How is the transfer made?
Transfers are made using M-Pesa, a mobile money transfer service operated by Safaricom, which is a Kenyan mobile telephone operator managed by Vodafone Group Plc. There are several steps linking your donation to a Kenyan household:
- You make a donation through the GiveDirectly website, or send a check, which is deposited in GiveDirectly's US based bank account.
- These funds are then sent to GiveDirectly's Kenyan bank account via wire transfer, which is linked with our M-Pesa account.
- From that account, GiveDirectly sends electronic money to impoverished households.
- Recipients receive text messages informing them of the transfers. They can then exchange their "mobile money" for cash anywhere in the M-Pesa agent network.
M-Pesa agents are often local shopkeepers but others are petrol stations, supermarkets, courier companies, cyber cafes, retail outlets and even banks. An important feature of this system is that individuals can receive transfers even if they do not own a phone themselves: the M-Pesa agent simply loads the recipient's SIM card into one of his own phones.
How much does the transfer cost?
There are two costs of sending money to enrolled Kenyan recipients: foreign exchange costs and M-Pesa tariffs. Our cost of exchanging dollars for Kenyan shillings is 1.5% of the amount transferred for large transfers; this is a special rate we negotiated with our foreign exchange broker. Total M-Pesa tariffs, including both those we pay and those the recipient pays, amount to 1.6% of the amount transferred. See our financials page
for more information on our cost structure.
How much time does it take to collect the transfer?
Depositing and withdrawing money via M-Pesa is fast and simple; the whole process takes less than a minute. The major time cost involved in collecting a transfer is reaching an M-Pesa agent. To minimize this cost we work in villages close to an M-Pesa agent; because the M-Pesa agent network
is extensive (over 11,000 agents in all regions of Kenya as of this writing) this is not a major constraint. To date, mean self-reported round-trip travel time for our recipients is 42 minutes and the mean monetary cost of these trips is $0.64.
How does GiveDirectly prevent corruption in making transfers?
To prevent corruption during our enrollment process we use a rigorous audit process. 100% of the households we enroll are audited by a second field worker different from the one who initially enrolled them. Senior staff audit a smaller proportion of recipients. To date our audits have detected ineligible households in 1% of cases and bribe requests by field staff in 0% of cases. We also call our recipients after sending them money to learn more about their experiences; to date 0% of recipients called have reported being asked for a bribe.
To prevent corruption during the transfer process we use Safaricom's M-Pesa service. Safaricom is a competitive business managed by Vodafone Group Plc. and has invested heavily in policing its network of agents to ensure security and reliability. Within Kenya, M-Pesa is widely used and trusted. To date 1% of recipients we have interviewed report having to pay anything "extra" to an M-Pesa agent.
How much do recipients get?
We send each recipient household a total of $1,000 over one to two years, or $200 per household member for the average household. Our analysis suggests that this amount is fair, well-understood, and potentially transformative.
- Fair. We set transfer sizes by calculating how much the average recipient household would need to invest in order to raise its income to the level of its least-well-off but ineligible neighbors.
- Well-understood. Our transfer policy is also in line with other long-term cash transfer programs that have a substantial track record and have been extensively researched.
- Potentially transformative. Invested at a 25% rate of return, our transfers are enough to permanently increase the annual consumption of the average recipient by $0.14 per day, a 22% increase over estimated baseline consumption. To get a sense of what this means in the real world, here are examples of things our transfers could cover:
- 5.5 years of secondary schooling
- 5.2 years of basic food requirements for one adult
- 1.2 acres of land
- Tin roofs for 4 houses
Do recipients know what to expect?
Yes: we tell recipients what they should expect to receive and when during the enrollment process.
We are currently experimenting with different payment schedules, including monthly payments and larger one-time
transfers, as part of our ongoing evaluation. We will collect information on how each form of transfer is used and
which form recipients prefer, which will give us better perspective on what payment schedule to use. In all cases,
whether monthly or single transfers, recipients are told upfront when they should expect transfers.
How do you decide whom to help?
GiveDirectly uses objective criteria to determine which households are eligible for transfers. We target households which do not have solid (cement or iron) walls, floors or roofs in their houses. Our research shows this criterion is highly correlated with acute poverty; in particular, it includes households living in tents in Internally Displaced Person (or IDP) camps. GiveDirectly uses these particular criteria because they are transparent and easy to verify. This makes it straight-forward to explain to a community why some households will receive transfers and others will not, minimizing tension or concern about the fairness of the selection process. It also enables us to hold our field teams accountable and ensure that they adhere strictly to our eligibility conditions.
Does GiveDirectly exclude people who don't have cell phones or M-Pesa?
No. Many extremely poor families do own cell phones, and a Gates Foundation study has estimated that 51% of the poorest 50% of Kenyans used M-Pesa by 2009. For households that do not own a phone we provide a SIM card and require that they register it for M-Pesa. Transfers made to these SIM cards can be collected at a local M-Pesa agent like any other by inserting the SIM card into the agent's cell phone.
