Financial Inclusion

Cash Transfers For The Impoverished Get Personal

What would provide evidence of the value of cash transfers to developing regions began, in part, in the world of pharmacology and medicine.

When RCTs (randomized control trials) — which had been the gold standard in that realm for some time — began to make their way into economics in the early 2000s, it led to “a spate of research showing that cash was quite effective,” said Michael Faye, Co-Founder and Executive Chairman of GiveDirectly.

The second piece proving the validity of cash, as Faye explained in a recent conversation with MPD CEO Karen Webster, was digital payments and the introduction of M-Pesa — which “got over a big operational hurdle of how to get payments into the hard-to-reach places in the world.”

It was around that time (in the mid-2000s) that Faye and Paul Niehaus began looking for an NGO (non-governmental organization) that did cash transfer programming digitally to whom they could donate … but no such organization existed.

“A very senior person at a big NGO told us that the push wasn’t going to come from within the traditional sector,” Faye tells Webster, “and, if we really wanted to make that happen, we were going to need to set something up and do it ourselves, outside the existing organizations.”

And that is just what Faye and Niehaus did by launching GiveDirectly in 2008.

Despite the emerging evidence of the effectiveness of digital cash transfers, Faye says that he and Niehaus wanted to ensure their impact was just as good — and they wanted to do so credibly.

So one of the first things they did with GiveDirectly (after ironing out some operational elements) was launch RCTs. “And the results were consistent with everything that we had seen about cash,” remarks Faye.

To this day, GiveDirectly continues to run evaluations — not only to evaluate the effectiveness of cash, but also to address outstanding policy and operational issues. The company seeks to answer questions such as: “Do you give to the man or the woman? How much money should you give? How frequently should you give? What if we said we were going to give someone money forever — do they stop working, or do they work more?”

“We know some of the answers, but there are others that we still don’t,” Faye observes. “And as cash becomes more popular [with governments starting to launch large-scale cash programs, for example] the importance of getting this right increases significantly.”

As for identifying critical success factors with regards to developing countries and the regions within them, Faye said the first step is to look at the metrics the company really cares about. “Cash really crystallizes that, in that you’d like to reach most of the money to reach the poor,” Faye said.

He tells Webster that, in the case of GiveDirectly in Kenya, about 90 percent of the money (including accounting for operational costs) will reach its intended recipients.

Beyond maximizing the amount and ensuring that it falls into the right hands, Faye says that GiveDirectly also seeks to address questions around the “beneficiary service” — how far people need to walk to pick up the cash, if they are treated with respect, etc.

“One thing that we’ve seen is that digital payments, identity cards, smart cards, et al, can have a dramatic impact on the amount of money that actually reaches the poor,” said Faye. “Having said that — and I think this is equally important — the lack of digital payments often gets used as an excuse to not do cash programs. At GiveDirectly, we’ve continued to push the envelope on that and done cash in places that don’t have robust digital payments. While they are slightly less efficient and more complicated to manage, it is certainly possible.”

In Uganda — where there is no agent network, such as the one that M-Pesa operates in Kenya — GiveDirectly organizes what it calls “payout days,” whereby the company drives in with cash and people exchange digital money for it.

However, it’s also been pursuing the question, posed by Faye: “If we didn’t do that — would people find a way to get the cash anyway?”

“And it’s looking like the answer to that question is ‘yes,’” he told Webster.

GiveDirectly has found that 30 percent of the people in locations that require payout days actually don’t show up for them but still find a way to get their money. Faye surmises that this is likely being accomplished by a number of recipients giving their digital currency to one individual, who then makes the trip on their behalf and delivers their cash for a small charge of his own.

To address the myriad obstacles of data management and the challenges of working with the various mobile money providers, GiveDirectly formed Segovia. That offshoot, explains Faye, is helping to “manage this all in a secure way, and literally have just a single system that you can hit ‘pay,’ and it goes out to whoever the agent network at the end of the chain is, without worrying about all of the risk that comes with it.”

He shares with Webster that, in the regions where GiveDirectly has launched, “incomes are up by about 30 percent. The number of days that children have skipped a meal dropped by about 42 percent. There’s some evidence that domestic violence falls pretty meaningfully.”

Additionally, researchers have seen a “meaningful decline” in recipients’ cortisone levels, which are an indicator of stress.

Faye believes strongly that the question of long-term impact is one that should be asked of all development interventions — and there’s shockingly little long-term evidence to date, he said.

Toward that goal, GiveDirectly this year launched a long-term evaluation — “not just on the individual level,” notes Faye, “but the long-term impact on the community.”

“While the long-term evidence for cash is not as strong as we would like,” he adds, “it’s better than almost anything else.”

In the time since GiveDirectly has been in operation, Faye believes that the landscape has changed pretty dramatically.

“The headlines weren’t the most flattering at the start, involving words like ‘experiment,’ ‘crazy,’ ‘nuts,’ that sort of thing,” he tells Webster. “But the world has changed.”

Faye notes that the World Bank recently held a panel stating that, “We should be doing more cash — and, more importantly than that, we should establish cash as a benchmark, and instead of asking, ‘Why cash?’ ask, ‘Why not cash?’”

“It’s been a pretty bold shift in the last for years, which I think is the right direction,” Faye goes on to state. “There’s a subtext that action is still lagging a bit behind policy conversations, so cash is still kind of, at most, 6 percent of humanitarian spend. Still quite small. And there a lot of entrenched interests in the sector that probably have something to lose from cash.”

“The more forward-looking people are pushing through that and recognizing that cash is not only an opportunity to do cash itself,” concludes Faye, “but it’s an opportunity to reconsider the design of the entire sector and the organizations that are part of it.”


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.