This Startup Gives Poor People a Year’s Income, No Strings Attached

Thursday, June 4, 2015

A person whom Teresa had never met showed up at her home one day with a remarkable offer. Teresa and her family would receive what amounted to a year’s income, in cash. Nothing was owed in return. She did not have to repay the money, and her family could spend it however they wished.

Teresa was at a loss. “We did not believe someone would give us that kind of money without having worked for it.” But then the money came.

This scenario has played out thousands of times. The organization behind the money, GiveDirectly, is not broadly known. They have spent very little to market their work; their Facebook page has just over 7,000 likes.

Yet, dollar-for-dollar, analysts say GiveDirectly is among the most effective organizations in the world trying to eliminate extreme poverty. Some of its strongest champions are two of Facebook’s co-founders. And in the spirit of Silicon Valley, GiveDirectly’s work is data-driven and transparent in ways that are virtually unheard of in the aid world. For donors who want their giving based on evidence-backed results, few organizations compare.

How it works. GiveDirectly transfers about $1,000 to very poor families over the course a year. It makes no rules or even suggestions about how to use the cash.

Since launching in 2011, the group has distributed about $15 million to communities in Kenya and Uganda. These are not the poorest countries in the region. Rather, they are at the center of Africa’s revolution in mobile banking, which is crucial to GiveDirectly’s strategy. A person in sub-Saharan Africa is 60 times more likely to have a mobile financial account than a European.

Once GiveDirectly has selected a village based on publicly-available poverty data, it uses an ingeniously simple method to identify who will receive money: it enrolls households who live in homes built with thatched roofs and mud floors (as opposed to corrugated metal roofs or concrete floors). The use of organic materials is a reliable indicator of severe poverty — easy for members of the community to understand, and for GiveDirectly’s staff to audit, the group states.

The money is then delivered electronically. Recipients typically receive an SMS alert and then collect cash from a nearby mobile money agent. (If they are among a dwindling minority in Africa that doesn’t have a mobile phone or SIM card, GiveDirectly helps them buy one using a portion of the cash transfer.)

Distributing the money electronically slashes costs and eliminates several prime opportunities for corruption (i.e., fewer middlemen to siphon off funds or ask for bribes). It is at the core of GiveDirectly’s plans to scale its work to millions of poor people worldwide.

Source: The Huffington Post (link opens in a new window)

Categories
Entrepreneurship
Tags
mobile money, poverty, startup