So my talk was entitled “Poor Giving”. I came across a charity, through a friend, called GiveDirectly, which was set up by a load of PhD economics boffins from Harvard and MIT. The aim of the charity is to give money directly to a poor household in Kenya. What I will do is bombard you with information about this project and leave it to you to mull over and think about the questions which I will leave this on. I hope that even if it does not help us (Britain) it will most certainly help those in third world countries.
- Select regions of Kenya with high poverty rates using census data.
- Villages are then identified with low-quality housing and access to someone who can provide mobile-phone-based payment services.
- Finally, the poorest households in these villages are found using simple, transparent criteria: households living in homes made out of mud, wood, and grass. These criteria effectively identify relatively poor households and are generally perceived by the community as fair. Eligible households' phone numbers are recorded or, for those that do not have a phone, provide them with a SIM card.
- The money is then moved from using M-PESA accounts (mobile payment system). The recipient gets an SMS text message reminding them of the transfer.
- So can GiveDirectly help get not only households but whole countries out of the poverty line? Could it be applied to all households in a third world country, or just those below the poverty line?
- What would be the negative effects if GiveDirectly worked on a national scale? Would it drive up prices in more westernised society?
- Could GiveDirectly work for the UK (say if a billionaire gave each person/family/poor household £2000)?
During an economic crisis we are all strapped for cash, yet it is cash that helps us get out of this crisis. So because there is less cash, aid, whether financial (in the form of investments), medical, food or shelter is not as much donated to the third world. Because of this third world countries have had to cut in areas like us, this, for example has affected the treatment of HIV patients in Africa. (SOURCE) It took longer for the crisis to hit third world countries but now it has hit like the rest of us because the country was trying to westernise itself and incorporate itself into the western markets. Because exports as well, which are made in third world countries declines, the poorest of those countries have, had, and are having some of the worst times. (SOURCE)
Each household chosen, receives $2000 over a period of two years. This is often split up into quarterly instalments.
This is the criteria in which people are chosen to receive the money:
So how efficient is this aid system, compared to more mainstream aid? The American Institute for Philanthropy rates charities that spend more than 60% of their budget on "program services" as "satisfactory" and those that spend more than 75% as "highly efficient." Note that the "program services" category includes operational costs; by that definition, the GiveDirectly charity spend 100% of donations on program services.
What about investing and saving the money given to the recipients? Recipients often save or invest a large proportion (50%-80%) of the transfers they receive, depending in part on whether the transfer was short-term or ongoing. (SOURCE)
Health Care: Many studies find positive effects on the health of children as measured using anthropometric techniques - for example, children's height-for-age and weight-for-height.
Is there abuse of any of the cash which is given? The poor do not abuse cash as predicted by derogatory stereotypes. Across a range of studies, spending on alcohol and tobacco either decreases, stays constant, or at most increases in proportion with other spending (typically 2-3%). Similarly, most studies find no effect on the number of hours worked. Some studies show increases in working hours as household members migrate to obtain better jobs.
Here is some interesting numbers to crunch:
What about micro-loans? While micro-loans may be helpful in lifting households out of poverty, research suggests that this is likely true only for certain households. One potential reason is the high rates of interest (up to even 100% per year) charged on micro-loans due to the costs of administering and monitoring many small loans. These high interest rates limit the benefit to the household of obtaining a sum of money to spend or invest. Also the term structure of micro loans, which requires that borrowers begin making repayments as soon as 1 week later, may induce households to invest loans in activities that generate income relatively quickly, such as a small vending enterprise, rather than long-term investments, such as in their health or the education of children. Another concern with microfinance is that the poorest households can't afford high rates of interest and lenders will not give them loans. GiveDirectly seeks to fill this gap by providing assistance to those too poor to access microfinance.
Is giving cash, sustainable? Usually when the word "sustainable" is applied to charity, it means that a gift "keeps on giving" and that donors need not continue to make gifts to the same recipient. Since many GiveDirectly grant recipients use some or all of the money to invest in small enterprises, many of GiveDirectly's grants are "sustainable." Indeed, one study of unconditional cash transfers in Mexico found that that household incomes increased by between 1.5 and 2.6 times the amount of the transfers due to the returns from increased investment, suggesting that cash transfers are more than sustainable. Beyond short run income changes, investments in adequate food, proper clothing, better health or more education for children may be "sustainable" in the long run; even though it will require charity until that child is done with school, he or she will grow up much better off and needing much less assistance than his or her parents.
Should there be more controls/conditions when giving the cash? GiveDirectly intentionally provides unconditional, rather than conditional, cash transfers. We do this for three reasons. First, empowering the poor to make their own decisions advances our core value of respect. Second, it lets recipients purchase the things they need most, enhancing impact. Third, imposing conditions on the use of funds requires that costly monitoring and enforcement structures be put in place. One detailed estimate put the administrative costs of a conditional cash transfer scheme at 63% of the transfers made over the first three years of the program (rather than current 10% administrative costs for unconditional cash offers).
Department for International Development in 2011 said that: Cash transfers were one of the more thoroughly researched forms of development intervention. They conducted a 130 page review (available on the GiveDirectly website). There were many positives from this but a draw back was that: ‘There is also a need for greater understanding on the impact of cash transfers for improving access to a broader range of public services. For example, cash transfers may have an impact on water and sanitation, by helping households to afford clean water and better sanitation, although this has rarely been measured.’
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