in News, Podcasts

$1,000 for you with no conditions

Rory Stewart’s comments on recent episodes of The Rest Is Politics have stuck in my head. He’s been working with a charity called GiveDirectly. Instead of providing aid to the poor in the form of food, bicycles, houses, toilets or micro-loans, they give each household in a community USD 1,000 in cash for them to spend on whatever they want. In Stewart’s words:

“…the truth is, time and time again, and there have been 230 studies of this, giving people cash is probably the most effective single intervention that you can do for a very poor family, because the truth is in almost every case they know how to spend the money much better than a foreigner does and there’s an element of dignity here.”

GiveDirectly have a very detailed frequently asked questions page. The cash is a one-time transfer, with no conditions, and they explain the reasoning and evidence.

I’ve been putting money into a Kiva account every month for a while, using the funds to make micro-loans to people all over the world. Reading this on the GiveDirectly FAQ has made me think twice:

Why not make micro-loans?

The evidence on the impact of cash transfers is far stronger than that for micro-loans, whose impacts have generally been below expectations. We think that micro-loans are likely beneficial for the poor, but given the evidence, see no reason to incur the added costs of administering them.

We suspect that the disappointing track record of micro-loans may have to do with their structure. These loans often bear high interest rates, reflecting the high costs of administering and monitoring them, which in turn limit their benefit to borrowers. They also tend to have short-term structures and require borrowers to begin making repayments shortly after borrowing. These features make micro-loans less useful for financing the kinds of long-term investments (e.g. education or durable goods) that recipients often make with grants.

GiveDirectly say that they deliver USD 0.89 to recipients for every dollar they receive. My understanding is that this is possible because transferring money directly minimises their overheads in administering the programme. I’m going to redirect my Kiva transfers here for now.

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