Unconditional Cash Transfers: Investing Directly in Poor Families

GiveDirectly has expanded its cash transfer program, which was found in a randomized evaluation to have improved economic and psychological well-being in Kenya, to reach over 60,000 households in rural Kenya, Rwanda, and Uganda since 2013.

A stand in Kenya advertising mobile phone-based money transfer service M-Pesa (Photo courtesy of GiveDirectly)

GiveDirectly sends cash directly to households living in extreme poverty. An evaluation of its program in Kenya by Johannes Haushofer (then a J-PAL post-doctoral fellow), along with Jeremy Shapiro, found that unconditional cash transfers increased household assets, consumption, and food security. GiveDirectly is scaling the model and, in the process, influencing a global debate on effective charitable giving and universal basic income.

The Scale-Up: Informed by rigorous evidence, GiveDirectly designed, evaluated, and scaled a cash transfer program to reach over 60,000 households in rural Kenya, Rwanda, and Uganda.

Inspired by evidence on the effectiveness of cash transfers, J-PAL affiliate Paul Niehaus, along with Michael Faye, Jeremy Shapiro, and Rohit Wanchoo, founded GiveDirectly, a non-profit organization that allows donors to send cash directly to poor households through mobile money systems. Since the program was evaluated in 2013, over 60,000 poor households in rural Kenya, Rwanda, and Uganda have received transfers from GiveDirectly, reaching over 280,000 people within these households. GiveDirectly’s focus on efficiency (with about 90 cents per dollar donated reaching the poor), organizational transparency, and ongoing generation and use of evidence has inspired commitments from donors, helping GiveDirectly expand its reach annually.

The Problem: What happens when you give poor families cash, no strings attached?

In 2015, wealthy countries cumulatively spent over US$131 billion in development aid.1 Nearly all of this assistance is provided as in-kind contributions (such as food, fertilizers, or textbooks) or services (such as business training) that involve substantial administration and management costs. The proliferation of cell phones and last-mile payments infrastructure (such as mobile banking) has made transferring cash directly to the poor fast, reliable, and inexpensive. As a result, a growing community of researchers, development practioners, and donors is asking whether simply giving poor households cash can be more cost-effective than traditional aid. However, a common critique of cash transfer programs is that this money can be misused.

Over the past few decades, large government-run cash transfer programs for poor citizens have become increasingly common. Over thirty countries have implemented conditional cash transfer (CCT) programs, which provide households with cash transfers on the condition that parents invest in the health, nutrition, or education of their children.2 CCTs have generally been successful in reducing poverty and improving education and health outcomes across a variety of contexts, but the program costs of targeting eligible recipients and monitoring the conditions are often substantial. Unconditional cash transfers (UCTs) remove these monitoring costs and allow poor households to decide for themselves how to allocate resources. Evidence from Morocco and Malawi has suggested that removing conditionality may reduce costs and also have positive impacts.

Inspired by the growing body of evidence demonstrating the effectiveness of cash transfers and the spread of efficient last-mile payments solutions, four graduate students at Harvard and MIT—J-PAL affiliate Paul Niehaus, along with Michael Faye, Jeremy Shapiro, and Rohit Wanchoo—founded GiveDirectly in 2009. GiveDirectly transfers around US$1,000 (approximately one year’s income for a typical family) directly to poor households through mobile phone-based money transfer services (M-Pesa in Kenya and MTN in Rwanda and Uganda).

The Research: A randomized evaluation of GiveDirectly’s program in Kenya found that it increased consumption, assets, and food security among recipients and their families.

In addition to providing a platform for private donors to invest in a model informed by evidence, GiveDirectly extended the body of research on cash transfers by conducting a randomized evaluation on its own unconditional cash transfer program in partnership with Innovations for Poverty Action (IPA). From 2011 to 2013, researchers Johannes Haushofer and Jeremy Shapiro conducted a randomized evaluation in Rarieda, Kenya to measure the impact of UCTs on poor rural households’ economic and psychological well-being. While most previous evaluations of cash transfer programs were of small, regular payments, GiveDirectly evaluated large, one-time transfers. Within villages receiving UCTs, researchers tested three design features: varying the gender of the recipient, timing of the payments, and size of the transfer.

