The story of GiveDirectly

by on December 24, 2012 at 1:50 am in Economics | Permalink

Paul Niehaus, Michael Faye, Rohit Wanchoo, and Jeremy Shapiro came up with a radically simple plan shaped by their own academic research. They would give poor families in rural Kenya $1,000 over the course of 10 months, and let them do whatever they wanted with the money. They hoped the recipients would spend it on nutrition, health care, and education. But, theoretically, they could use it to purchase alcohol or drugs. The families would decide on their own.

…Three years later, the four economists expanded their private effort into GiveDirectly, a charity that accepts online donations from the public, as well. Ninety-two cents of every dollar donated to GiveDirectly is transferred to poor households through M-PESA, a cell phone banking service with 11,000 agents working in Kenya. GiveDirectly chooses recipients by targeting homes made of mud or thatch, as opposed to more durable materials, such as cement or iron. The typical family participating in the program lives on just 65 nominal cents-per-person-per-day. Four in ten have had a child go at least a full day without food in the last month.

Initial reports from the field are positive. According to Niehaus, GiveDirectly recipients are spending their payments mostly on food and home improvements that can vastly improve quality of life, such as installing a weatherproof tin roof. Some families have invested in profit-bearing businesses, such as chicken-rearing, agriculture, or the vending of clothes, shoes, or charcoal.

More information on GiveDirectly’s impact will be available next year, when an NIH-funded evaluation of the organization’s work is complete. Yet already, GiveDirectly is receiving rave reviews.

Here is a good deal more.  Here is one of my earlier posts on zero overhead giving.  Here is Alex’s earlier post.  Just last week I met up with one of the recipients of one of my 2007 donations and I am pleased to report he is doing extremely well as an actor and filmmaker.

Here is the site for GiveDirectly.  Here is one very positive review of the site, from GiveWell.

prior_approval December 24, 2012 at 3:02 am

‘They would give poor families in rural Kenya $1,000 over the course of 10 months, and let them do whatever they wanted with the money.’

And in a country with a per capital income of around $1,700, and depending on you define ‘family’ and ‘poor,’ this could be the easy equivalent of doubling or trebling that family’s income.

‘Kenya current per capita income, of about $1,700 according to International Monetary Fund, places Kenya as Number 154 out of 183 world countries. Per Capita income is a way of measuring the quality of life for a person in a country. The higher the per capita of a country, the higher the quality of life and security expected in that country. According to our table, Kenya is placed as a very poor country in the per capita income level $1,001 – $2,000.’ http://jamhurimagazine.com/index.php/opinion/3262-kenya-154-out-of-183-world-countries-with-1-700-per-capita-income.html

‘According to Niehaus, GiveDirectly recipients are spending their payments mostly on food and home improvements that can vastly improve quality of life, such as installing a weatherproof tin roof.’

Who could have imagined that people without food would spend money on it? Or people living in shelter offering minimal protection from the rain would acquire a roof. Maslow is probably laughing at someone right now.

Slocum December 24, 2012 at 8:51 am

“Who could have imagined that people without food would spend money on it? Or people living in shelter offering minimal protection from the rain would acquire a roof. Maslow is probably laughing at someone right now.”

Do you think that Maslow is laughing at Banerjee & Duflo?

What we’ve found is that the story of hunger, and of poverty more broadly, is far more complex than any one statistic or grand theory; it is a world where those without enough to eat may save up to buy a TV instead, where more money doesn’t necessarily translate into more food, and where making rice cheaper can sometimes even lead people to buy less rice.

And:

We asked Oucha Mbarbk what he would do if he had more money. He said he would buy more food. Then we asked him what he would do if he had even more money. He said he would buy better-tasting food. We were starting to feel very bad for him and his family, when we noticed the TV and other high-tech gadgets. Why had he bought all these things if he felt the family did not have enough to eat? He laughed, and said, “Oh, but television is more important than food!”

http://www.foreignpolicy.com/articles/2011/04/25/more_than_1_billion_people_are_hungry_in_the_world

But that certainly doesn’t mean that I think a program like GiveDirectly is a bad idea, and if some of the recipients decided to spend part of their gifts on a satellite TV they’ve always wanted, I think that’d be fine.

gorobei December 24, 2012 at 10:45 pm

Oucha Mbarbk sounds pretty rational to me: he knows his food is a Giffen good, he’s poor but not on the verge of starvation. A TV is a pretty rational choice in terms of entertainment for the family: that $50 TV probably keeps the family together/out of trouble more than anything else in the same price range.

