Want to Help People? Just Give Them Money - Jacquelline Fuller - Harvard Business Review

by Jacquelline Fuller  |   3:00 PM March 28, 2013

"We give money directly to the poor — no strings attached."

I was skeptical of the idea being pitched to my team. Two decades in philanthropy, including eight years at The Gates Foundation and six at Google Giving, had shown me the power of development done well. Living in India, I saw firsthand how an HIV prevention program could literally save millions of lives. Based on this experience, I believed — like many others — that doing for the poor is a better investment than giving money to them directly. Data from a startup nonprofit called GiveDirectly changed my opinion.

Last fall, my team huddled in a room to review our pipeline for the Global Impact Awards, Google's program to support entrepreneurial nonprofits using technology to change the world. Like other venture philanthropists in Silicon Valley, we hunt for projects that are tech-enabled, data-driven, and have an element of informed risk.

Prior to that meeting, we had already identified a few awardees. We had decided to support World Wildlife Fund's pilot use of unmanned aerial vehicles to stop wildlife poaching and Equal Opportunity Schools' use of data analytics to identify and move high-performing yet underrepresented students into advanced math and science classes.

But our team was divided on GiveDirectly. We were looking for scalable, disruptive ideas but weren't convinced this particular leap would be successful. We invited founders Paul Niehaus and Michael Faye to bring their best data and pitch us live.

Paul and Michael started GiveDirectly in 2008 while pursuing advanced degrees in economics at Harvard. Their graduate research had uncovered multiple reports demonstrating the effectiveness of cash transfers as a model to alleviate poverty. They wanted to donate, but couldn't find a single nonprofit using this approach, so they created their own.

Today, GiveDirectly remains the first and only nonprofit devoted to unconditional cash transfers directly to the impoverished. Their lean model uses mobile-based banking technology from M-Pesa to transfer 90% of the money raised into the hands of the poor. Just 10% is spent on transfer fees and the cost of locating and enrolling recipients.

Since launching in Kenya, GiveDirectly continues to evaluate its approach with randomized control trials. They use a lottery system similar to medical trials and compare developmental outcomes of households who have received funding against those who haven't. Their rigorous data shows that no-strings-attached cash transfers improve health and downstream financial gains. They also use this data to refine their model, and make it available on their website.

Recipients, who are often living on less than 65 cents a day, invest in everything from food for starving children to long-term assets, including land, livestock and housing. The data fights conventional wisdom: Money spent on alcohol and cigarettes either decreases, stays constant or increases in the same proportion as total other expenses (approximately 2% to 3%).

Paul and Michael shared all of this data with us last fall and left us convinced. In December 2012, we provided GiveDirectly with $2.4 million to scale to multiple countries and test the model's effectiveness across geographies.

Investments in common goods such as roads, schools and wells are critical in helping people out of poverty. But GiveDirectly has a new concept: What if cash transfers are used as a standard benchmark against which to measure all development aid? What if every nonprofit that focused on poverty alleviation had to prove they could do more for the poor with a dollar than the poor could do for themselves?

In this world, cash transfers could play a role like index funds play for private investors: They could be a sizeable share of your philanthropic portfolio and a benchmark used to evaluate more expensive, "actively managed" investments. We'd learn more about which programs need additional funding and which are falling below the "direct to the poor" mark.

GiveDirectly is one of many nonprofits using data and technology to set new standards. Charity: water (another Global Impact Awardee) is working to install remote sensors on water wells that monitor whether they are still pumping days, months or even years after being built. Data from sensors will help improve maintenance efforts on the ground and provide a transparent report to partners, peer organizations, and donors. This information will give us a better understanding of the most effective ways to make clean water continuously available to the 800 million who currently lack access.

As funders, we need to support nonprofits like these that use data-driven approaches, especially randomized control trials where possible, and we must challenge conventional wisdom on what works.

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