This week I would like to profile a non-profit model that deserves notice not only because it was started by a former classmate and friend of mine but also because it is an inspiring new model for development aid that may well be a new benchmark by which all poverty-alleviation interventions and philanthropy will be measured. GiveDirectly a recent winner of a Google Global Impact Award is a non-profit devoted to providing unconditional cash transfers (i.e. cash with no strings attached) directly to the impoverished in Kenya. You may be asking what is the difference between this and just giving money away? Not much, except that with technology from M-Pesa and rigorous randomized impact evaluations they can guarantee that money is being received by intended beneficiaries and is having an impact on those who need it most. It is a simple tech-enabled and data-driven model that has caught the world’s attention and has recently been featured by the likes of Harvard Business Review, The Atlantic Magazine and NPR. Read on to find out more.
WHAT IS THE BUSINESS ABOUT?
GiveDirectly is taking the most classic and popular forms of development aid – conditional cash transfers, and giving it a new twist. It is making the cash transfers unconditional e.g. letting recipients use the money however they want. It is also making sure that unlike traditional donations the transfer is as efficient and low-cost as possible. You can find out more about how it works here. To make sure that it is working the team conducts regular on the ground audits of the households to make sure that intended recipients are receiving the funds and also top-notch randomized impact evaluations in the communities receiving the cash to see if it is making any difference on their livelihoods. To date they have facilitated more than $1.6 million dollars in direct cash transfers to more than 1600 families, with another $700,000 in the pipeline.
HOW DID IT START?
The idea started back in 2008 when four friends pursuing advanced degrees in economics at Harvard and MIT uncovered multiple reports demonstrating the effectiveness of cash transfers as a model to alleviate poverty. They decided they wanted to donate but could not find a single nonprofit using the approach. So they decided to start their own. To do this they traveled to Kenya where recent election violence had devastated the country. They discovered that many poor households simply needed cash to restart their lives and survive. They then partnered with M-Pesa, the mobile money provider and developed a model to get cash to the people who needed it most. Once the model was built they got initial funding from the Lampert Family Foundation, NIH and later Google Giving to prove and scale the concept.
WHAT IS THE SOCIAL NEED IT ADDRESSES?
GiveDirectly aims to help lift the ultra poor out of poverty and provide them with healthier lives and better opportunities. The basic idea is that some people are born into extreme poverty (living on less than $1 a day) and that without some minimal level of cash or capital can not break the poverty cycle. As mentioned above conditional cash transfers have long been some of the most famous forms of economic development aid and has had considerable success in places like Brazil and Mexico. Research has shown evidence of the positive impacts cash transfer can have on the poor including improving business profits, farm profits, investment and savings, adult work hours, children’s school enrollment, children’s health and anthropometrics, and infant birth weight. A full literature review from DFID can be found here. Now there is a growing community which believes that cash transfers do not need to be conditional to be successful. Thus the recent growth of unconditional cash transfer projects like GiveDirectly.
WHAT IS THE BUSINESS MODEL?
- Value Proposition – GiveDirectly provides to customers (in this case donors) a more efficient and direct way to ensure that money is delivered directly to intended beneficiaries. They are also using powerful cutting edge economic research to assure donors that money donated has a meaningful impact
- Channels – The main way I am assuming GiveDirectly will reach customers is through social and other forms of online media. It is clear the target audience is the young tech savvy community that demands quick results and to know how money is used.
- Revenue Streams – None other than from donors
- Cost Structure – Low costs as platform takes advantage of existing infrastructure (e.g. M-Pesa) and only requires a minimal level of staff – founders + IT support and on the ground auditors to check to make sure intended beneficiaries are receiving money.
- Key Partners/Resources/Activities – Key partners include SafariCom in Kenya and Google who is basically financing the operation.
WHAT ARE SOME CONCERNS I SEE WITH THE MODEL?
- Sustainability – I fear that operating as a charity without government support the model would die. What happens when the likes of Google stop funding. Wouldn’t it be better to figure out a way to make this same model self – sustainable?
- Partners – GiveDirectly is heavily dependent on its partners, in this case M-Pesa. Why could the partners not just do this them-self? Related to scale the concept to other parts of the world will require that partners have the technology and willingness to partner with GiveDirectly. This is a big risk.
- Reaching intended beneficiaries – Even with the audits and the criteria used to identify worthy recipients of donors cash I find it hard to believe that cash will reach in all cases the true intended beneficiaries. There is the possibility that locals will learn to game the system and use family and friends to take advantage of new ways to get access to free cash. In addition many of the most poor will not have cell phones and even if they get a sim chip how can we be sure that someone who knows this will not take advantage by stealing chips or skimming some of the money off the top when cards are exchanged for cash.
- Choosing the right recipients – How do we know as users that these are the most worthy beneficiaries (those who need it most) who will make the best use of the money we donate.
- How money is used – While there is now mounting evidence that in places like Africa cash transfers are used for productive activities such as new business ventures, food or schooling there is still concern that money could be used for things like alcohol and drug abuse. More evidence will be needed to show that this is not the case in the places GiveDirectly works.
- Morality of randomized trails – Using randomized trails (giving cash to some members of community but not all) will be necessary to prove that the concept works. But at the same time what is the criteria by which we choose which individuals in a community receive cash versus those that don’t. There needs to be some objective way to make this process fair or it undermines part of the whole idea of the venture which is to provide the ultra poor with some level of dignity.
WHAT DO YOU THINK?