Schoolteacher Loice Anyango Ocholla, 24, of Amudho, Kenya, received a cash grant through a new development program. (Photo: Jacob Kushner)

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The Crazy New Idea That Could Solve Global Poverty

The best way to help in the developing world may be the most obvious: Just give money to those who need it.
Aug 5, 2014· 7 MIN READ
Jacob Kushner reports on foreign investment and human rights in Africa. His work has appeared in, Newsweek, Vice, Foreign Policy, and

The Western Kenyan village of Nyawita is a dry, sparse place. In the mornings, wives tend to small plots of corn or cassava near their mud-wall homes. Husbands shepherd their few cows around, searching for patches of grass. Children attend a local school if their parents can afford to send them.

Victor Ochieng has spent almost his entire 39 years here farming corn, tomatoes, and other crops. Until recently, it was all the father of six could do to scratch out a living for his family. He wanted to buy pumps and pipes to irrigate his crops with water from his well but couldn’t afford it.

“Farming has so many challenges, and one of the biggest is that rains disappear,” he said. “I wanted to farm even during the times of drought, so I could take my crops to the market while the price is high.”

One day last year, a couple of out-of-towners showed up in his village. They walked from house to house, chatting with the locals. When the visitors, Kenyans like Ochieng, arrived at his home, they told him something astonishing: Some Americans he’d never met wanted to give him and nearly all his neighbors a fortune. Not a loan, a giveaway. With no strings attached.

The out-of-towners worked for GiveDirectly, an American charity with a radical and yet somehow obvious approach to solving rural poverty: unconditional cash transfers.

Victor Ochieng shows off one of the breeding roosters he purchased with his cash transfer. (Photo: Jacob Kushner)

For decades, international aid to places like Kenya has generally taken the same approach: Hold the hands of indigent Africans as you walk them through predetermined ways to improve their lives. Yet interested parties, from right-wing research organizations to former aid workers, have argued for decades that the approach is paternalistic, inefficient, and ineffectual.

The families in Nyawita are part of a global experiment testing a new theory: that low-income, low-asset people in the developing world can do what many have done in Europe and other big economies—lift themselves out of poverty. The recipients of GiveDirectly’s cash grants can do whatever they like with the money: buy a new roof for their house, or build a new house entirely. Pay their kids’ school fees. Invest in livestock, land, fertilizer, seeds. For Ochieng, it was enough money to build the irrigation system he’d always dreamed of and then some.

Today unconditional cash transfers are a drop in the giant bucket of international aid, but they’re rapidly gaining the attention of charities, academics, and governments. GiveDirectly has funneled more than $6 million into Western Kenya, and other donor groups have launched similar programs in at least half a dozen countries, including Uganda, Afghanistan, Haiti, and Indonesia. India, home to one-third of the world’s poorest, is experimenting with the idea. Proponents say cash transfers offer a promising alternative in international development aid, an industry rife with waste, top-down ideas, and dysfunction.

I saw firsthand some of the pitfalls of traditional foreign aid during the two years I spent in Haiti after the earthquake that devastated the country in 2010. The U.S. government funded multimillion-dollar projects that were left unfinished, like a new building for Parliament that was unusable until Haiti dipped into its national treasury to complete the job. Money given to private American contractors was spent on corrupted projects, like the one that paid workers to clear rubble from its own parking lot instead of from the debris-strewn streets of Port-au-Prince.

Sometimes the very mentality behind aid policies was deeply flawed. The United States Congress continues to enact a food aid policy that is geared more to helping American shipping companies turn a profit than to helping feed the world. U.S. food aid policy has even been blamed for hurting poor farmers across the globe. Private aid from nongovernmental organizations such as the Red Cross and World Vision often does little better. Many organizations come and go, and effects are often fleeting, leaving the communities where they once were felt forgotten.

Cash transfers offer a way to change the lives of impoverished families by letting them take matters into their own hands. The concept dates to the 1990s, when Brazil began a program of giving impoverished mothers small, recurring cash payments if they attended health seminars and made sure their children stayed in school. The programs worked, achieving immediate results through drastically improved school enrollment and vaccination reach. The idea spread. Governments around the world now offer similar conditional payments to boost the income, health, education, and well-being of their most destitute constituents.

In some ways, unconditional cash transfers are a logical follow-on to the micro-credit movement. Popularized in the aughts, the practice of giving small loans directly to individuals marked a devolution of the trickle-down theory of loaning large sums to companies with the hope that they would generate employment.

“One of the great virtues of the recent movement among microcredit enthusiasts and others to recognize the nascent capitalist inside every poor man and woman,” write MIT researchers Abhijit Banerjee and Esther Duflo in their book Poor Economics, “is that it moves us away from this view of the poor as either carefree or totally incompetent.”

The shift to cash grants is believed to have started in Afghanistan in the aughts, when Oxfam and Mercy Corps began giving out cash. Though that program has since ended, the idea behind it has taken root, especially in Western Kenya.

Caroline Alouch Ogutu, 35, stands with her son in front of their home in Koga, Kenya. Ogutu used approximately $1,000 from GiveDirectly to put a new roof on her home, pay her children's school fees, and buy pigs to raise and sell. (Photo: Jacob Kushner)

Here, Have Some Money!

Ochieng’s visitors from GiveDirectly explained the setup to him. He was eligible to receive two cash payments worth a total of about $1,000. That’s more than twice what the average family here earns in a year. All he had to do was register his cell phone with the mobile banking company M-PESA, so he could receive the money in his account there.

