March 28, 2013


Want to Help People? Just Give Them Money (Jacquelline Fuller, March 28, 2013. Harvard Business Review)

Paul and Michael started GiveDirectly in 2008 while pursuing advanced degrees in economics at Harvard. Their graduate research had uncovered multiple reports demonstrating the effectiveness of cash transfers as a model to alleviate poverty. They wanted to donate, but couldn't find a single nonprofit using this approach, so they created their own.

Today, GiveDirectly remains the first and only nonprofit devoted to unconditional cash transfers directly to the impoverished. Their lean model uses mobile-based banking technology from M-Pesa to transfer 90% of the money raised into the hands of the poor. Just 10% is spent on transfer fees and the cost of locating and enrolling recipients.

Since launching in Kenya, GiveDirectly continues to evaluate its approach with randomized control trials. They use a lottery system similar to medical trials and compare developmental outcomes of households who have received funding against those who haven't. Their rigorous data shows that no-strings-attached cash transfers improve health and downstream financial gains. They also use this data to refine their model, and make it available on their website.

Recipients, who are often living on less than 65 cents a day, invest in everything from food for starving children to long-term assets, including land, livestock and housing. The data fights conventional wisdom: Money spent on alcohol and cigarettes either decreases, stays constant or increases in the same proportion as total other expenses (approximately 2% to 3%).

Paul and Michael shared all of this data with us last fall and left us convinced. In December 2012, we provided GiveDirectly with $2.4 million to scale to multiple countries and test the model's effectiveness across geographies.

Investments in common goods such as roads, schools and wells are critical in helping people out of poverty. But GiveDirectly has a new concept: What if cash transfers are used as a standard benchmark against which to measure all development aid? What if every nonprofit that focused on poverty alleviation had to prove they could do more for the poor with a dollar than the poor could do for themselves?

Posted by at March 28, 2013 6:58 PM

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