Overall, results showed that recipients spent the transfers in ways that improved their well-being, and there was no impact on “vice” spending. The average transfer size was US$709. Nine months after the program began, households’ monthly consumption increased by US$36 (a 23 percent increase on a base of US$158) across a range of goods including food, medical, and educational expenses. The study found that receiving UCTs led to no increase in expenditures on temptation goods like alcohol or tobacco, consistent with evidence from a randomized evaluation in Liberia as well as a World Bank review of nineteen cash transfer studies, nearly all of which found either no impact or a negative impact on alcohol or tobacco spending.3 In addition, GiveDirectly households reported improvements in psychological well-being.

Recipient households also invested more. On average, household investment in assets such as livestock, furniture, and metal roofing for their homes increased by US$302 (a 61 percent increase on a base of US$495). Forty percent of households that received transfers had a non-thatched roof after the program, compared to 16 percent of households in the comparison group. Households also invested more in income-generating activities such as businesses and livestock. Revenues from these activities increased by US$16 per month (33 percent), although estimated profits did not change. On an annual basis, this increase in income was equivalent to 27 percent of the average transfer.

For more details, see the evaluation summary.

"[GiveDirectly] has the potential, at the least, to become the yardstick by which other charitable opportunities are measured. Instead of asking the question 'should this project be funded or should we do nothing?', we could be asking the question 'should this project be funded or should we just give the beneficiaries the money?' and now we have that opportunity."
—Dustin Moskovitz, Co-Founder of Good Ventures

From Research to Action: Rigorous evidence of program effectiveness helped mobilize resources to scale up the program in Kenya and Uganda.

Evidence from the randomized evaluation helped GiveDirectly raise the resources to expand the model. GiveDirectly is featured as a top-rated charity by GiveWell, which recommends charities to donors based on rigorous evidence and cost-effectiveness. This recommendation led to support from Good Ventures. GiveDirectly also received a Global Impact Award from Google.org in 2012 as well as additional funding in 2014 to expand its programming across East Africa.

Since 2013, GiveDirectly has enrolled over 60,000 families in cash transfer programs, reaching over 280,000 people when accounting for average household size.

On a larger scale, GiveDirectly has also influenced a global conversation about how to best give charitably. This conversation has received substantial media coverage, including in The Atlantic, Bloomberg, The Economist, Foreign Affairs, NPR, and The New York Times Magazine.

Many parts of GiveDirectly’s standard operations are part of at least one randomized evaluation to further inform the organization’s programming and expansion. For example, one ongoing research project, led by J-PAL affiliates Edward Miguel and Paul Niehaus, along with Johannes Haushofer and Michael Walker, is studying the macroeconomic and long-term impacts of GiveDirectly’s unconditional cash transfers. Another ongoing research project, led by J-PAL affiliates Sendhil Mullainathan and Paul Niehaus, along with Anandi Mani, is measuring the impact of different cash transfer designs, including giving recipients control over timing and giving them information on the performance of investments made by past recipients. In rural Kenya, GiveDirectly is currently partnering with J-PAL affiliates Abhijit Banerjee, Paul Niehaus, and Tavneet Suri, along with Michael Faye and Alan Krueger, to launch the first randomized evaluation of basic income—an unconditional cash transfer to all members of society that is enough to cover basic needs and guaranteed for the recipients’ lifetimes.

References

Haushofer, Johannes, and Jeremy Shapiro. 2016. “The Short-Term Impact of Unconditional Cash Transfers to the Poor: Experimental Evidence from Kenya.” The Quarterly Journal of Economics. 131(4): 1973-2042.

Haushofer, Johannes, and Jeremy Shapiro. "Household Response to Income Changes: Evidence from an Unconditional Cash Transfer Program in Kenya." Working Paper, November 2013.

1OECD Development Co-operation Directorate (DCD-DAC). 2016. “Development aid rises again in 2015, spending on refugees doubles.” Accessed January 20, 2017.

2 a) Fiszbein, Ariel, Norbert Schady, Francisco H.G. Ferreira, Margaret Grosh, Niall Keleher, Pedro Olinto, and Emmanuel Skoufias. 2009. Conditional cash transfers: Reducing present and future poverty. A World Bank policy research report. Washington, DC: World Bank. b) Snilstveit, Birte, Jennifer Stevenson, Daniel Phillips, Martina Vojtkova, Emma Gallager, Tanja Schmidt, Hannah Jobse, Maisie Geelen, Maria Grazia Pastorello, and John Eyers. 2015. “Interventions for improving learning outcomes and access to education in low- and middle- income countries: a systematic review.” 3ie Systematic Review 24. London: International Initiative for Impact Evaluation (3ie).

3Evans, David K. and Anna Popova. 2017. “Cash Transfers and Temptation Goods.” Economic Development and Cultural Change 65(2): 189-221.