Over 700 million people around the world currently live in extreme poverty. Billions of dollars are spent every year on anti-poverty programs to reduce this number. Traditionally, these anti-poverty programs have delivered in-kind support such as food, education, healthcare and infrastructure. While these interventions make a real difference to the lives of the poor, their bureaucratic and paternalistic nature means they can be inefficient or misguided.
In light of this, charities and NGOs are now asking themselves the simple, yet powerful, question – how can we ensure we’re delivering the most effective ‘bang’ for each charitable ‘buck’? It’s this simple question that drives the effective altruism movement and its commitment to evidence-based, transparent and cost-effective charities. Within this movement, one charity in particular is taking a ground-breaking approach to try answer this question – GiveDirectly. Their approach is a radically simple one; give cash directly to the poor with no strings attached.
What is GiveDirectly?
GiveDirectly was founded by a group of friends studying economic development at Harvard and MIT who were looking for the most effective way to donate their own money to reduce poverty. Encouraged by the growing evidence supporting direct cash transfers, and recognising the improvements in scalability and efficiency associated with the rapid growth of mobile payment technology, they formed GiveDirectly in 2009. They began their operations in Kenya and soon thereafter expanded into Ghana, transferring roughly $1,000, equivalent to a household’s yearly budget, to each recipient household over the course of a year. GiveDirectly’s novel use of cash as an instrument of poverty reduction, combined with their innovative use of technology and commitment to transparency has quickly made them one of the most highly regarded charities.
What are Cash Based Interventions?
Cash based interventions are rapidly gaining popularity in development circles, with institutions like the UNHCR and European Commission all recently advocating their use,. As the European Commission puts it, when faced with poverty “we need to always ask the question “Why not cash?”” Recipients of cash based interventions have the freedom to choose how they spend their money, and can purchase what they deem most needed based on their own individual circumstances (e.g. food, medicine, education, housing, and social engagements). While this freedom to choose undoubtedly comes with the risk of abuse, studies consistently show that there is no significant increase in purchases of temptation goods (i.e. alcohol and tobacco) when people are given cash directly. It’s important to recognise, however, that cash can only be effective in areas where basic needs, such as food, housing, healthcare, can be purchased. It would make little sense to provide the extremely poor with cash in the midst of a severe food shortage. Nonetheless, in appropriate circumstances, the evidence suggests that cash based interventions are one of the most effective ways to reduce poverty.
Why Unconditional Cash Transfer?
When designing cash based interventions policy makers and aid agencies have two options; they can use either conditional cash transfers (CCTs) or unconditional cash transfers (UCTs). Conditional cash transfers, as the name suggests, are payments made to recipients under the proviso they meet certain conditions. These conditions can be along the lines of children in the household meeting a minimum school attendance rate, or receiving all vaccinations. UCTs, in contrast, are payments made with no strings attached and no requirements beyond meeting the eligibility criteria. The motivations behind providing unconditional, rather than conditional, cash transfers are twofold. Firstly, UCTs empower the poor to make their own decisions, offering the recipients a sense of self-determination which might be undermined by conditions affecting eligibility for transfers.
The second motivation is centred on UCTs cost-effectiveness. When conditions are attached to cash transfers monitoring and enforcement structures need to be put in place. This adds significant cost, which reduces the amount of cash that makes its way into the hands of the poor. One study estimated that these additional administrative costs can equate to as much as 63% of transfer funds. While CCTs have been successfully used to incentivise people to reach some socially important outcome (eg. sending their children to school), it’s unclear whether the extra administrative overheads are justified.
How Efficient is GiveDirectly?
In the past, limited access to banking services made direct cash transfers in developing countries costly and difficult to administer. However, with the spread of mobile technology cash transfers are now one of the most efficient ways to donate. This is particularly true for GiveDirectly, whose tech-enabled and data-driven process makes them one of the most cost-effective charities, delivering approx. 0.90c of each dollar directly into the hands of the poor.
To achieve this level of efficiency they rely heavily on data and technology throughout the donation process. First they locate extremely poor communities by analysing census data, pinpointing target households through a range of factors. They then verify eligibility and run background checks, using GPS data and crowdsourced labour to detect any irregularities and identify possible fraud. Once verified field workers then visit these households to register recipients and transfer cash on the spot via a mobile money-transfer system. The founders of GiveDirectly also created Segovia, a software company that makes mobile payments faster, safer, and easier to make.
How Effective is GiveDirectly?
Direct cash transfers, particularly unconditional ones, made via mobile technology are one of the most efficient and scalable poverty interventions available. Scalability and efficiency, however, say nothing about whether cash transfers actually make a meaningful difference to people’s lives. It’s reasonable to assume that giving the poor what they lack most, i.e. money, could have a positive impact on their lives. What’s unique about GiveDirectly is that they’re not satisfied with this assumption and are committed to measuring the effectiveness of their cash transfers. They collaborate with fully independent researchers to measure their impacts, drive transparency and accountability, and convert assumptions into evidence.
A recent independent study on GiveDirectly’s operations conducted in Kenya between 2011 and 2013 demonstrated significant welfare-improving impacts, both economically and psychologically, for recipients. The evidence showed large, positive impacts across a wide range of outcomes over a four-month period, including assets, earnings, food security, and mental health (summary below in table). There were also positive spill-over effects to non-recipient households and villages from increases in psychological well-being and female empowerment. And while there was no significant overall effect on health or education this is likely due to the relatively short-term nature of the follow-up. Two additional studies on GiveDirectly’s operations are currently underway with one measuring their impacts on macroeconomic activity and the other measuring the impact of different cash transfer designs. The results of both are expected to be released later this year.
Where to next for GiveDirectly?
While the initial evidence is promising, there are still questions that need to be answered, particularly on the longer term impact of a basic income. To help answer these questions GiveDirectly is embarking an ambitious experiment in which they will provide 6,000 people in Kenya with a basic income for 12 years. Given its scope, duration and level of sufficiency this will perhaps be the first truly universal basic income (UBI) trial in history. A UBI in its purest form is an unconditional payment made to all individuals in a society that is sufficient to meet basic needs and guaranteed for life. UBI is being promoted not only as a way to reduce poverty and reform social policy, but also as a possible, and potentially necessary, answer to the predicted rises in unemployment caused by coming advances in automation.
GiveDirectly’s ground-breaking UBI experiment will measure the impact of three different basic income models, (a) regular payments over a long term (12 years), (b) regular payments over a short term (2 years), and (c) a single lump sum payment (equivalent to 2 years). Comparisons between the different basic income models will demonstrate the importance of guaranteed future income on current outcomes, and determine whether lump-sum payments or regular monthly payments result in a greater impact. In total 26,000 people will receive some type of cash transfer during the program, including the 6,000 receiving a universal basic income.
Regardless of the results, GiveDirectly’s ground-breaking research program will at least have a positive impact on lives of thousands of extremely poor people. Optimistically, however, it also has the potential to change the way the world thinks about ending poverty, as well as to radically transform welfare policy in both rich and poor countries. The findings could present new opportunities to help the 700 million people currently living in extreme poverty. And given it would only take approx. $80 billion to lift all of these people out of poverty, which is roughly half the amount the world spends on aid each year, there is a huge potential for GiveDirectly’s research to reshape the international development landscape.