Patrick December 25, 2012 at 3:24 pm

Actually following on this idea, a tin roof is not necessarily something that “can vastly improve quality of life”. Thatched roofs are actually quite effective if properly made (for example, even some very well off people have them), and, in fact, whether an improvement or not tin roofs are actually a status symbol in Kenya.

Robert December 24, 2012 at 9:07 am

GiveDirectly is probably better than most charities, but it would be quite surprising to me if it were the best, for the reasons outlined here: http://www.givingwhatwecan.org/blog/2012-11-30/givewell%E2%80%99s-recommendation-of-givedirectly

Other sensible motivations for GiveWell recommending GiveDirectly is the cultural shift that it could generate among charities, and the evidence about the effect of cash transfers they are collecting.

Ray Lopez December 24, 2012 at 4:29 am

Well let me be Satin’s Advocate: does Kenya, with 43M people, have the carrying capacity for more people? Would giving aid simply increase the population unnecessarily? On the other hand, 3.5% of the people have AIDS/HIV, #4 in the world, (South Africa is #1 with about 10%), so perhaps medical care is necessary on humanitarian grounds, though it’s unlikely a small cash payment will go into buying expensive anti-viral AIDS/HIV drugs. Reading now about Africa and, like Australia, it’s actually not that supportive of human life. Lots of areas in Africa were until recently uninhabited. Oh yes, I’ll probably be donating.

nazgulnarsil December 24, 2012 at 6:00 am

I feel physically ill when I think about the $30k or so a year given to the first world poor.

Ray Lopez December 24, 2012 at 6:09 am

But Econ101 tells us poverty is relative, not absolute. “For ye have the poor always with you” – Matthew 26:11

prior_approval December 24, 2012 at 6:32 am

And for those who can’t afford enough food to eat, Econ 101 would just have the student imagine a grocery store where they can shop. It’s more comforting that way, isn’t it?

Robert December 24, 2012 at 9:09 am

Econ101 won’t teach you people’s utility function, but any sensible approach would include both a ‘positional’ and absolute component to the value of income.

BC December 24, 2012 at 10:18 am

I didn’t realize that the Bible was the text for Econ 101.

Regarding the original post, I am surprised that, apparently, people are better at spending their own money, or in this case money that is intended to help them, than the government is. Oh wait, no, I’m not surprised.

Rahul December 24, 2012 at 8:15 am

More information on GiveDirectly’s impact will be available next year, when an NIH-funded evaluation of the organization’s work is complete.

Is global poverty alleviation a part of NIH’s mandate? How are they involved?

Willitts December 24, 2012 at 2:02 pm

Good question.

It seems they claim substantial credit their research increasing average longevity to 79 years in the US

http://www.nih.gov/about/impact/index.htm

Remarkable, if true.

babar December 24, 2012 at 9:22 am

i lived in kenya a while & saw quite a bit of poverty. but mud and thatch is a very good building material in that climate.

mw December 24, 2012 at 11:28 am

‘story’ being the key word. waiting on the long-term data.

Willitts December 24, 2012 at 1:57 pm

The result doesn’t surprise me, but I would caution against generalization. By selecting poor in mud huts, they are targeting people with very specific needs. They are between homeless and fully homed.

If you were to give $1000 to someone with no shelter at all, they might not buy or rent shelter because it isn’t affordable or sustainable. If you give it to someone who already has a solid roof over their heads, they might waste more of it.

To be more precise, giving $1000 to a homeless person or someone in public housing in the US is likely to be money wasted.

Maslow’s Hierarchy of Needs springs to mind as well as rational expectations of future income.

Brandon Berg December 25, 2012 at 6:59 am

The first-world poor are a highly self-selected group. The poor in a country where poverty is the norm are likely to be very different from the poor in a country where poverty is the exception.

steve December 26, 2012 at 7:06 am

Young Heroes has been doing this in Swaziland for the past seven years. It works.

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