For Your End-of-Year Charitable Giving, Give Directly

One of the greatest weaknesses of the current development system is that vast sums of money earmarked for direct aid to the poor gets siphoned off before it reaches intended recipients. In barely two years, Give Directly has pioneered a new and very promising approach to poverty relief.
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If history is any judge, many of you reading this article are about to make end-of-year charitable contributions. Forty percent of all individual charitable donations are made in December, and nearly a quarter of all online donations are shoved into the last two days of the year.

Some of those end-of-year contributions will go to international poverty relief, though it is a jarringly small amount. "International and foreign affairs" charities generate only about 2 percent of total charitable revenues in the U.S., which still adds up to more than $30 billion every year. Americans tend to give out of habit, so most of the money from donors flows to the most prominent and long-standing charities, even though existing poverty relief programs have been roundly and justifiably criticized for lack of effectiveness, inefficiency, and occasional cupidity. Fortunately, there are alternatives to the usual suspects, none better then Give Directly.

If you want Hollywood casting for leaders of your poverty relief charity, you might not start with Michael Faye, Paul Niehaus, Jeremy Shapiro and Rohit Wanchoo. They are young, professional academics and consultants who talk the language of 21 century technology entrepreneurs, which in a way is what they really are. In 2008, the four friends, then grad students at Harvard and MIT, began to experiment with unconditional cash transfers. UCTs are essentially what they sound like: giving away money to needy people with the belief they will make better individual decisions with the money than any prescriptive aid program. They didn't start exploring UCTs on a whim. All of them were motivated by two sets of facts, both well known within the development world but not widely discussed outside. First, one of the greatest weaknesses of the current development system is that vast sums of money earmarked for direct aid to the poor gets siphoned off before it reaches intended recipients. Some of that occurs due to the perfectly understandable, if often high, infrastructure costs for western NGOs to implement programs. But, much more troubling and likely much more significant in absolute terms, program dollars are whittled down due to theft, petty corruption, and by payments to local "partners" who are sometimes just one more hole in a very leaky pipeline. Studies in India, for instance, have shown that fully half of all development resources fall out due to corruption that is the cost of doing business in much of the world.

Second, Niehaus, Faye, Wanchoo and Shapiro were all also well aware of extensive research that showed very promising results for UCT programs. At first blush, UCTs do not sound so promising, at least to Western ears socialized to believe that prescriptive programs -- building a school, distributing bags of rice, training farmers in cultivation techniques to name a few out of thousands -- are the best way to help our less fortunate brethren in the third world. But it turns out, research has shown that giving poor people cash and letting them make spending decisions can lead to equal or better results than traditional development projects. Significantly, unconditional cash transfers can create powerful network effects -- increasing spending and consumption, increasing assets, and enhancing investments in small businesses.

Cash transfer programs may sound easy, but they turn out to be quite difficult to administer. The problem, simply put, is that cash walks. All the problems of theft, corruption, and disappearing funds are at least as challenging when cash is the product being offered. But in 2007, a fundamental technology change started in East Africa with the launch of the MPESA mobile payment and microcredit service, which for the first time gave millions of poor Kenyans access to the modern banking system. Niehaus, Faye, Wanchoo and Shapiro quickly realized that MPESA, along with similar programs being developed in other parts of the world, offered a chance to implement unconditional cash transfers in an efficient, trustworthy and verifiable manner for the first time.

After testing the concept with their own resources, the group launched Give Directly in 2011. The program is run off a rigorous technology platform that sounds more Silicon Valley than Rift Valley. Eligibility for aid is defined by having a thatched roof, an indicator of poverty, and individual eligibility is verified by GPS and Google Earth data. Though technology is the driver, Give Directly uses plenty of shoe leather as well. All recipient households are interviewed and many are audited to make sure that money ends up with needy families, and not siphoned off through bribery and misdirection. Funds, typically about $1,000 per household, are direct deposited through MPESA or other mobile banking networks. The use of this technology gives Give Directly essentially instantaneous, and verifiable, information on how money moves through the system.

All this ensures an astonishingly efficient and trustworthy system, a noteworthy fact in and of itself amidst the financial risks of development work. But does giving cash lead to reduced poverty? To test the proposition, Give Directly early on announced a Randomized Controlled Trial (RCT) to test program effectiveness. Rigorous RCTs are relatively rare in the charitable world, and publicly announcing one in advance so that everyone can see failure if things don't work out so well is even more unusual. Fortunately, for Give Directly, the RCT, conducted by researchers from MIT and announced just two months ago, turned out extraordinarily well: cash transfers led to substantial gains in assets, consumption, investment in livestock and small businesses, to increases in mental well-being, and to reductions in hunger and food insecurity. And the cash transfers did not lead, as many feared, to increased expenditures in "temptation" goods such as alcohol, tobacco or gambling.

In barely two years, Give Directly has pioneered a new and very promising approach to poverty relief. There are still many unanswered questions, as you would expect in an infant charity: how do the programs perform compared to other development programs, can they scale up and be applied in other parts of the world, including perhaps the developed world. And though proponents of Give Directly and UCT programs in general can get positively moony about the potential, there is reason to remain a little more restrained. Even Chris Blattman of Columbia, an early proponent, has written that one of the best things he can say about UCTs is that they "probably suck less than most of the other things we are doing." But maybe that's the highest standard we can aspire to right now.

Don't expect the development big boys to follow suit any time soon. They are invested -- economically, organizationally and psychologically -- in the current ways of doing business. That makes Give Directly a best bet for those who want to invest in this unusual mix of promising and disruptive approach to poverty relief. It is terribly difficult for a new charity, even a breakthrough one like Give Directly, to grow quickly enough to make a substantial impact, particularly where, as here, the organization has relatively modest experience in fund raising and marketing. That makes it even more important that donors who care about global poverty issues break out of comfortable giving habits and consider supporting a promising new charity like Give Directly.

Ken Stern, a former chief executive of National Public Radio, is the chief executive of Palisades Media, a PR company, and the author of With Charity for All: Why Charities Are Failing and a Better Way to Give.