Building an Economically Efficient Charity

Every holiday season, the vast majority of America's charitable dollars are donated to local religious and educational institutions, or to particular causes, like protecting endangered species or fighting malaria. Very few of us would consider giving large sums of money to poor people and letting them do whatever they want with it.

Surprisingly, it is precisely that type of charity — and government aid — that some economists say is most effective.

In 2008, four Harvard and MIT graduate students studying developing-world economics decided to form their own giving circle. The research literature on anti-poverty aid was discouraging. In India, an estimated 50 to 60 cents of every government dollar spent on food or employment aid for the poor is lost due to corruption, and private philanthropy, too, is heavily skimmed as it makes its way into the hands of the poor. Micro-credit efforts like Mohammed Yunus' Grameen Bank have been celebrated in the media and embraced by celebrity donors, but there is mounting evidence that microfinance does not reach the poorest populations, and that many recipients default on their loans, leaving them further in debt. While Latin American countries like Mexico and Brazil have had success with "conditional cash transfers" — government payments to poor families in exchange for "good behavior," such as enrolling children in school or taking them to the doctor —  that model is difficult for lower-income nations, like those in sub-Saharan Africa, to effectively implement. If there aren't enough schools or doctors to serve an influx of new clients, there is little point in requiring the poor to use such services.

So where did that leave four private donors, anxious to fight global poverty, but too savvy to trust many of the leading models for international aid? Paul Niehaus, Michael Faye, Rohit Wanchoo, and Jeremy Shapiro came up with a radically simple plan shaped by their own academic research. They would give poor families in rural Kenya $1,000 over the course of 10 months, and let them do whatever they wanted with the money. They hoped the recipients would spend it on nutrition, health care, and education. But, theoretically, they could use it to purchase alcohol or drugs. The families would decide on their own.

NO STRINGS ATTACHED

Three years later, the four economists expanded their private effort into GiveDirectly, a charity that accepts online donations from the public, as well. Ninety-two cents of every dollar donated to GiveDirectly is transferred to poor households through M-PESA, a cell phone banking service with 11,000 agents working in Kenya. GiveDirectly chooses recipients by targeting homes made of mud or thatch, as opposed to more durable materials, such as cement or iron. The typical family participating in the program lives on just 65 nominal cents-per-person-per-day. Four in ten have had a child go at least a full day without food in the last month.

Initial reports from the field are positive. According to Niehaus, GiveDirectly recipients are spending their payments mostly on food and home improvements that can vastly improve quality of life, such as installing a weatherproof tin roof. Some families have invested in profit-bearing businesses, such as chicken-rearing, agriculture, or the vending of clothes, shoes, or charcoal.

More information on GiveDirectly's impact will be available next year, when an NIH-funded evaluation of the organization's work is complete. Yet already, GiveDirectly is receiving rave reviews. In November, it became one of just three charities to earn a coveted recommendation from GiveWell, a web publication that conducts exhaustive, on-site research of philanthropies. This month, Google awarded GiveDirectly a $2.4 million grant to expand beyond Kenya. Facebook cofounder and media wunderkind Chris Hughes joined the group's board in August. Nevertheless, GiveDirectly remains an outlier in the development arena, perhaps the only organization that distributes private donations, made online, directly to the poor with no strings attached — no requirement to launch a business or to immunize one's child; no distribution of bed netssolar lanterns, or goats.

Tags: charity, donations, givedirectly, holiday giving

    • Dana Goldstein
    • Dana Goldstein is a Brooklyn-based journalist covering education, public health, economic mobility, and women’s issues. She is a contributing writer to The Nation and The Daily Beast, and in 2010 was a recipient of the Spencer Fellowship in Education Journalism, a competitive award supporting the long-form work of mid-career e...

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