One day Ochieng received a message on his cell phone. He’d just received his first cash transfer, a small amount meant to ensure his bank account was ready. Weeks later came the real deal: nearly $500.

Ochieng was ready. He bought a pump and a system to irrigate his crops year-round. Today he grows three times as much corn as before. So much corn, in fact, that he has decided to repurpose some of it for an entirely new endeavor. He plans to use his second and final cash transfer to buy chickens and a coop. He’ll feed them surplus corn, and he'll have chickens and eggs to eat and sell for years to come.

“Poultry will fetch me money very fast if I maintain it properly,” Ochieng told me.

For Ochieng, things are working out much better than under the traditional aid model. He recalls a time when the Kenyan Red Cross came to help farmers improve their cassava harvest.

“The Red Cross worked well, but there are so many challenges,” Ochieng said. “People do not attend their trainings and then don’t plant the cassava per their instructions.”

Here, said Ochieng, people are accustomed to planting their crops in a certain way, and they’re not easily persuaded to risk trying something different with no contingency plan if it doesn’t work.

“It is more respectful for someone to give me the cash and let me use it the way I wish,” said Ochieng. “Maybe you give me maize seeds, but I wanted to plant cabbage. Maybe I’ll plant [them] because you gave me the seeds free of charge, but I won't put as much effort so maybe I won't even achieve what you want. But the thing that is in my mind, I will achieve."

It is more respectful for someone to give me the cash and let me use it the way I wish. Maybe you give me maize seeds, but I wanted to plant cabbage.

Kenyan farmer Victor Ochieng

The Limits of Cash

Ochieng has the most ambitious plans of the dozen-odd cash-transfer beneficiaries in Western Kenya I interviewed. Most spent their money on repairing or improving their homes. Though that doesn’t generate income, it can save a family thousands of dollars in avoided expenses—not having to replace the thatch roof on your house every year, for example, because you invested in a durable tin one. Others paid their kids’ school fees, or bought assets like livestock or household goods to sell.

Nearly all said the cash approach is giving them a new sense of dignity by allowing them to take control of their own livelihoods.

“Since getting the money my life has significantly improved,” said Caroline Alouch Ogutu, 35, who lives in the village of Koga. “I have freedom to spend the money. It’s better—this allows you to prioritize the things you really need.”

James Akwany Oduor, a 66-year-old resident of Amudho village, said he and his neighbors were skeptical of GiveDirectly at first, recalling a previous aid project meant to help elderly residents that never came to fruition. “We were shocked when we received the money almost immediately,” he told me.

“We view this as a much more respectful aid intervention,” said Carolina Toth, GiveDirectly’s Kenya field director. “It doesn’t assume that we know better what people need to improve their lives.”

Still, not all cash-transfer programs are successful. A collective of Haitian journalists uncovered deep flaws in a “cash for work program” in which supervisors hired their friends, siphoning aid away from its intended recipients. Many programs set up like that one—handing out small, recurring cash payments rather than single, large ones—tend to have few lasting effects unless their duration is measured in years or decades rather than weeks and months. Recipients might earn enough money to feed their families for a while or pay school fees for a month, but once the money stops flowing, people’s livelihoods stop improving. A large cash grant enables an investment for the future: Loice Anyango Ocholla, 24, a schoolteacher, used a GiveDirectly grant to buy solar panels and a battery, which she uses to charge the cell phones of her neighbors for a fee.

Nonetheless, such programs have their limitations. For people to have the chance to succeed in places like rural Kenya, they need more than a new roof or some chickens: They need roads to connect them to their surrounding economies, water systems to quench the thirst of entire communities, and hospitals, health clinics, and doctors. Cash transfers of $1,000 are large, but they can’t build roads and water systems or buy systematic, long-term health care.

Another challenge is in the logistics: Handing out cash isn’t as simple as it sounds. You have to decide who, in a given village or community, receives it and who does not. Local GiveDirectly staff don’t give to every house in a village; they skip houses that have tin roofs or fully plastered walls, signs that the family is better off than their neighbors. That can breed resentment.

Location matters too. In Kenya, millions of people use the popular M-PESA system, making it simple to transfer cash with only a cell phone. But elsewhere in the developing world the absence of easy banking systems makes cash transfers less viable.

Then there’s the possibility that recipients will just blow their windfalls. But that doesn’t seem to be happening much. A randomized control trial of GiveDirectly cash transfers in Kenya found that few recipients wasted their grants on alcohol or gambling.

Meanwhile, perhaps the deepest study of cash transfers to date, in which Columbia University political scientist Christopher Blattman spent four years conducting randomized trials of a large government program in Uganda, found encouraging results. For the farmers and businesspeople receiving grants, Blattman wrote in the Quarterly Journal of Economics, “the program increases business assets by 57 percent, work hours by 17 percent and earnings by 38 percent.” On average, the investments they made with the money paid returns of 40 percent to 80 percent per year. The results showed that even in rural Uganda, people can figure out how to invest their money gainfully—they just need the capital and the freedom to do so. In a July op-ed in The New York Times, Blattman argued that cash transfers might even help here in America. “The poor do not waste grants,” he wrote. Handing out cash “is surely only part of a larger solution. But why not try?”

Access to capital and a shortage of infrastructure and human services are just some of the impediments to growth in rural Kenya. Enduring change will require more than a few sudden cash infusions. But if, over the long term, GiveDirectly’s program helps people like Victor Ochieng and Caroline Ogutu as it appeared to be doing when I visited Amudho and nearby villages, it may indicate that such change can happen elsewhere, too.

Jacob Kushner’s research in Kenya was funded by GiveWell, a nonprofit charity evaluator.