One afternoon in the spring of 2008, two graduate students, Michael Faye and Rohit Wanchoo, met with a Harvard Business School professor in an office in Cambridge. They had a simple idea for a charity: Instead of giving poor people food or cattle or loans to start a business, why not simply give them cash?
Eight years later, their idea has become GiveDirectly, a multimillion-dollar nonprofit that donates money directly, via mobile payment services, to poor people in Kenya and Uganda. In 2015, the organization raised more than $50 million.
GiveDirectly’s success mirrors a broader shift toward cash in the humanitarian industry—a shift that could revolutionize a sector that many call out of touch and inefficient. Think of Haiti, where, after the January 2010 earthquake, the Red Cross raised almost half a billion dollars yet built just six permanent homes.
Cash has emerged as a cheap and effective alternative to traditional forms of aid. Jim Kim, the president of the World Bank, has called the results of cash transfers “astounding.” Last year, Great Britain’s Department for International Development (DFID) funded a report that came to an unequivocal conclusion: “Give more unconditional cash transfers.”
Yet for all the hype, cash makes up only 6 percent of global humanitarian spending, or about $1.2 billion in 2014. This number includes aid given in the form of vouchers, however, so the real number is probably closer to just 2 percent. Big players in the aid industry, particularly NGOs, have pushed back against cash transfer programs, seeing them as a threat to their way of doing business.
“There’s a lot of interest and goodwill toward cash,” Faye said. “But there’s also an entrenched institutional system that’s going to make it difficult for cash to take off.”
Before Harvard, Faye and Wanchoo had worked together at the U.N. Millennium Project, where they researched ways to eliminate global poverty, hunger, and disease. But when friends asked them to recommend charities, none stood out.
The simplest way to help poor people—and also the cheapest—is to eliminate all middlemen and just give them cash directly. Faye and Wanchoo had read academic papers extolling the virtues of cash transfers in places like Latin America, where governments had begun implementing them as part of larger welfare programs. Yet the idea had gained little traction in the broader aid industry.
“Coworkers and friends would always ask the question at some point or another: Was the money the U.N. was spending on some project doing more good than it would in the hands of the poor?” Faye said. “But in those days, it was largely a theoretical question, or even just a passing joke.”
In 2008, they decided to issue small-scale cash transfers themselves. Before then, sending money to people in need had been a logistical nightmare. In 2007, Paul Niehaus, another GiveDirectly founder, saw a young man in India riding a motorcycle with an ATM strapped to his back. But mobile banking was emerging in the developing world—M-Pesa, a method of transferring money by mobile phone, launched in Kenya in March 2007—and suddenly cash transfers appeared to be a real, viable idea.
Cash transfers are not a new concept. In the mid-1990s, as Mexico recovered from a financial crisis, Santiago Levy, a deputy minister of finance, tried to reform the country’s labyrinthine welfare system. His idea was to make welfare payments to poor people conditional on their sending their children to school or to the doctor. This became Progresa, the world’s first conditional cash transfer program.
Levy decided to allocate some of the program’s funds to rigorously evaluating its effects. Some randomly selected villages would receive cash transfers conditioned on school attendance, while others would receive nothing at all. These “randomized control trials,” similar to the ones used to develop new drugs, are a way of pinning down causation. In the villages that received the transfers, enrollment in secondary schools rose from 67 percent to about 75 percent for girls, and from 73 percent to about 77 percent for boys; in the other villages, it did not rise at all. Levy’s program, it appeared, had made the difference.
Soon, cash transfer programs took off throughout Latin America. And as they proliferated, so, too, did the studies. Paper after paper emerged, in Mexico, Honduras, Nicaragua, and Ecuador.
For the most part, these programs were conditional: They came with strings attached. But what if poor people didn’t need extra incentives to send their children to school or to visit the doctor? What if they just needed money? In 2010, the World Bank compared conditional and unconditional cash transfers in Malawi. The authors found that adding conditions made little difference: Among the adolescent girls who received cash through the program, school attendance went up by the same amount for both groups.
It is relatively easy to explain the success of cash transfer programs. Whereas most charities have to deal with expensive logistical hurdles—how to deliver textbooks, for example, or how to transport bags of food—nonprofits like GiveDirectly need only to receive money from a donor and then transfer it electronically to a recipient.
What’s more, fears that poor people will waste the money have proved misguided. After conducting a randomized evaluation of a cash transfer program in Rarieda, Kenya, economists found that most of the families used the extra cash not on alcohol or tobacco, but on food, medical and educational expenses, and metal roofs. Even in Liberia, where a group of researchers gave unconditional cash grants to drug users and petty criminals, most of the men spent the money on basic needs and on business investments.
Until the early 2000s, most nonprofits and international aid organizations collected little evidence about the impact of their work. But in the past ten years, philanthropy has quietly undergone a revolution. A new breed of donor has emerged: analytical, numerate, and obsessed with hard evidence. Many of these donors work in Silicon Valley, where “effective altruism,” a movement that advocates giving money to the most cost-effective charities, has taken hold. Cash transfers have gained particular currency among Silicon Valley types, who are comfortable with data and naturally suspicious of the way things have always been done.
In 2012, GiveDirectly caught the attention of Jacquelline Fuller, the head of Google.org, Google’s charitable arm. Fuller invited Faye and Niehaus to Google.org’s offices in Mountain View to hear their pitch in person.
