The Nonprofit Giving Free Money to the Poor, No Strings Attached

The old saying goes: If you give a man a fish, he'll eat for a day, but teach a man to fish, and he'll eat for a lifetime.

GiveDirectly, a New York City-based charity, openly challenges that idea.

Founded in 2008 by Paul Niehaus, Michael Faye, and Rohit Wanchoo, GiveDirectly enables donors to transfer money directly to the phones of people living in poverty in Kenya and Uganda. In allowing these direct cash transfers, Niehaus and his co-founders are on a mission to debunk a flawed assumption that dominates the charitable world, which is that poor people need to be told what to do with their money in order to spend it wisely.

"We're spending all this money on aid and development," Niehaus, now an assistant professor of economics at University of California, San Diego, says. "Are we sure we can't do more good by giving that money away? Asking that question is important."

But when he first asked that question of charities back in 2008, they were reluctant to admit he might be onto something. "People said if this works, why do we have jobs?" Niehaus remembers. "We realized we were going to have to do this outside the confines of any organization."

Since it officially launched in 2011, GiveDirectly has raised $22 million and has become a darling of the Silicon Valley set, earning donations from the likes of Google, Good Ventures, and Facebook co-founder Chris Hughes. So far, GiveDirectly has distributed that money in large lump sums over the course of a year to 50,000 people and counting. (The nonprofit targets areas of extreme poverty but high mobile-phone use.) Recipients have used the money to buy everything from livestock and land to new roofing.

Knowing that GiveDirectly would have its dectractors, Niehaus also partnered with Yale's Innovations for Poverty Action to conduct a full impact study of GiveDirectly's work. The study compared people who had received the money with people who had not. Months later, recipients had increased their assets by 58 percent, had decreased the number of days their children went without food by 42 percent, and had lower cortisol counts, a biomarker of stress. 

Meanwhile, members of the academic community are more than happy to support GiveDirectly's claims about cash transfers. "There is no good evidence to suggest that the poor do not spend the money prudently, and a significant amount of evidence to suggest that they do," says Johannes Haushofer, a researcher at MIT's Abdul Latif Jameel Poverty Action Lab. "The premise of unconditional transfers is that we might have less of an idea of what helps the poor than the poor themselves, and until this is disproven, I find it a useful starting point."