No strings attached: How one nonprofit is helping the poor by giving them cash

Published: Monday, April 29 2013 4:15 p.m. MDT

In selecting potential participants, GiveDirectly targets households that have mud walls and thatched roofs. It is, according to their research, a fairly good indicator of acute poverty. Using the home as a selection criterion has a practical element, too, in that it provides GiveDirectly representatives with a straightforward way of explaining to the community why some people qualify and others do not. GiveDirectly believes using this transparent selection method minimizes tension or concern about the fairness of the selection process. It seems to be working. Only 7 percent of recipients say they have experienced an increase in tension from their neighbors because of the transfers.

GiveDirectly’s decision to start the program in Kenya was based on three factors. First, a large portion of the country’s population lives below the poverty line. Second, the nation’s mobile payment system, M-Pesa, is the most advanced in the developing world. Third, although the country is poor, cell phone penetration is high: About 75 percent of the population has a cell phone, according to a report from the Communications Commission of Kenya.

Promising results

While formal evaluations of GiveDirectly’s program won’t be available until later this month, preliminary results are encouraging. Through surveys and interviews, GiveDirectly has found that the most common uses for cash transfer payments are installing a tin roof, buying food, paying for education, starting or expanding a business, and saving. GiveDirectly has also noticed that men and women use money in different ways. Women are more likely to spend money on food and household items, while men are are more likely to invest in businesses.

A common criticism of cash transfers is that the money will be used to purchase “temptation goods” like alcohol and tobacco, said Niehaus. GiveDirectly’s preliminary findings show that spending on these items typically decreases or stays constant.

GiveDirectly’s results are consistent with the academic literature on the impact of unconditional cash transfers. Studies of UTC's in South Africa found large increases in children's height- and weight-to-age ratios as well as reductions in HIV infection rates. In Malawi, UTC's helped reduce pregnancies and teen marriage rates by 48 percent. Another study found that participants’ annual income five years after a single UTC generally increased from 64 percent to 96 percent. What UTC's don’t do is make people lazy, studies say. In fact, one study found that recipients tended to work longer hours as more earning opportunities became available to them with a little bit of investment.

Why transfers need to be unconditional

GiveDirectly’s philosophy is that the poor need to be empowered to make their own decisions. “Unconditional cash transfers advance our core value of respect,” Niehaus said.

Giving money without conditions also maximizes its usefulness. Recipients get to choose what to do with their money instead of being given things they may not need or value. A final consideration is that unconditional cash transfers have lower administrative costs.

“If you put conditions on the transfers, someone has to monitor the people to make sure they are complying, and that costs money," Niehaus said.

While unconditional cash transfers are innovative, they remain extremely controversial. Niehaus suggests part of the reason for this has to do with American misconceptions about the cause of poverty in the developing world.

“Most people’s perceptions of poverty are shaped by what they see on the streets [in America]. Lots of these [street] people have mental health and substance abuse issues,” he said, “so giving them money may not be the best way to help them.” But people in Africa are poor “because they were born in Africa,” he said. “They have a good idea of the things they want and need and just have a really hard time getting them.”

Niehaus and other GiveDirectly co-founders would like to see unconditional cash transfers used as the benchmark by on which donors measure all development aid. “We’d like to see nonprofits that focus on poverty alleviation prove that they can do more with a dollar than the poor can do for themselves,” Niehaus said.

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