Fighting poverty with direct cash payments | MIT News


What is the best way to help someone living in extreme poverty? Some might talk about better access to food while others might focus on health care or education.

These are all worthy causes, but the truth is that the needs of people living in extreme poverty vary. Walk through a slum in Kenya, for example, and you might meet budding entrepreneurs, people who want to invest in education for themselves or their children, and even people who, given the chance , would simply work less and spend more time caring for their families. .

Since 2009, nonprofit organization GiveDirectly has empowered people in need to choose for themselves by facilitating digital cash donations that go directly to recipients’ bank accounts.

The organization, which was founded by a group of graduate economics students that includes two MIT alumni, has paid out more than $500 million to date to people in 11 countries, from Houston residents recovering from Hurricane Harvey to farmers in Kenya.

Along with its payments, GiveDirectly studies the effects of cash transfers through randomized controlled trials in collaboration with independent researchers. The organization has more than a dozen such trials completed or underway, and is running more tests to better understand how recipients are spending funds. The work is based on a large body of research disproving the idea that cash payments will be wasted on drugs and alcohol.

“If you believe, as we do, that people’s needs are different, then cash is one of the few interventions that allows people to meet their own needs, and they should have better information about their needs than we do. says GiveDirectly co-director Rohit Wanchoo MBA ’08, who co-founded the organization with Jeremy Shapiro PhD ’09, Paul Niehaus and Michael Faye. “Extending this raises the question of what is philanthropy for? You can choose an intervention that matches your own values ​​or say, “I want to give this person the ability to live the life they want. And this will vary from person to person and household to household. But overall, we argue that money is the best way to match people’s needs with donations.

Private charity goes mobile

Before deciding to start a new type of charity, the founders were just trying to donate. Around 2009, as graduate students in various stages of studies in development economics at MIT and Harvard University, they agreed to dedicate a percentage of their earnings to people in extreme poverty.

As part of their courses, the founders had learned the effects of large-scale cash payments from the governments of Mexico and Brazil. They decided to test this approach with private donations.

“We knew cash was a well-studied, well-researched, and effective intervention, so our goal was to get an organization to take our money and give it in cash,” Wanchoo recalls. “We called a bunch of organizations and they refused. … So we realized that we had to create an independent organization focused solely on giving money in order to give money ourselves.

The founders say their approach was influenced by poverty research done at MIT’s Abdul Latif Jameel Poverty Action Lab (P-PAL), including Nobel Prize-winning work by J-PAL co-founders and professors. from MIT Esther Duflo and Abhijit Banerjee, as well as with economist Michael Kremer.

A key breakthrough enabling GiveDirectly to pay individuals at scale was the emergence of mobile money services such as M-Pesa, which had become popular among people without traditional bank accounts in Kenya.

Wanchoo made the first trip to Kenya to register people living in temporary settlements who had been displaced by violence after the 2007 elections.

“Where we were innovative was A) bringing this to the private charitable sector, and B) how we were able to target people and distribute money,” says Wanchoo. “So we married the concept of cash transfers with the on-the-ground technological revolution that was mobile money.”

In subsequent payment programs, GiveDirectly would use other technologies to bolster selection, such as satellite imagery to ensure that only people with thatched roofs and dirt floors would receive payments. GiveDirectly is also exploring the use of machine learning on mobile phone metadata to identify particularly vulnerable populations.

“With technology, we are moving towards ways of [identifying the poorest people] that are faster and more scalable; the pandemic was a huge catalyst for that,” says Niehaus. “Once you get large-scale data, you can do exciting things with it.”

There are countless stories of people benefiting from payouts from GiveDirectly, and the company maintains a news feed which details how the payments are changing the lives of individuals. But the founders are focused on creating the best overall system rather than dwelling on individual stories.

“Stories are useful for understanding how the world works,” says Niehaus. “At the same time, we want to contextualize the stories with the data so that we’re not just telling a story about the 1% best-case scenario.”

The founders have also observed positive impacts on entire communities and claim to have an upcoming study in a leading economic journal showing that every dollar donated increased a community’s overall economic output by $2.40.

Another advantage of GiveDirectly’s simple and technological approach is that it is able to give over 90% of the total money given to individuals in the form of cash transfers, far more than the average charity.

“The constraints to growth have never been about the ability to execute; the constraint has always been: are we ready to give our money to people living in extreme poverty and let them decide what to do with it? said Niehaus. “So it’s really about finding ways to convince people that the vision is exciting.”

Ending poverty

In 2016, the United Nations cited the need for “increased use of cash assistance” in global poverty reduction programs. Niehaus tells him that the advice illustrated a major shift in perceptions around direct cash payments compared to when GiveDirectly started just seven years earlier.

“We’ve all found this orthodoxy that giving people money doesn’t work — in the worst case, they might waste it in a way that’s harmful to them,” says Niehaus. “But there’s been a slew of studies showing that school performance improves, health outcomes improve, prostitution rates go down, crime rates go down, work hours go up — all of that. you hope. And it is of course very different depending on the context and the family. That’s a big part of the story of cash transfers: that there isn’t just one story, because everyone is different. »

Since 2017, GiveDirectly has also been operating in the United States, facilitating emergency relief payments to people in the aftermath of Hurricanes Harvey and Maria, working with the City of Chicago on a Universal Basic Income trial, and with a private organization on a guaranteed income project for poor women in Georgia.

As the effects of cash payments in wealthier countries continue to be studied, the Founders believe that cash payments can continue to make major strides in ending extreme poverty around the world.

“I always think, ‘What would it take to do this on a global scale to end extreme poverty?'” Niehaus says. “How much money would that take?” What should targeting look like? Let’s solve that and say, “If we were all willing to contribute a few percent of what we earn, that’s a problem that can be solved in a very mechanical sense in our lifetime.” It’s a direction I’m excited to see GD heading in.


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