When trucks and ships were the only ways to deliver goods, perhaps it made sense that donors would decide what the poor needed. But today the global development community has more advanced technology and a better sense of what is working than ever before. Now, some say, is the time to replace intuition with evidence to accelerate the path to ending extreme poverty.
This was the message Michael Faye delivered at a recent forum organized by the Center for Effective Global Action in San Francisco. The co-founder of GiveDirectly, the nonprofit behind unconditional cash transfers to mobile phones, and Segovia, the software technology platform that streamlines payments to emerging markets, shared the unifying motivation behind all of his projects: ending poverty with digital payments.
Faye is not just a radical dreamer in the global development sector who challenges worn out proverbs of the “teach a man to fish” variety. He, and his longtime collaborator Paul Niehaus, are revolutionaries actively challenging the way development professionals work today. Together they’re putting money in poor people’s pockets without the intervention of aid agencies, NGOs, or aid workers.
“I think it may even have even been in this building that we were asked if we were smoking crack,” Faye said in his recent presentation at Google, recalling one of their first fundraising meetings. The tech giant went on to provide the first big grant to GiveDirectly, which raised $52 million last year alone, bringing its total to $100 million over the past five years. Now, Faye is on a mission to make cash a benchmark, and he will bring his passionate message to Devex World, our June 14 conference in Washington, D.C., that will examine the changing face of global development.
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Faye stood before a line chart beneath the caption, “What’s at Stake.” Despite a steady downward trajectory in the cost of closing the poverty gap, the theoretical cost of what would be required to lift all people above the global poverty line, foreign aid spending continues to climb.
“For the first time in history, we have the resources, we understand what works, and we have the technologies to make it possible,” he told Devex in an extensive interview before heading back home to New York. “It’s now our collective responsibility to take advantage of this opportunity, and if we do, we could be the generation that ends extreme poverty.”
Let the poor decide for themselves
Faye was not the first person to propose giving money directly to the poor, as some nongovernmental organizations and governments had done for years. But during his time as a research analyst at the United Nations Millennium Project, where the Harvard mathematics and classics major worked before returning for his doctorate in business economics, Faye wondered what he could do to draw a more direct line between donors and recipients. And he decided “the most obvious” response was to launch GiveDirectly in 2008 to deliver cash transfers to the extreme poor.
“It’s neither a new idea, nor a particularly creative one,” Faye said. “But execution really matters and is quite hard. I don’t think it gets talked about enough in the development space.”
GiveDirectly uses publicly available data to locate extremely poor communities in Kenya and Uganda, audits households to make sure they meet targeting criteria, transfers around $1,000, which is an annual budget for a typical household in those countries, and then monitors those recipients, by calling them to verify receipt and offering customer service with a hotline for inbound calls. The organization publishes randomized control trials of its work, making data about its implementation transparent, and prioritizes efficiency and execution in managing transfers so that 91 cents on the dollar ends up in the hands of the poor.
Faye and Niehaus are also working to disprove one of the biggest arguments about cash transfers, that they only work in areas with strong financial infrastructure, by deploying cash transfer programs in places with weaker and weaker payment infrastructure.
“Beyond the direct benefit of cash transfers, there is the additional benefit of making explicit what you can achieve for a dollar,” Faye told Devex. “And it not only helps the recipients directly but also prompts tough questions.”
In April, GiveDirectly announced that it would implement the first long-term universal basic income trial later this year, providing at least 6,000 East Africans with a basic income for at least 10 years.
Faye said it is a natural extension of the work his team has done on short term unconditional cash transfers. It results not only from a growing interest in universal basic income, but from the growing body of evidence that the poor make more productive use of funds than much of the development community might assume. Their test will answer empirical questions like how people given a basic income spend their time, and he said he hopes it can build the evidence base necessary for policy change.
Compete on the measures that matter
Because donors rather than recipients tend to pay for development interventions, their decisions define the competitive landscape, and implementing partners compete for their business. Whereas most customers can take their business elsewhere if they are provided with bad service, aid recipients cannot vote with their dollars, which can lead to a void in competition.
On June 14, Michael Faye will examine the changing face of global development at Devex World. Stay tuned for continuing coverage of Devex World and tune in for live coverage next Tuesday on Twitter, Facebook and Instagram.
