What a $25M grant will mean for cash transfers to the poor

By Catherine Cheney 10 August 2015

A GiveWell staffer tests the m-Pesa system, used by GiveDirectly for cash transfers in rural Kenya. GiveDirectly hopes to reshape international giving through mobile cash transfers. Photo by: Eliza Scheffler / GiveWell / CC BY-SA

Last week, Good Ventures announced a $25 million grant to GiveDirectly, a nonprofit organization that gives cash directly to the poor via mobile transfers.

The organization, which works in Kenya and Uganda, has emerged as a favorite of the foundation, led by Facebook co-founder Dustin Moskovitz and his wife, Cari Tuna. Good Ventures has previously awarded $12.6 million to GiveDirectly, which GiveWell recommends as one of its top charities.

GiveDirectly explains on its website that it is backed by GiveWell, Google.org and “most importantly” rigorous evidence. That emphasis on data, with randomized control trials to assess the impact of these cash transfers, is part of what led to this investment by Good Ventures.

“GiveDirectly wants to continue studying how to deliver cash transfers most effectively and how they impact the lives of individuals, families and communities,” Tuna wrote. “That means donations to GiveDirectly not only help extremely poor people in the short term, they also help improve its model for the future.”

GiveDirectly co-founders Paul Niehaus and Michael Faye developed the idea for GiveDirectly while at Harvard University pursuing doctorates in economics. Their work with last-mile financial services connected them with some of the poorest people on the planet, and there was mounting evidence that cash transfers were an effective way to lift them out of poverty.

Cash vs. in-kind aid: Do humanitarians need to pick one over the other?

Despite the evidence supporting the effectiveness of cash transfers, cash-based assistance is often subjected to greater scrutiny than in-kind aid. We take a closer look at how the two, which are often pitted against each other, can work together.

“We couldn’t find an organization that would allow us as individual donors to put money directly in the hands of the poor, so we created one,” Niehaus said. “It can be tough as an outsider to pick out the high return investments, and what cash transfers do is let poor people do that for themselves.”

Devex spoke with Niehaus about how GiveDirectly hopes to improve individual lives and reshape international giving. Here is an excerpt from the conversation.

Beyond the direct benefits of this investment from Good Ventures — $16 million to $19 million to provide more cash transfers and $6 million to $9 million to build your marketing and fundraising team at GiveDirectly — what benefits do you expect will emerge from this grant?

There are two things we are hoping will come from it. One is talent. We've still got a lot of growing to do and we're really looking for exceptional people with a track record of building organizations. People like that are hard to find. This grant lets us say, look, if you want to come work at GiveDirectly, we have an incredibly exciting and audacious mission. We now also have the runway to experiment, to try things, to take risks.

The second thing is we can really put up a flag for folks who are working elsewhere in the sector and want to push forward and modernize and experiment. We all know it can be tough; there is a lot of institutional inertia and a lot of red tape that can make this tricky. We want this grant to be a signal to folks to come talk to us, to figure out what resources we can bring to the table to make it easier for them to try something new.

GiveDirectly began in Kenya then expanded to Uganda. What are the goals for expansion moving forward?

Our goals are really less about where we go. It’s nice to be able to draw a map of the world and shade in all these countries and say we work in all these places, but frankly that’s not the impact we care about at the end of the day. Where we go next — and it could just be to expand to more projects in Kenya and Uganda — will be driven by where we see an opportunity to create knowledge, to help institutional partners learn more about cash transfers. If the critical question is what can cash transfers do for refugees in Uganda, that’s great. If it’s demonstrating what cash transfers could do in Haiti, where so many other things have failed, you know, we’d strongly consider that. Ultimately it’s about the policy impact and the thought leadership we think the work can have.

How did GiveDirectly first get on the radar of Good Ventures, and how did that relationship evolve from initial interest to eventual investment?

Paul Niehaus, GiveDirectly co-founder. Photo from Twitter

I think GiveWell learned about us when, after we launched in 2011, Marginal Revolution blogged about us. GiveWell and Good Ventures work closely together, so Good Ventures reached out to see what we were planning. … Culturally the thing that has really brought [GiveDirectly and Good Ventures] together has been the prioritization of evidence and transparency. What is important in my mind about what Good Ventures and GiveWell are doing is that they are creating an ecosystem where organizations that demonstrate those priorities get rewarded for it. For example, we need to see more nonprofits committing to independent experimental evaluations, we need to see them pre-announcing the studies before the results come in. … That can feel scary, but it’s really important for making progress in this sector, and for establishing trust.

You’ve said before that GiveDirectly has raised questions about the role that institutions should be playing in development. Borrowing a word that is used all too often here in the San Francisco Bay Area, how do you hope GiveDirectly will disrupt aid?

People do love that word: disruptive. I might use the word focusing. I think cash transfers should help us to focus on the areas where we will have the biggest impact. I think the best analogy is the index fund. In the old days of investing, most money was actively managed by expensive fund managers. At some point, people pointed out — look, there is a very low cost way of investing through index funds. It’s plausible that some managers will beat those indexes, but they need to prove it, and we should only invest in the ones who can.

If you look at the aid industry as an industry that allocates capital on behalf of the poor, we feel like there should be similar discipline. We should say, look, poor people aren’t terrible at allocating capital, and it’s really cheap to put it in their hands, so we should use that as a benchmark and a reference point and then look for the opportunities where we can actually add value that more than justifies the costs of active management. We do think there are important examples like that.

Certainly cash transfers are not a panacea. Roads are not going to build themselves, vaccines are not going to discover themselves, just because poor people have more money in their hands. The ambition is that benchmarking against cash transfers will focus our energies more on things like that, and less on things like giving people food or goats, which frankly don’t make that much sense.

What does the commitment Good Ventures has made to GiveDirectly suggest about the role other Bay Area individuals and organizations can and should play in global development?

It’s an interesting question, especially as there’s a lot of discussion right now about the relationship between Silicon Valley and D.C. and how to find ways to work together productively and not clash. … You can completely understand why, looking at the world from San Francisco, it’s frustrating that other places are slower to change. But by the same token I think there are structural reasons that people working in large, public organizations often find it hard to innovate, hard to take risk. So I think there’s a role Silicon Valley can play to help those people in the public sector who do want to innovate, by bringing in capital or other resources to reduce the risk. We’ve already seen this working in partnerships with Google.org, [which has] been incredibly flexible about funding the parts of a joint venture that are tough for institutional players to back, and that’s made the difference between innovation and the status quo.

At the end of the day what matters is the data. I’m very sympathetic to people who have concerns about cash transfers and I think the only way of working through all that is to keep testing, and test with different partners and on different projects, and to generate more rigorous evidence.

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About the author

Catherine cheney devex
Catherine Cheneycatherinecheney

Catherine Cheney covers the West Coast global development community for Devex. Since graduating from Yale University, where she earned bachelor's and master's degrees in political science, Catherine has worked as a reporter and editor for a range of publications including World Politics Review, POLITICO, and NationSwell, a media company and membership network she helped to build. She is also an ambassador for the Solutions Journalism Network and the Franklin Project at the Aspen Institute.

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