01 Dec 2016
Is Cash the Best Form of Charity?
GiveDirectly makes the case for a new approach to donationby April WhiteTopics:
(Illustration by Edmon de Haro)
When Michael Faye (PhDBE 2009) and his cofounders—including Harvard grad students Paul Niehaus and Rohit Wanchoo—first proposed the model for GiveDirectly in 2008, it was radical: The nonprofit would accept donations from the public and deliver those dollars directly to people in need, no strings attached.
The initial response to the idea was lukewarm. GiveDirectly and a handful of other groups experimenting with cash payments were a direct challenge to both the generally accepted wisdom of charity and decades of development work. “There is some visceral discomfort with simply giving poor people money,” says Faye, now chairman of the board. “But the evidence, overwhelmingly, is that cash is one of the most effective ways of alleviating poverty.”
In its reliance on data and a commitment to transparency, GiveDirectly is at the forefront of a trend reshaping the development sector. The organization doesn’t only have touching stories to tell. It also has numbers.
GiveDirectly began its efforts in Siaya County, on the southwestern edge of Kenya, where 40 percent of the region’s people live in poverty. The organization first identified eligible recipients using data such as a home’s roofing material to measure need. In many Kenyan communities, permeable, hard-to-maintain thatched roofs distinguish the poorest residents from better-off neighbors with metal roofs. Eligible recipients, most living on an average of 65 cents a day, are then enrolled in the program, and cash transfers are delivered via mobile payment. Each recipient receives about $1,000—the equivalent of a household’s annual budget.
This fiscal year GiveDirectly expects to transfer $43 million to some of the poorest regions of Kenya and Uganda. It costs the organization 9 to 15 cents per dollar to identify and enroll recipients, execute the transfers, follow up, and conduct other administrative work.
Mark Lampert (MBA 1988) was an early investor in GiveDirectly, which received the 2010 Unorthodox Philanthropy Award from his family foundation. “This was an idea that probably wasn’t going to be well received by the mainstream philanthropy world but had really big potential,” he recalls.
A Princeton University study of GiveDirectly’s efforts is an early measure of that potential. The study found that the cash transfers led to a $270 increase in earnings, a $430 increase in assets, and a $330 increase in spending on food. It showed no increase in spending on alcohol or tobacco, a concern often cited in opposition to cash payments.
“We want to be the benchmark,” says Faye of the GiveDirectly model. “Is what [your charitable organization] doing with a dollar more effective than what the poor can do for themselves?” Cash isn’t the only answer, he acknowledges. Direct cash transfers won’t build hospitals or pave roads, but they can spur entrepreneurship.
One recipient in Kenya, John, age 45, once lived with his wife and children in a thatched-roof hut. GiveDirectly payments allowed him to buy building materials and livestock. The family now sleeps under an iron roof fitted with a solar panel and raises goats and cows. “My proudest achievement is that I now own several assets,” he told researchers from the organization. “The happiest part of my day is normally in the evening when [I] sit down with my wife as we account for our day’s earnings from our different sources of income.”
Since GiveDirectly launched, cash payments have become a growing, though still small part of the development sector. The organization has scaled quickly, to more than 200 employees. And GiveDirectly continues to push the envelope, recently announcing a universal basic income pilot in East Africa with the goal of providing regular cash payments to poor households over more than 10 years and, of course, studying the results.
Class of PHDBE 2009
Class of MBA 1988, Section F