A startup that gives out money to the poor for nothing

Original author: Nico Pitney
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An unknown person appeared on the threshold of Theresa's house with a very interesting offer. Teresa and her family will receive money in the amount of her annual income. And she will not have to return anything. She will not need to pay money, and they will be able to spend it, as you like.

Teresa was perplexed. “We did not believe that someone would give us so much money without requiring them to work.” But they gave the money.

This story was repeated many times. An organization with money, GiveDirectly , is unknown to a wide range of individuals. They almost do not spend money on marketing, their Facebook page collected only 7,000 likes.

At the same time, GiveDirectly is one of the most effective organizations trying to eradicate poverty. Two of the company's board of directors were at the forefront of Facebook. In the spirit of Silicon Valley, the company's work is based on data processing, and is more transparent than other charity projects.

Teresa, her husband Odiyambo and their family.

How it works. GiveDirectly transfers about $ 1,000 to a poor family during the year. The company does not give any rules or even advice on the use of this money. Since its launch in 2011, the company has already distributed $ 15 million in the communities of Kenya and Uganda. These are not the poorest countries in the region - they are at the center of the African revolution of mobile banking, which is extremely important for GiveDirectly. The likelihood that a person from the Sahara region of Africa will have a mobile financial account exceeds the likelihood of a European having such an account by 60 times .

After GiveDirectly selects a village based on available poverty statistics, they use a simple way to determine who will receive the money: they choose families living in houses with thatched roofs and earthen floors. This use of organic matter is a clear sign of poverty. This is understandable to community neighbors and to the company itself.


Money is transferred electronically. Recipients receive SMS and withdraw money from the nearest mobile payment intermediary. If they belong to an endangered minority that does not use mobile phones, GiveDirectly buys them a phone for some of the funds listed.

This distribution of money reduces costs and the likelihood of corruption. In addition, it is the basis of the company's plan to extend its work to millions of people around the world.

Distribution of money is carefully studied by researchers. There are dozens of studies based on the experience of 13 countries on four continents. The UK agency calls this practice “one of the most studied forms of developmental interventions.”

A 2013 Uganda study claims that people who received such funds increased their annual income by 49% in two years, and by 41% in four years, compared to those who did not receive money.

How many people just spend this money on alcohol and smoking? The World Bank, which studied 19 studies last year, claims not much. “Almost without exception, studies show that spending on alcohol and tobacco either does not change or decreases. Such a result is steadily observed throughout the world. ”

Distributing money is not a panacea. As part of a program in Libya, they gave out $ 200 to those who did not have a home, or to those who made money from drug trafficking and theft. Lead researcher Chris Blatman summed up her results:

Almost no one wasted money. Most of them lived, ate and dressed better after a few months. Unlike Ugandans, whose business was growing, in Libya, people returned to the same place where they started. $ 200 was not enough for them to become businessmen. But this improved their life for some period, for which this program was started. "We


already know about several successful charity programs related to health and medicine. For example, there was a program for providing people with bed-nets to prevent the spread of malaria and various parasites.

In addition, money alone cannot always help in the absence of basic social services. Recipients of the money could spend it on training and health, but if there are no good schools and clinics nearby, they will not be able to improve their health and education.

But still, the positive results of monetary assistance can become permanent and widespread. This includes improving nutrition, and better health of newborns, and reducing HIV infections. As a result, in 2011, according to a research firm from the UK, global aid programs underwent a “ silent revolution ” in which between 750 million and 1 billion people received assistance in developing countries.

GiveDirectly is the first nonprofit organization dedicated exclusively to remittances. It was founded by four graduates of MIT and Harvard. They were inspired by the proliferation of mobile banking, which enables affordable and secure money transfers. But in addition, in Cambridge, they became part of a movement that promoted the scientific study of charity events.

The leader of this movement is Esther Duflo. The Financial Times calls her " one of the best economists in the world.""- entered work at MIT at the age of 29, laureate of the MacArthur Foundation Prize, laureate of the 2010 John Bates Clark Competition - the so-called Mini-Nobel Prize." She likes to repeat that charity programs can and should be comprehensively tested - then you can get amazing results that do not coincide with what people are used to thinking about them. (For example, the fact that having received a cash allowance, the poor are in no hurry to drink it). In 2003, Daflo and a colleague, Abhijit Banerjee, founded the Poverty Action Lab at MIT, which has studied many studies supporting the benefits of giving out money.

After many years of experimentation, and Daflo Banerjee published which became popular book "Economics of the poor» ( Poor 'Economics), refuting the view that poor people do not understand finances. They prove that poor people have more sophisticated finances, since it is very important for them to calculate everything correctly. Poor people independently manage loans for themselves and for neighbors, calculate the benefits of loan offers, not relying on financial institutions, and manage daily expenses and incomes on the basis of variable incomes. This explains why the distribution of money to the poor, and not the allocation of capital on their behalf, is so effective.

