Disruptive Development: Just Give Money Away?

Authors: by Chirag Jain

Source: Emerging Markets Development Club

I'll confess that I'm still fairly new to the aid and development game, but there are some age-old maxims we are all taught as we enter the fraternity of caring. DON'T GIVE MONEY AWAY.

I heard it first when it came to dealing with people on the streets of D.C. You can buy goods or services, or give a gift, but never give money. We've heard the horror stories of aid based dependence and how free money distorts free markets and stunts future growth. So why is there a new social start-up whose entire business model is based on pure transfer of wealth. The program takes money from donors, and promises that 90% of that cash will arrive directly in the hands of the needy.

So why was this particular firm featured on the HBR blog? Its because in an age of preachy storytelling, loosely linked aid goals and a healthy dose of skepticism, GiveDirectly is attempted to back its claims with the numbers.The money arrives with no strings attached, and evidence is gathered to support the merits of the program.

• Cash transfers have show to benefit children by decreasing both physical and psychological stresses. A study in Uruguay showed a significant impact on low birth weight. Schooling and child labor are also positively impacted.
• Cash transfer create long term wealth. One study found that 5-years later, annual income for the group of men had increased 64-96%
• The poor don't abuse cash. Their studies show no increase in spending on alcohol or tobacco, nor a drop off in hours worked.

A decade of micro-finance experience also seems to back up the fundamentals behind a cash transfer. Inconsistent cash flow and low access to credit styme efforts for the poor to exit subsistence and a cash transfer can provide critical liquidity to invest as they see fit. However, as in all things, design is critical. South Africa and India are notable in having large government-run cash transfer programs, and both are well studied. There are numerous lessons in proper program design but the fundamentals are still compelling. This year, the Indian government will put billions of dollars in cash directly in the hands of its poor in one of the largest welfare initiatives in history.

But perhaps the most interesting idea is one proposed by Jacquelline Fuller.

"Investments in common goods such as roads, schools and wells are critical in helping people out of poverty. But GiveDirectly has a new concept: What if cash transfers are used as a standard benchmark against which to measure all development aid? What if every nonprofit that focused on poverty alleviation had to prove they could do more for the poor with a dollar than the poor could do for themselves?

In this world, cash transfers could play a role like index funds play for private investors: They could be a sizeable share of your philanthropic portfolio and a benchmark used to evaluate more expensive, "actively managed" investments. We'd learn more about which programs need additional funding and which are falling below the "direct to the poor" mark."

In a world where it's hard to know if we're really making a difference, then perhaps an organization that is focused on doing something very simple-extremely well might be just what is needed. We need to figure out the value of the bare minimum, and if we can measure what happens when the bare minimum is executed well, perhaps we can get out of our own way, and allow a difference to happen on its own. It might bruise our ego, but perhaps we can hold truly to the notion that it isn't about us.