since a normal transfer from bank account to bank account isn’t an option, and transportation and distribution of thousands of dollars of physical cash would require security and increase liability for the charity, the transactions are carried out via cell phone. In Kenya the “mobile-money system” is called M-Pesa, and it’s one of the most successful of its kind; transfers are discreet, simple, and perfect for this atypical exchange.
Using this technology, GiveDirectly can keep track of hundreds of recipient families with a single spreadsheet and send them money each month safely and securely. The recipient gets a text message indicating that the money has arrived and goes to his or her local M-Pesa franchise to pick it up (the one described in the radio show “This American Life”’s GiveDirectly coverage is basically a VW bus turned bank with a ledger, a box of cash, and one staff person). It might sound dodgy to the Western world, but the M-Pesa system is dependable and ubiquitous in Kenya and saves people time and money previously spent traveling to traditional banks or delivering money to family in remote and inaccessible areas.
As Jacob Goldstein for the New York Times writes, “At its most basic level… GiveDirectly’s work is an attempt to test one of the simplest ideas in economics — that people know what they need, and if they have money, they can buy it.” As radical as the approach may seem, it is grounded in a strong evidence base. According to Holden Karnofsky, co-founder of a charity that supports GiveDirectly, “cash transfers…happen to be the most extensively studied non-health intervention we know of.” Indeed, traditional charities often call the very act of transferring funds into the hands of low-income people success. In GiveDirectly’s model, by contrast, the impact measures are more nuanced. Money changing hands is the intervention, not the desired outcome.
GiveDirectly is committed to investigating and recording its own impact. The organization recently completed a randomized control trial in Kenya, which reveals that; “recipients are not just spending their transfers, providing a one-time boost to their consumption without affecting their overall well-being.” The trial shows that food-consumption increased 20 percent for transfer recipients and the value of recipients’ livestock increased by 50 percent. The study even showed that recipients’ stress levels improved – their actual stress hormone levels decreased. The full report and a summary are available here.
Pondering the broader lessons of UTCs and GiveDirectly, I’m reminded of all of the nonprofit organizations out there for which an influx of funding could really change their organizational “standard of living.” What GiveDirectly is providing goes by another name in the nonprofit sector: general operating support.
General operating support is the holy grail of nonprofit fundraising, defined by the Foundation Center as “grants for the day-to-day operating costs of an existing program or organization; also called unrestricted grants.” There may be reporting requirements Kenyans don’t have to adhere to, and an application process with more vetting than GiveDirectly’s system of identifying families in need, but the concepts aren’t too far off. The similarities between general operating support to organizations and cash transfers to families, however, might not be as obvious for some in the nonprofit sector.
“We had conversations with people [in the non-profit sector] who said there was a lot of internal resistance to unconditional transfers,” Niehaus [one of GiveDirectly’s four founders] told [reporter Dana Goldstein]. “If this works, what are we all here for? Why do we have jobs? There’s an industry that exists that tries to make decisions for poor people and determine what’s best for them.”
Shouldn’t we want the same kind of aid for the poor that we in the nonprofit sector would want for ourselves?