“If donors want glossy brochures and reports, NGOs will compete on that dimension; and if they want evidence and impact, NGOs will compete there,” Faye said. “In other words, donors — both public and individual — can and will determine the direction the sector moves by defining the metrics on which they evaluate and fund programs.”
While many donors increasingly talk about wanting to see results, programs continue to get funding whether or not they are able to demonstrate evidence of effectiveness. Faye said he wants to see the sector move from funding for experience, with aid agencies favoring established partners for contracts, to funding for evidence and performance. “While institutional donors are more focused than ever on innovation and competition, procurement practices can often be outdated, biasing toward old practices and the status quo,” he said.
GiveWell, a charity rater with a high standard for evidence and a similar mindset, lists GiveDirectly among its top charities year after year in part because of the evidence that cash transfers lead recipients to spend more on basic needs. In fact, GiveWell researchers say that cash transfers have the strongest track record they have seen for an intervention that does not directly target health, with their other three top charities being Against Malaria Foundation, Deworm the World Initiative, and Schistosomiasis Control Initiative.
While GiveWell is a fan of the GiveDirectly model, Faye said many large-scale cash transfer programs fail in execution because they lack the right payments technology. Some organizations, for example, still drop paper bills wrapped in sacks from airplanes. Faye and Niehaus launched Segovia, a platform that provides an integrated bulk payments solution for organizations looking to transfer cash transparently and efficiently to emerging markets. Part of what the team hopes to accomplish is to help these organizations capture more data so they can report on performance and compete on the metrics that actually matter.
Make cash the benchmark
Faye is continuing to challenge the status quo of foreign aid by working to make direct transfers the benchmark against which other approaches are evaluated. This means that organizations and individuals would ask themselves whether their intervention is doing as much good with a dollar as the poor could themselves.
“There’s a theme,” he said, drawing connections between the various projects he and Niehaus have launched together. “We should be competing to provide the best services to the poor. And whoever does it best should receive the contracts and philanthropic dollars to provide even more to the poor.”
While many dismissed the early days of GiveDirectly as “a crazy experiment,” the sector is now getting behind giving money directly to the poor. One recent example is United Nations Secretary-General Ban Ki-moon’s call ahead of the recent World Humanitarian Summit for cash-based programs to be “the preferred and default method of support.”
Faye acknowledges that his approach of putting power in the hands of the poor is by no means a silver bullet nor all that is required. “Cash is a private good,” he said. “And while it has proven significantly more effective than other such private goods, it will not replace public goods like schools or hospitals, which should theoretically beat cash.”
One risk Faye worries about is that donors will say they are using direct cash transfers, but still earmark that cash for specific purchases. This might result in vouchers for food, for education, or for shelter, diluting recipients’ control over how they spend their money. Walking their talk on evidence, Faye and Niehaus are working with researchers to understand the longer term outcomes of one time cash transfers. For example, Niehaus is collaborating with several researchers to understand the impact of cash transfers on macroeconomic activity.
Meanwhile, cash transfers continue to prompt endless questions from the donor community, media, government officials, and other actors in the global development sector: “Who received the cash transfers? How do you know these recipients were actually poor? Can you show me the audit trail?” “These are all great questions but we should ask them not for cash alone, but for all forms of aid,” Faye told Devex.
The Center for Global Development’s high-level panel on humanitarian cash transfers estimates that cash and vouchers have risen from less than 1 percent to around 6 percent of total humanitarian spending over the past 12 years. But most aid dollars continue to flow through implementing partners. Given the many steps that money can go through from start to finish, and factors such as multiple layers of subcontracting, opaque and weak budgeting systems, it can be difficult to tell how much of that money directly benefits the poor.
Faye acknowledges that, due to systemic constraints, the more established development organizations do not always have the freedom to try new things in the way GiveDirectly or Segovia have. While more conversations on what works in development are coalescing around cash, Faye called for more action to make sure aid dollars get the most bang for their buck.
“We simply have inertia from institutional architecture that was built in a different world than we have today, in a world where the constraints we used to face no longer exist,” he said in his recent presentation in San Francisco. “If we do get this right, we can certainly accelerate the end of poverty in our lifetimes, and hopefully do it in the next few years.”
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