Why Shouldn’t We GiveDirectly?

by Bruce Wydick

One of the most exciting new ways for people to give to the poor in developing countries is through transferring cash directly to them—yes, that’s right—simply giving money to the poor.  The new nonprofit GiveDirectly collects funds from internet donors and then zaps them into the cellphone-based e-money accounts of rural East Africans.

GiveDirectly was founded in 2008 by Paul Niehaus, an evangelical Christian and assistant professor in the economics department of the University of California at San Diego, with colleagues from his graduate school days at Harvard. GiveDirectly has taken the development world by storm and has been the subject of significant media attention for its novel approach to helping the poor lift themselves out of poverty.

The GiveDirectly approach is novel for two reasons. First, it uses new technology creatively, operating through the M-Pesa system, the mobile-phone-based money transfer service for telecommunication firms Safaricom and Vodacom in Tanzania and Kenya.  Many places in East Africa have leapfrogged our own paper currency system, where people now make purchases routinely through electronic transfers via their cellphones.  GiveDirectly harnesses this new technology to provide help to the poor through a series of e-injections of cash into these phone-based bank accounts. Transfers typically peak at about $1,000 over the course of a year, when they terminate.

GiveDirectly is also a novel approach because it begins with trusting the poor to spend donated money in the way they view as best for themselves. This contrasts with the traditional approach, which only trusts the poor with in-kind goods, such as an animal donation, a new stove, a microfinance loan, education, or even a “conditional” cash transfer in which the transfer is contingent upon a required behavior, such as keeping children in school.

It is this second novelty that has produced the controversy. What if the poor spend the money on liquor, gambling, and cigarettes? That is one question Johannes Haushofer and Jeremy Shapiro of MIT asked in carrying out a randomized controlled trial of the GiveDirectly program, a study whose results were released last October. In fact, in their study involving over 1,000 households, they found no increase in expenditures in the treated households on “temptation” goods: cigarettes, alcohol, or gambling.

So how do the recipients of these East African transfers spend the money?  It turns out they spend it mostly on food for their families and building up the size of their animal herds.  Specifically, in the year after the initial transfer, Haushofer and Shapiro found that households that received transfers increased food consumption by 20 percent. This brought about a 30 percent reduction in the likelihood of a family member going to bed hungry during the week preceding the follow-up survey. A 42 percent reduction was also recorded in the number of days children in transfer-recipient households went without food.  These are significant impacts on hunger.

The researchers also found that the unconditional cash transfers led to a 58 percent increase in productive assets, in this context mainly a greater investment in herd animals: cattle, sheep, and goats.  Revenue from animal husbandry increased by nearly 50 percent.

That the poor tend to spend the cash transfers in productive ways rather than on booze and cigarettes mirrors the results of other studies, such as that on the conditional cash transfer program, Progresa, in Mexico.

We can learn several things from the research on this innovative new approach to development. One is that perhaps we should learn to trust the poor more with resources. Sometimes we pretend to know what impoverished people need (or want) without listening to them or trusting their instincts.

Secondly, the technology offers innovative new ways of coming alongside the poor to help break poverty traps. We should make use of this new technology to become better givers, to be looser with our wallets when it comes to the needs of others.  Now it’s as easy to give to the poor as to buy something for ourselves—there goes at least one excuse for being tight-fisted with our money.

What the results of this study also mean is that we now have the beginnings of a benchmark that other faith-based and secular development organizations working in the area of in-kind goods donation must measure themselves against.  Given that about 92 percent of the internet donations transferred to GiveDirectly go right into the bank accounts of recipients, the burden of proof has now shifted to other development organizations to show that their approach does as much good as simply giving the poor cash. Moreover, it emphasizes the need for more serious research about what we can do to alleviate poverty in the developing world.  GiveDirectly also serves as an example of what a heart for the poor, advanced training in economics, and new technology are capable of when working together.

Bruce Wydick is professor of economics at the University of San Francisco, a writer for Christianity Today, and a contributing editor to PRISM.  His novel on the lives of coffee growers in Guatemala, The Taste of Many Mountains, is forthcoming in July 2014 from Thomas Nelson (HarperCollins).

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