Show them the money

Archbishop Desmond Tutu, Sir Richard Branson, former US Federal Reserve Chairman Paul Volcker and several dozen other current or soon to be emeriti last week asked the government of Bangladesh to stop bullying microcredit pioneer Muhammad Yunus and his Grameen Bank. The New York Times did not consider this newsworthy.

It did, however, join the parade of influential publications – Forbes, the Atlantic, Fast Company, Slate, Harvard Business Review and the Washington Post – to publish glowing pieces about Columbia University economist Paul Niehaus and his philanthropic start-up, GiveDirectly (

Move over, Grameen. With Facebook co-founder Chris Hughes on its board and a $2.4 million Global Impact Award from Google, GiveDirectly, looks like becoming the next big thing in development circles.

Mr Yunus’s Nobel Peace Prize-winning idea was that you could break cycles of poverty in countries like Bangladesh by giving women small loans to grow microbusinesses.  However, to quote a recent report by the UK’s Department for International Development, “no clear evidence yet exists that microfinance programmes have positive impacts.”

Mr Niehaus’ insight is that the poor are poor because they don’t have money, so why not change that by giving them some – or, more precisely, by making it possible for anyone to give it to them with click of a mouse, unconditionally and without middlemen gobbling up chunks of it along the way.

There is a lot of evidence that direct cash transfers work.  Mr Niehaus likes to quote a study by Esther Duflo of the Massachusetts Institute of Technology quantifying the impact of expanded social pensions in rural South Africa. Ms. Duflo found that girls whose mothers or grandmothers received pensions were more than a standard deviation taller and heavier – signs of relative health — than those in equivalent but pensionless households.

Launched in 2011, GiveDirectly channels one-time grants of up to $1000 to households identified as the poorest of the poor — living on 65 US cents a day — in western Kenya’s Rarieda and Siaya districts. The cash is dispensed over 9 to 10 months via Vodafone’s M-PESA mobile banking system which beneficiaries are given a SIM card to access if they don’t have their own phones.

Through November last year, GiveDirectly’s total outlay was $853 573. Of this, $785 500, or 92 per cent, was delivered or committed to 970 beneficiaries; $37 468 (4 per cent) was spent on identifying eligible recipients; $25 007  (3 per cent) on transferring funds; and $5 599 (1 per cent) verifying that the money had reached the right people. As of May, the charity reported having $3 million in available funds, $1 million of which it intended to use to expand to a second country.

How do recipients spend the money? In any way they chose, which is not, as some might suspect, on “temptation goods”.  To be eligible, households have to be living in thatched huts, and most (75 per cent in Siaya) report using the funds to replace thatch with iron sheets. Other common purchases are food (mentioned by 39 per cent), livestock (30 per cent), schooling (20 per cent), clothes (14 per cent) and non-farm business expenses (14 per cent).

One woman said she bought a cow because it was harder to fritter away than cash in the bank.  The roofs are sound investments, says Mr Niehaus.  They save money – up to $150 year per household, — because they don’t need constant replacing. They collect clean drinking water and they don’t provide a home for bugs, including malaria-carrying mosquitoes.

Mr Niehaus is not worried about his fieldworkers inflating costs by claiming pay for work they haven’t done. Every recipient household is geo-tagged and fieldworkers carry Android phones that generate a record of every hut they’ve visited and when. “By combining electronic records of behavior with multiple layers of independent auditing, we’ve created the strongest inegrity system I’ve yet seen”, the economist proudly blogged last week.

Would-be recipients are not above trying to game the system, however. In one instance, a village headman, hearing that GiveDirectly was coming to select beneficiaries, quickly moved friends and family into thatched huts. On another occasion, a village elder did the rounds of recipients, pretending GiveDirectly had asked him to collect repayment in the form of groundnuts.

Surveys also indicate that transfers may be fueling resentment. In the Siaya district, 159 or 45 per cent of 351 recipients surveyed in April reported “hearing complaints” in the community. 12 reported “shouting or angry arguments”. 6 said they felt threatened and two said an M-PESA agent had demanded a bribe.

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