Two MBA students from the Massachusetts Institute of Technology wanted to give a percentage of their income in cash to impoverished people. They had studied the impact of government schemes in Mexico and Brazil and the results led them to want to take the same approach.
The students could not find a way to do this and so set up a non-profit enterprise in 2009 called GiveDirectly. It has now made cash donations of over $500 million in 11 countries.
The advantages of giving cash, rather than specific products or services, was that the needs of people vary and so cash donations allow the money to be used to best effect, a higher proportion of donated money reaches the people who need it, and cash has a multiplier effect within local economies. There is little evidence that cash donations are used inappropriately by recipients.
In 2016 the United Nations cited the need for ‘increased use of cash-based assistance’ in global poverty programmes.
GiveDirectly uses mobile payment technology, such as M-Pesa, to get money to the people who need it. In these communities the recipients use M-Pesa to access cash to meet their needs.
GiveDirectly also uses technology to identify who needs the money. For example, it has used satellite data to ensure people with thatched roofs and mud floors are the people who received funds. It is experimenting with using machine learning to identify vulnerable populations using cell phone metadata.
Impact of Cash
GiveDirectly have conducted 11 randomised control trials to study the effect of cash transfers. They have found that for every dollar donated, the overall boost to the overall economic output of the local community is worth $2.4.
A National Bureau of Economic Research paper, ‘General Equilibrium Effects of Cash Transfers: Experimental Evidence from Kenya’ 1, first published in 2019 and revised in October 2021, reported on the impact of a one-time cash transfers of about $1,000 to over 10,500 poor households across 653 randomised villages in rural Kenya. The implied fiscal shock was over 15% of local GDP.
The study found that such a significant stimulus had large impacts on consumption and assets for recipients but importantly, also had large positive spill over effects to non-recipient households and firms. It had minimal price inflation attributed to slack in the local economy being able to absorb the impact of the stimulus.
1 - https://www.nber.org/papers/w26600.