Fighting Poverty with Cash

The steady proliferation of charity groups and humanitarian organization has (more or less) reduced poverty in many parts of the world.   Still, it is no secret that a large percentage of the money collected to battle poverty actually goes towards supporting the infrastructure of these various organizations.   How much of the money collected actually ends up in the hands of the people who are supposed  to be helped can vary depending on the organization    As well, there is often a patriarchal "we know best" attitude over who receives the aid and how that aid is to be used in fighting poverty.  

Many donors often need to check carefully into the background and mission statement of each charity group to decide if that charity is consistent with their own philosophy of giving.   Questions often arise over how sustainable the charitable help is going to be.  There is also the perpetual problem of bribery in many parts of the world with charitable organizations often needing to "pay off" corrupt government officials to be allowed to distribute aid at all.

But what if there were a more direct way of giving?   Instead of relying on an infrastructure of experts and charity directors, what if the money simply went to the people who needed it?   This is the central concept behind GiveDirectly.   Founded in Cambridge, Massachusetts by graduate students completing economics development degrees at Harvard and MIT, GiveDirectly was made possible by the exploding use of mobile banking in developing countries. 

Through services such as Pingit, people with smartphones can send and receive money directly.  Due to the lack of the pre-existing infrastructure found in Western nations, most developing nations have completely bypassed the need for landlines by leapfrogging directly towards wireless telephony.   Cellular telephones are a common sight in poor countries and have allowed communities to stay in contact using solar technology and other innovations that are largely unthinkable in Western nations.

This has also allowed the rise of wireless banking for the masses.   As one example, the National Payments Corporation of India has developed the Interbank Mobile Payment Service to provide round-the-clock financial services for all of India's major banks.  This allows person-to-person mobile banking on all mobile phones including merchant payments, bill payments, and cash-on-delivery.  Services such as this throughout the developing world have also enabled organizations such as GiveDirectly to bypass conventional charity groups to provide direct aid to people in need.

Through direct donations to GiveDirectly's web page, poor households in Kenya and Uganda can receive aid directly with only a small percentage of donations being used for infrastructure.  With more than 90 percent of money donated to GiveDirectly being transferred electronically to people in need, recipients are then allowed to decide for themselves how the money is to be spent.  According to independent charity evaluator GiveWell, GiveDirectly is currently rated as one of their most highly recommended charities with the one-off grants reaching the desired households with no evidence of corruption or inefficiency in the process.    While there are some cases of discord between recipients and non-recipients, the GiveDirectly program does seemto have a good track record for providing direct aid to people in need.

According to a review of GiveDirectly published by GiveWell last November, a number of the key strengths of the GiveDirectly program include:

  • Its focus on a program with a low burden of proof and a strong track record.
  •  A strong and evolving process for ensuring that cash is well-targeted and consistently reaches intended targets (more), and documented success in transferring a high portion of funds raised directly to recipients.
  • Standout transparency and commitment to self-evaluation.
  • Room for further expansion in providing funding

The GiveWell report does note some concerns, including the fact that GiveDirectly has only been in operation for a few years and that the organization's leaders are all unpaid part-timers.  While that speaks well of their dedication, it is open to question how long the charity can continue in its present form.  

Still, based on the GiveWell report, GiveDirectly has received further funding which will allow them to expand operations and deliver more aid than before.    Media coverage has been generally positive to date though some critics have argued that it  may promote a "dependence mentality" in people receiving aid.   As well, there are still questions about potential tension between people receiving aid and those who don't that need to be answered before programs like GiveDirectly can receive wholehearted support.

Despite these concerns, it should be interested to see where GiveDirectly, and providing direct aid through mobile banking, will go over the next few years.   Will it transform how we donate money to developing nations?  Or will it become just another giving fad?   

Time will tell.

The GiveDirectly blog.





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