Government cash assistance programs require people to take action before they receive money - for example, vaccinations. In this state. help is usually small and rare. GiveDirectly acts differently - it gives a large amount at a time for a shorter period of time. The goal is to give out the amount that will be invested in long-term projects. In addition, GiveDirectly transfers are made without any conditions and requirements.

So how do people spend their $ 1,000? “We saw a lot of things,” says GiveDirectly co-founder Paul Niehaus. “What we understood is that everyone has their own needs.” Sometimes money goes to food, housing, health and education. "Sometimes something does not work out - they spend money on unsuccessful investments, or a failed business." But each situation is unique. “One friend bought musical instruments and organized a band, released an album,” says Niehaus. “Everything that can be imagined that can happen in our eventful and unpredictable life.”

But so far, liability is not the standard in the world of financial assistance. Few organizations try to confirm or measure the success of their programs. Non- profit organizations are even less likely to resort to checking the effectiveness of programs using randomized controlled trials (RCTs) - tests of the same type that pharmaceutical companies use to test drugs. These tests are expensive, complex and time consuming.

GiveDirectly leaders do not just encourage such research. In 2013, they publicly announced an upcoming RCT test before it began. Thus, they took responsibility for any result that the test would show.

GiveDirectly has gained particular popularity in Silicon Valley, where people like to try to change the world with data and technology. The company is supported by Google’s charity, Facebook co-founder Chris Hughes sits on the board of directors, and another co-founder, Dustin Moskowitz, donated $ 12 million through his fund .

“A private company’s core performance is value and customer satisfaction,” says Michael Fay, one of the co-founders. “This is not yet in our field of activity.” Therefore, they are trying to make a difference.

Usually charitiesfixate on how much they spent on their activities. GiveDirectly takes a different approach: when a sponsor transfers one dollar, how much money is in the hands of the poor? In the case of GiveDirectly, it is 90 cents , which is a very good result in the world of NGOs.

GiveDirectly also tracks performance and polls its customers. Was it easy for them to get their money? Did they ask for a bribe? And all survey results are published on the site.


The GiveDirectly website reflects the company's desire to base its work on data processing. Instead of heartbreaking photos of starving children, on the site you will find statistics from which we can conclude whether the company's efforts achieve their goals. “This means that if we make a mistake somewhere, you will see it at the same time with us,” says Niehaus. “We think this is a very powerful standard that we are trying to set.”

The site still has personal stories of money recipients, but the company claims that they took these stories from random people. Niehaus speaks of this as an alternative approach to advertising a charitable organization - providing sponsors with a reliable representation of the lives of poor people. “A great opportunity to exclude middlemen from the process of delivering information about those in need to the Americans. "We give them a more honest view of what life is like in Africa, without any censorship, and tell what people do with the money they make.”

Often these are not glossy stories of hope or tearful stories of poverty, which can be found in advertising charity. In one interview, the recipient of the money, Kevin, said that at first he thought that this program was run by Satanists. “On the radio, we heard that in other places those who worship the devil work in charity, give out money, and then demand to sacrifice your child, wife or yourself.” In another interview, the recipient Selina describes in detail her donated purchases: a wooden door, various furniture, and a chicken.

Teresa, who received the money and did not believe that it really was, also gave an interview to the creators of the site. She criticized the employees of the company for not explaining what was happening very well, and was surprised that her family moved to this village just before the GiveDirectly program was launched. “We were so lucky that we arrived the same year when the funds arrived,” she says.

“And we don’t just choose some stories that put us in a good light,” says Niehaus. “We actually give a real sample of what happens if you distribute money to people.”

In addition, GiveDirectly is committed to providing sponsors with a fair amount of accurate data. “Just as you can track the package sent by FedEx, you can track your donations - when they arrive in Kenya, when we find the recipient, we check it, when the money goes to his bank - all these steps,” says Fay. “Until we force everyone to observe discipline and clearly reflect all stages of activity, increase transparency and efficiency, get rid of forgery, our sector will not change.”

Digitization of the entire charity chain not only gives more data to sponsors, but also provides more reliable work with beneficiaries. It is very difficult to keep track of the work of charity organization employees when they are scattered across large and remote territories. In our case, all work “in the field” is monitored, all actions get a temporary and geographical reference. If an employee says that at a certain time he was in a certain house - this can be checked. Managers can monitor data in real time when workers move from home to home, concluding contracts with new recipients.


