No strings attached: How one nonprofit is helping the poor by giving them cash
Paul Niehaus was pursuing a Ph.D. in developmental economics when he and his wife decided to give a portion of their income to a charitable cause.
Based on his knowledge of economics, Niehaus was skeptical about the effectiveness of many kinds of international aid.
“We wanted to do something that would really move the needle forward,” he said. They wanted to give money directly to people living in extreme poverty; the only problem was that they couldn't find an organization that facilitated this kind of exchange.
Undeterred, Niehaus started his own giving circle with some friends. Their mission: to give as much of the money as possible directly to people living in poverty. For several years they did this privately.
In 2011 they decided to go public. They started a website, givedirectly.com, where anyone can donate money directly to families in the developing world without any conditions, like spending the money to attend school or get vaccinated.
The public response has been impressive. Because of its rigorous research methods and commitment to outcomes, GiveDirectly has made several powerful allies in the world of development. It is currently ranked the second most efficient charity organization by Give Well, a nonprofit rankings group with a reputation for statistical rigor. Google also evaluated the group and came away so impressed that it gave the organization a $2.4 million grant to expand the project to other countries.
Niehaus and his friends are optimistic these unconditional cash transfers, or UTC’s, might end extreme poverty. But questions remain. UTC's are relatively new and, thus, untested on a large scale. No one really knows how recipients use their transfers, nor the net effect for families who receive the money.
How it works
GiveDirectly accepts online donations from the public through its website. Funds are transferred from donors to GiveDirectly's U.S. bank account. From there GiveDirectly transfers the money to its M-Pesa account, a popular mobile banking operation in Kenya, the only country where the program is currently operational. When GiveDirectly money arrives in its M-Pesa account, the organization transfers the money into the accounts of people it has pre-selected to participate in the UTC program. The recipients receive a text message notifying them that the transfer has been made. To collect their cash, recipients just show the message to M-Pesa vendors, who typically operate in local convenience stores.
GiveDirectly recipients get $1,000 over a one- or two-year period. It's a mind-boggling amount of money for these people, who otherwise would be living on about 65 cents a day. That figure, 65 cents, is calculated as “purchasing power parity,” according to Johannes Haushofer, a research associate at MIT’s Poverty Action Lab. Explaining what purchasing power parity means, Haushofer said, “It’s like you trying to live your life here in America on 65 cents a day, going to the grocery store, transportation, paying your rent."
Audits of the charity show that 92 cents on every dollar donated goes directly to poor households. The remaining 8 percent covers bank transfer fees, M-Pesa tariffs and the cost of paying people on the ground in Kenya to identify participants. Niehuas and his co-founders have covered the $30,000 they have spent on administrative costs, including building a website and buying computers for their employees, out of their own pockets.
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