Donors still wary of no-strings cash gifts to tackle poverty

Every few minutes on the GiveDirectly news feed an image pops up along with the story of someone who has received one of the US charity’s money transfers. For example, 23-year-old Millicent, who has a pastry business in Kenya, is using a recent transfer of $39 to fix her oven, and Anna, a 51-year-old Ugandan farmer, has put some of her initial $469 towards her daughter’s university tuition fees, allowing her to resume her studies.

Giving people cash — with no strings attached — to tackle poverty is a radical idea. It is attracting tech philanthropists and supporters of “effective altruism”, an approach that promotes high-impact, data-driven charitable giving.

However, despite compelling data on its impact, direct giving has yet to catch on more broadly among philanthropists, who tend to channel gifts into more traditional support, such as nutrition and education programmes or building schools and clinics.

“Private charitable giving to international development from the US is about $2bn a year and [GiveDirectly is] $50m a year right now, so it’s a tiny sliver,” says Paul Niehaus, GiveDirectly co-founder and an associate economics professor at University of California San Diego.

When Niehaus and a group of Harvard University and Massachusetts Institute of Technology development economists started GiveDirectly in 2009, it was met with extreme scepticism, he says. “At that point there was much less acceptance of the idea, and there were certainly no organisations that would let us as individual donors send out money to people living in extreme poverty,” he says. Even today, GiveDirectly remains the only US charity handling direct transfers.

As well as providing Niehaus and his colleagues with a vehicle through which to give their own money, GiveDirectly was established, he says, to help find answers to the question: “When is it better to build intermediaries and bureaucracies to decide the best use of money and when is it better to let the poor help themselves?”

Humanitarian organisations have been using cash transfers for some time — and in increasingly large amounts. In 2018, the UN World Food Programme transferred a record $1.76bn to people in 62 countries, some 35 per cent of the WFP’s total assistance for the year. Last year, the International Rescue Committee met its goal of delivering 25 per cent of its aid in cash. In the case of non-food items, for example, the individual payments range from about $20 to $150 per household.

In giving small sums of money to the poor, one tool has proved essential: the mobile phone. Unsurprisingly, the rise of cash transfers has coincided with the expansion of mobile money-transfer schemes such as M-Pesa, which was pioneered in Kenya in 2007 before being rolled out in other countries.

Technology has also helped GiveDirectly — which now operates in Kenya, Uganda, Liberia, Malawi, Morocco, the Democratic Republic of Congo and Rwanda — to reduce the complexities of managing approvals and payments. Niehaus and Michael Faye, another GiveDirectly founder, developed Segovia, a payments platform now used by development-sector organisations.

Recipients still need nothing more than a simple mobile phone to receive transfers. “In even the poorest areas of the poorest countries, people have access to inexpensive mobile phones,” says Isobel Coleman, the non-profit’s chief operating officer. “The model of GiveDirectly has ridden that mobile technology wave.”

Coleman acknowledges the role of microfinance in enabling poor people to make decisions about what to do with their money — for example, in Bangladesh, where Muhammad Yunus shared the 2006 Nobel Peace Prize with Grameen Bank for their pioneering work. But she highlights the high administrative costs. “It is very expensive to deliver small loans to the poor,” she says. “Direct giving is cost-effective.”

The IRC argues that giving people cash rather than food, medicine or clothing is not only a quicker, cheaper way of providing aid for refugees but also enables them to decide what they need most and supports rather than distorts local economies. “And there is dignity in going to a market and buying things when you have nothing else,” says Barri Shorey, IRC acting senior technical director of economic recovery and development.

Crucially, cash transfers appear to reduce poverty. GiveDirectly has been running cash-benchmarking studies with USAID, the American development agency. Most of the numerous other studies conducted in the past decade have highlighted the positive effect of direct giving.

In 2016, the UK’s Overseas Development Institute think-tank reviewed 165 such studies, focusing on areas ranging from monetary poverty, education and health to savings and employment. “One of the things that emerged was how effective cash transfers can be along a range of different outcomes,” says Francesca Bastagli, principal research fellow at the ODI and one of the review’s authors. Even so, she points out that the model is not a silver bullet. The ODI review found, for example, that cash transfers raise school attendance but do not always result in improved learning.

Such findings, Bastagli argues, have implications for policymakers. “Cash transfers can tackle barriers to accessing services,” she says. “However, if the quality remains low and there isn’t a corresponding investment in social services more widely, there’s only so much you can achieve.”

Nevertheless, the ability to obtain robust data on how these payments help poor communities is something that is attracting large donations from some philanthropists, often tech entrepreneurs who favour disruptive models.

GiveDirectly’s donors include Good Ventures, created by Facebook co-founder Dustin Moskovitz and his wife Cari Tuna;, the technology group’s charitable arm; and the Pershing Square Foundation, established by activist hedge fund manager Bill Ackman, which made an initial grant to GiveDirectly and later invested in the Segovia payments platform. “We believe in impacting the largest number of people with our investments and if providing direct cash transfers, instead of helping to create programmes, is more effective, we wanted to help prove out that model,” says Olivia Tournay Flatto, the foundation’s president.

As proposals for a universal basic income rise up the agenda, some donors are using philanthropic funding to explore the impact of cash transfers in the US. The Economic Security Project, whose co-chair is Facebook co-founder Chris Hughes, has made a $1m grant to support a study where 125 residents of Stockton, California, are given $500 a month with no strings attached.

But while tech donors and proponents of effective altruism are increasingly interested in such initiatives, the question for those wanting to scale up this form of giving is how to attract more traditional philanthropic dollars.

The challenge is donors’ emotions. “For a great many people, philanthropy is about their own ‘warm glow’ and their consumption of the feeling of being a good person by getting emotional or social feedback,” says Rob Reich, a professor of political science at Stanford University and author of Just Giving: Why Philanthropy is Failing Democracy and How it Can Do Better.

This often draws philanthropists to gifts that allow them to create a public legacy, such as a foundation, a building or a scholarship bearing their family name. With a cash transfer, says Reich, “you can’t put your name on it”.

GiveDirectly’s Coleman, however, believes an increasing amount of data on the impact of direct giving and the shifting by large institutional donors of more money into this form of aid will start to win over more philanthropists.

“The evidence that giving people cash can improve their situations for years to come is gaining momentum,” she says. “It will become more acceptable and more intuitive for more people as we have more examples of successful programmes.”

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