“A lot of times, nonprofits send people to talk to you who are slick, good speakers, what I like to call the ‘cocktail-party-circuit types,’ who are really good at chatting people up and giving a very emotional pitch,” she said. “Yet here were these nerdy economists who didn’t offer us a single human story, didn’t try to sway us at all using emotion. It was all data and impact, and we just ate it up.”
Google.org awarded GiveDirectly a $2.4 million grant. Later, Chris Hughes, one of the Facebook cofounders (and the former owner of the New Republic), served on the GiveDirectly board, and another Facebook cofounder, Dustin Moskovitz, along with his wife, Cari Tuna, donated roughly $47 million to the nonprofit through Good Ventures, their philanthropic foundation.
In Mountain View, Fuller encouraged Faye and Niehaus to expand their vision. “This is a billion-dollar idea,” she said. “You have to think about how you can impact the entire sector and change the way some of the bigger players run things.’”
But in the humanitarian aid industry, the notion that it is better to give people goods than to hand them cash remains deeply entrenched. “We have this image of a convoy of trucks snaking across a mountain pass, carrying bags of food to people in desperate need, and this has become our sense of what the humanitarian system is,” said Owen Barder, a vice president of the Center for Global Development, a Washington, D.C.-based think tank. “This means that although many of the people working in the system believe that giving people cash is often, or perhaps usually, better, the system is not well set up to achieve that.”
The United Nations, for example, organizes itself around a number of “clusters”—food, health, education, sanitation, and so on—each with its own agency and budget. Cash fits awkwardly into these silos, which have been built around the delivery of goods. Where aid agencies do give cash, the cluster system has made its delivery chaotic. In Lebanon, for example, according to the Overseas Development Institute, a British think tank, “more than 30 different aid agencies provided cash transfers and vouchers for 14 different objectives.”
Meanwhile, nonprofits have evolved to help the poor by building them schools, providing them with clothes, and donating food—everything, that is, but giving them cash directly. Most charities have formed a deep attachment to “gifts in kind,” or donations of specific goods, said Andrew Natsios, the former head of USAID, who spent five years as vice president of the relief organization World Vision USA.
Michael Barnett, who teaches international affairs and political science at George Washington University, has spent the past five years conducting interviews with employees at about a dozen aid agencies, asking them why they have been reluctant to adopt cash transfer programs.
“These are conservative organizations that know what they do well, or think they know what they do well, and don’t want to change,” he said, adding that cash threatens the livelihoods of the many aid workers whose jobs rely on delivering goods to people in need.
And there is another, often unstated, reason for the reluctance, he said: the fear that poor people can’t or won’t make good decisions on their own.
Chris Leader, the president of Food Aid International, a Georgia-based nonprofit that packages and ships meals for humanitarian aid, voiced that concern.
“If we send cash to countries that are desperate for whatever aid we’re sending, we know that they’re more apt, whether out of desperation or corruption, to use the aid in a way other than how we intended,” he said. “When we send products, we eliminate that temptation.”
“My donors are making donations specifically for food relief,” he continued. “It’s a problem if we send over a cash transfer but the recipient decides they need to use that money for more pressing needs, like medical care or clean water or facility infrastructure. Our donors have given for a specific purpose, and from our perspective, that would be a misappropriation of funds.”
Even the most ardent advocates concede that cash is not a panacea. Cash transfers will not end civil wars, eliminate political instability, or cure malaria—at least not directly. And their lasting consequences are not yet clear. There have been few randomized evaluations of their long-term effects; it is possible that cash transfers could eventually reduce people’s incentives to work, for example, although a recent evaluation of cash transfer programs in six developing countries found “no systematic evidence that cash transfer programs discourage work.” (In addition to evaluating the long-term effects of its cash transfer programs, GiveDirectly has also announced plans to launch a randomized control trial of universal basic income, providing at least 6,000 Kenyans with a basic income for ten to 15 years.)
Cash, moreover, does not work in all situations or in all places. If money is given to too large a subset of the population, the influx of cash could increase prices and disrupt local economies. And, economists say, aid agencies should probably not dispense cash in situations where the root problem is not one of demand but of supply—as in a large-scale drought, where the main issue is a lack of food, not a lack of money. According to the MIT economist Ben Olken, cash transfers will work best where markets are functioning and flexible, often in urban areas. In places suffering from endemic violence or political conflict, cash transfers will be less likely to succeed.
For all the benefits of cash, said Natsios, who ran USAID from 2001 to 2006, they also present a thorny political problem. “The U.N. and NGOs and aid agencies want to be able to tell their donors—taxpayers, in the case of USAID or DFID—what their dollars are going toward. If you say you’re giving food to someone who’s hungry, people will understand that. If you say you’re giving cash to poor people, they’ll say, ‘What is this? A welfare program?’”
Having cash go from 6 percent of international aid “to 100 percent is a bad idea,” Natsios continued. “Because there’s a whole bunch of situations where it’s not the best option. But if we go from 6 percent to 25 percent, or 40 or 50 percent, that makes a lot more sense. So, I think moving incrementally toward cash is the answer.”
Cash may not be the most effective way to alleviate poverty in every case. Yet Faye has argued that it can, at the very least, serve as a benchmark against which to measure the impact of other interventions, requiring aid agencies to collect data and justify many longstanding approaches. “Let’s not just pick the aid priority that best aligns with our organization or job and say, ‘Well, I’m the food guy,’ or, ‘I’m the shelter guy,’” Faye said. “Let’s ask the poor what they need and provide them the means of getting it.”