Last year, the most serious violation of all occurred: 2% of monthly payments were stolen. Uganda Manager Collusivewith a local financial intermediary, and convinced the recipients that part of their money was withheld due to the increased cost of SIM cards. Some of them did not believe him and reported it by GiveDirectly support phone, but it turned out that the call center operator was also at the same time with the scammers. This became known when Niehaus wrote about the incident on a corporate blog . “It was very important to set this precedent,” says Niehaus, “and to say that we are transparent in everything, whether things are going well or not.”

"We want to talk in detail about our failures, about cases of fraud," Fay adds. - This is an integral part of work in this sector and we have been silent about such cases for too long - people pretend that they are not happening. Until we can honestly talk and say that we have high costs or fraud, we cannot begin to correct these shortcomings. "

All this sounds like music for Eli Hassenfeld, a hedge fund analyst who has moved into the field of evaluating charity programs who helped create GiveWell, who does the hard work of identifying the best performing charities, GiveWell usually picks the best 3-4 companies each year, and GiveDirectly has been on the list for three years in a row.

“We are looking for companies in which all incidents become known, covered, and serve as a lesson for the future,” says Hassenfeld. “If bad news gets publicity, that's good.” If you hear only the good, this is bad. This approach should be the standard, instead of striving for an unattainable ideal. "

The results of the company are not long in coming. According to a report published by companies, over the past year, recipients of aid increased their income by 34%, assets by 52%, compared with those who did not receive assistance (the assets were cattle, home improvements and savings). 36% fewer people go to bed hungry, and the number of days that children spend without food decreased by 42%. They spend more on education, health, food and social opportunities. There is no increase in spending on alcohol and tobacco.


The psychological effects of these infusions have also been studied. Leading researcher, Johannes Haushofer, a behavioral economist from Princeton, studies the combination of poverty with psychological health. He wrote about the “trap of psychological poverty”: poverty creates stress, anger and sadness, which are associated with a loss of productivity and a decrease in interest in long-term investments such as health and education, which, in turn, leads to poverty - it turns out to be a vicious circle.

Participants in the GiveDirectly test received several tests that were supposed to assess their general condition and level of happiness. Researchers even took saliva samples to analyze the content of the stress hormone cortisol - this was first done on such a scale with a similar study. A significant increase in psychological health was found. The recipients said they became happier, life began to bring more satisfaction and less stress. It doesn’t matter at what level of psychological health the recipient started - everyone felt the improvement. Cortisol levels were significantly lower (in some cases).

Since the recipients of the money can spend it on everything, evaluating the costs and achievements becomes difficult. What is more important - improvements in health or education? “We keep talking about it,” said Fay. - That's a very difficult question. One person has to send the children to school, another needs surgical help. ” The assessment of changes in the level of psychological health helps in this matter. No matter how people spend money, all of them as a result began to receive more satisfaction from life.

Periodically, GiveDirectly meets resistance in its path. Many U.S. residents are skeptical of giving money to poor people. The opinion of American sponsors strongly differs from the opinion of specialists in the development of poor regions. And not only they doubt it. Last year, a Chinese financier offered to give out $ 300 to homeless New Yorkers, the New York City Rescue Mission charity refused to do so . They were afraid that the money would go to drugs and alcohol.

Despite skepticism, GiveDirectly support is gradually growing. In 2013, it amounted to $ 5.5 million, and this year it is expected to reach $ 40-50 million. Most come from young philanthropists working in the financial or technical sector. “These people are used to evaluating approaches and care about clear evidence,” says Niehaus. “They want to go to the charity’s website and read in detail about how it, for example, fights fraud.”

Some large philanthropic organizations adopt this experience. One of the largest agencies, the World Food Program, manages about $ 4 billion a year. In 2009, $ 10 million was spent on money distribution programs and vouchers. By 2014, these numbers rose to $ 1.25 billion, going to 87 programs in 56 countries.

GiveDirectly works with data to help improve similar programs that other companies are working on. “We ask questions like: what happens to a business structure after a money transfer? How is the local government changing in this regard? How do schools change redistribute their budget? What happens to commodity prices? ”

GiveDirectly also continues to experiment.to test your core model. The company is trying, in particular, to transfer money to women at the head of the family, in particular young women, or is trying criteria different from the “thatched roof”. But the results from this do not change much. Experiments are conducted in which the recipients of money can control when exactly they receive the money. Some want to get everything at once in order to pay for something expensive; others want to distribute payments so that their relatives do not pester them with loan requests. In one of the following experiments, the company will try to give advice on the best ways to spend money.

This does not mean that charity should completely switch to a simple distribution of money. There are other forms of assistance - the provision of free vaccines, medical services, road construction, training.

But those who promote this form of charity believe that giving money should be the standard against which all other forms of charity can be compared. As Dustin Moskowitz said, transferring $ 5 million to GiveDirectly: “Do not ask if this project should be financed or not. Ask if you need to finance the project, or if you can simply give out money to those in need. And now we have such an opportunity. ”

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