This Model Could Change Charity Forever

Why aren't more nonprofits giving cash instead of traditional aid? Until recently, we didn't have the data to show how effective cash transfers can be. We also never had the technology to transfer cash to the poor cheaply and reliably.
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This blog is the second installment in a series around technology and social impact produced in collaboration with Google Giving.

When I arrived in Kenya a full year after the violent election of 2007, the dark shells where families were burned out of their homes still littered the area. People were refugees in their own country, starving in camps with no electricity, no running water, and endless lines for aid packages shipped by large NGOs.

Yet, just beyond the refugee camps you could see a fully functioning local farmers market selling vegetables and bread. It had the power to stop hunger, but refugees were too poor to buy anything and the farmers were too poor to give away their food for free.

What if instead of giving away aid packages, we gave those refugees cash? People could use the flexible power of cash to buy food, shelter, medicine, transportation or anything else they needed. Sending cash bypasses a lot of the costly aid infrastructure and can help struggling refugees, poor farmers and other poor households throughout Kenya. At GiveDirectly, a nonprofit I cofounded, we're doing just that. We identify poor households in Africa and use mobile money technology to give them cash to spend on whatever they want. It's a radically simple idea for how to help the poor.

You might be wondering: does it work? Traditionally held beliefs are that cash transfers create dependence, but data says otherwise. The research on cash transfers efficacy is collected much like a medical drug trial -- a randomized control trial with one group receiving money and another not. Outcomes between the two groups are rigorously measured. In Uganda, studies showed that people who received cash transfers worked 20% more hours and their incomes were 40% higher even four years after the cash transfers stopped. In Ecuador, child labor was reduced by almost 80% amongst people who received cash. In Malawi, giving adolescent girls cash caused their HIV incidence rates to fall by a dramatic 50%. Cash helped these girls avoid sexual relationships for the financial protection of older men. Without the freedom of cash, these girls could literally not afford to make the safe choice.

I've also seen the same evidence firsthand in Kenya. Take Zadock, who like all of our recipients lived in a thatchroofed house on the farthest edges of poverty. When we gave him money, he used it to replace his thatched roof with tin. I worried at first that Zadock had made a bad choice. I'd never heard of NGOs providing roof replacements in the area. But I soon discovered that while tin roofs cost ten times more to build than thatched roofs, they last significantly longer. In total, Zadock was saving $100-$150 per year by switching to a durable tin roof -- a lifechanging saving for someone who earns less than $300 per year. Plus, tin roofs collect rainwater for drinking and are less likely to be a breeding ground for mosquitoes, reducing Zadock's malaria risks. It was a humbling reminder that just because Zadock is poor doesn't mean he lacks the ability to improve his life.

Of course, not every dollar is always optimized for the best economic return -- I only have to look at my own spending habits for proof of this -- but studies show that on the whole people who receive cash transfers make wise investments that lift them out of poverty, such as buying a new roof, investing in a child's education or purchasing farm supplies.

Why aren't more nonprofits giving cash instead of traditional aid? Until recently, we didn't have the data to show how effective cash transfers can be. We also never had the technology to transfer cash to the poor cheaply and reliably. Now, African mobile money technology is the best in the world, with 40% adoption in Kenya alone. It is also extremely cheap to use. At GiveDirectly, it costs us just 10 cents of every donated dollar to both enroll and transfer money directly to the poor. That's 90 cents directly in the pockets of the recipient.

As cash transfers are more widely used, GiveDirectly is scaling its technology to reach the greatest number of poor households with a fast, effective cash pipeline. A Global Impact Award from Google is helping us create a worldclass system to ensure that we are delivering cash to the right people, and that the cash is received safely and efficiently. This also allows us to expand our model to new locations, study the use of the money, ensure there are no household or community disturbances, and conduct further research to demonstrate efficacy.

The quality of the evidence on cash transfers and the scale of the mobile money technology can transform the way aid is delivered. I'm not saying cash transfers can solve all of the challenges in the developing world, but they should be the default. Just imagine a future where nonprofits working to help poor had to prove to you -- the donor -- that they could do more for the poor with your dollar than the poor could do for themselves.

I know Zadock knows how to pull himself out of poverty better than I do. He just needs the resources to do so.

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