GiveDirectly

The Problem

According to the World Bank, one in ten people worldwide lives in extreme poverty, surviving on less than $1.90 a day.[^1]

Many traditional development cooperation (DC) approaches do not adequately address the actual needs of these people. Often, DC programs are shaped more by political considerations (both in donor and recipient countries) than by the question of how to help people most effectively with available resources.

Traditional DC often incurs high costs, as many employees from donor countries require relatively high salaries.

The Solution

Why not simply forgo the large aid apparatus and instead give money directly to people living in extreme poverty? No one knows the needs of poor people better than they do.

Unconditional cash transfers allow recipients to decide for themselves what is best for their lives. GiveDirectly transfers an annual income equivalent to people living in extreme poverty. In Kenya, this is approximately $1,000 for a household of five.

These cash transfers are highly efficient: GiveDirectly uses only 12% of donations for administrative purposes, including all staff salaries—a remarkably low rate. 88% of a donation goes directly to people in poverty.[^2] Since the money is transferred to people’s mobile phones via mobile banking, it is almost safe from corruption. This approach is also highly scalable and could theoretically be transferred to many other countries with minimal effort.

The Impact

Cash transfers have been used in various countries for about two decades and are now considered one of the most well-evaluated approaches in development cooperation.

An evaluation of 165 studies shows that cash transfers are remarkably reliable and lead to sustainable improvements in various areas (e.g., education, health, savings rates).[^3] The gold standard of scientific research, a randomized controlled trial, demonstrated that GiveDirectly's program in Kenya positively impacts recipients' physical and psychological well-being.[^4]

Unconditional cash transfers were not used in development cooperation for a long time because of fears that recipients would spend the money on alcohol, drugs, or similar. However, studies repeatedly show that this is not the case.[^5]

The Organization

In 2009, students from Harvard and MIT founded GiveDirectly in search of the most effective way to combat poverty. From the beginning, the organization emphasized that projects would be scientifically monitored and carefully evaluated. Since its founding, the organization has grown significantly, transferring nearly $60 million directly to extremely poor people in 2018.

Since 2012, GiveDirectly has been recommended by GiveWell as a "Top Charity." The organization is distinguished by high cost-effectiveness and outstanding transparency: On the GDLive Newsfeed, recipients report their experiences voluntarily and unfiltered. The growth potential is enormous. Theoretically, GiveDirectly could use several hundred million dollars in the coming years to lift people out of extreme poverty.

In addition to this direct contribution to poverty alleviation, GiveDirectly also aims to influence the “aid industry.” In a guest article for the World Bank, GiveDirectly co-founder Jeremy Shapiro compared direct cash transfers to low-cost index funds due to their low costs and argued that they should be used as a benchmark for other poverty reduction projects.[^6]

Questions and Answers

How does GiveDirectly decide who receives money?

GiveDirectly’s goal is to reach the poorest of the poor. First, particularly poor regions are identified using official data. Then, staff members introduce the organization and its approach to the communities. Following this, individual households are visited to explain the details, verify the identities of the people, and prevent potential fraud. The process typically concludes with all residents of the region receiving money from GiveDirectly.

How does the cash transfer work?

GiveDirectly uses electronic payment providers for the transfers: In Kenya, this is M-Pesa, the mobile money transfer service of Kenya's largest mobile operator. In Uganda, the mobile money system of the country’s leading telecommunications company is used.

Local GiveDirectly staff assist people in the program in registering with their payment provider. GiveDirectly then transfers the money to the recipient's mobile account. The recipient receives an SMS once the amount has been deposited. The recipient can then exchange their “mobile money” for cash at exchange points, which are often local merchants and kiosks but can also be gas stations, supermarkets, internet cafes, or banks.

Do recipients receive the amount as a lump sum or in smaller installments?

The amount is paid out in multiple installments. This is the approach preferred by most recipients. During the registration process, recipients are informed exactly how much money they will receive and when.

How do recipients use the money?

Cash transfers allow people to spend the money on the things they need most urgently. An evaluation of GiveDirectly's work in 2013 shows that people used the money to purchase livestock, medicine, or schoolbooks, invested in waterproof roofs, or saved for larger investments.[^7] The GDLive Newsfeed provides unfiltered, real-time updates on how recipients plan to use their money.

How sustainable are cash transfers?

Cash transfers are the clearest expression of the principle of “help for self-help.” The income of households studied in a research project on unconditional cash transfers in Mexico increased by 1.5 to 2.6 times the transferred amount—a clear indication of the long-term impact of cash transfers.[^8] What people in extreme poverty lack to escape poverty is not specific skills but money.

What do government officials think of GiveDirectly?

GiveDirectly’s work requires approval from relevant local authorities (mayors, village elders, legislators, etc.) in the regions. GiveDirectly always works in close coordination with all relevant government institutions.

Is the money transferred to men or women?

GiveDirectly transfers money to both men and women. A study showed that it made little difference who received the money; both genders used it responsibly. Therefore, GiveDirectly allows households to decide which adult enrolls in the program. So far, slightly more than half of the recipients are women.

Website: www.givedirectly.org

Sources

[^1]: Poverty and Shared Prosperity 2016, World Bank. Link, March 2011.
[^2]: Operating Model, GiveDirectly. Link, 2016.
[^3]: Francisca Bastagli et al., Cash transfers: what does the evidence say? A rigorous review of impacts and the role of design and implementation features, Overseas Development Institute. Link, July 2016.
[^4]: Unconditional Cash Transfers: Investing Directly in Poor Families, Abdul Latif Jameel Poverty Action Lab (J-PAL). Link
[^5]: David Evans and Anna Popova, Cash Transfers and Temptation Goods: A Review of Global Evidence, World Bank Policy Research Working Paper 6886. Link, May 2014.
[^6]: Jeremy Shapiro, More than money: How cash transfers can transform international development, World Bank. Link, 2014.
[^7]: Johannes Haushofer and Jeremy Shapiro, Household Response to Income Changes: Evidence from an Unconditional Cash Transfer Program in Kenya. Link, 2013.
[^8]: Elisabeth Sadoulet, Alain de Janvry, and Benjamin Davis, Cash Transfer Programs with Income Multipliers: PROCAMPO in Mexico, World Development, 29 (6): 1043-1056, 2001.