We do require that recipients register with M-Pesa. Transfers to registered users are cheaper and more secure: registered users have to enter a PIN number to collect transfers, which makes it harder for someone else to collect their money. In addition, registered users can collect money whenever they want, while unregistered users must collect within 7 days or the money is returned to the sender.
Can I choose to whom I send my money?
No. Because we are a charitable organization and not a money delivery service, we do not let donors choose a specific recipient. This helps ensure an equitable distribution of money throughout communities of need. In the future we may provide an option to give to particular groups, e.g. households affected by malaria.
Do you give money to men, women, or both?
We currently send transfers to the female head-of-household in 50% of cases and to the male head-of-household in the other 50%.
We give to both genders in order to learn more about differences in the ways men and women use money. There is some research suggesting that women are more likely to spend money on children or household goods, and also some evidence that men are more likely to invest in a business and earn higher rates of return. There is no rigorous evidence available for the setting we work in, however. Our ongoing evaluation will collect detailed information on how men and women use money and also on spousal relationships, domestic violence and decision-making power in the household. This will give
us a better perspective on whether to focus on one gender.
Why do you operate in Kenya?
Kenya provides a unique opportunity because, while it has a large population below the poverty line, it also has a cheap, secure mobile payment system, M-Pesa. We work in Kenya to take advantage of that opportunity. As reliable mobile payment systems expand in other countries we may expand as well.
How do recipients use the transfers?
An important feature of cash transfers is that households can use the money for whatever is most important to them. To understand how recipients use the transfers we conduct brief follow-up interviews. According to these interviews, common uses include installing a tin roof, buying food, paying education and medical expenses, and starting or expanding businesses. The types of businesses recipients operate include rearing chickens, vending (clothes, shoes, vegetables, charcoal, etc.), and agricultural enterprises.
Besides our own follow-up interviews there is a substantial body of research that documents the impacts of cash transfers on low-income households. See our summary of the evidence on cash transfers for more detail.
Do recipients spend a lot of the money on alcohol or tobacco?
A substantial body of research on the effects of cash transfers (see our research summary
for specific references) has found either no effect on the consumption of "temptation goods" like alcohol and tobacco, or an increase proportional to the increase on other household expenditures. In line with this research, our own follow-up interviews with recipients have not found evidence that transfers were spent on temptation goods.
Other evidence suggests that poor people are likely to save rather than spend grants capriciously; one study on cash pensions in South Africa found that recipients saved or invested between 53% and 82% of it (Duflo 2003), as against personal saving rates in the United States of around 5%.
Duflo, Esther. "Grandmothers and Granddaughters: Old Age Pension and Intra-Household Allocation in South Africa." World Bank Economic Review 17 (1) pp. 1-25, 2003.
Why not put conditions on how people use the money or what they have to do to get it?
GiveDirectly intentionally provides unconditional, rather than conditional, cash transfers. We do this for three reasons. First, empowering the poor to make their own decisions advances our core value of respect. Second, it lets recipients purchase the things they need most, enhancing impact. Third, imposing conditions on the use of funds requires that costly monitoring and enforcement structures be put in place. One detailed estimate put the administrative costs of a conditional cash transfer scheme at 63% of the transfers made over the first three years of the program (Caldes & Maluccio 2005
Caldes, Natalia and John Maluccio. "The Costs of Conditional Cash Transfers." Journal of International Development 17 pp. 151-168, 2005.
Is giving cash sustainable?
Usually when the word "sustainable" is applied to charity, it means that a gift "keeps on giving" and that donors need not continue to make gifts to the same recipient. Since many Give
Directly grant recipients use some or all of the money to invest in small enterprises, many of Give
Directly's grants are "sustainable." Indeed, one study of unconditional cash transfers in Mexico found that that household incomes increased by between 1.5 and 2.6 times the amount of the transfers due to the returns from increased investment (Sadoulet et al 2001
), suggesting that cash transfers are more than sustainable. Beyond short run income changes, investments in adequate food, proper clothing, better health or more education for children may be "sustainable" in the long run; even though it will require charity until that child is done with school, he or she will grow up much better off and needing much less assistance than his or her parents.
Not all recipients will invest the money, however, and it will be gone once it is spent. Donors who prefer to give a gift that is guaranteed to be sustainable in the sense that it will provide a steady income stream to the poor can do so simply; an easy option is for the donor to invest a gift themselves and donate the annual interest, effectively creating an endowment.
Sadoulet, Elisabeth and Alain de Janvry and Benjamin Davis. "Cash Transfer Programs with Income Multipliers: PROCAMPO in Mexico." World Development 29 (6) pp. 1043-1056, 2001.
Why not make micro-loans?
While we believe micro-loans may be helpful in lifting households out of poverty, there is currently no convincing evidence to support this claim
. In contrast, there is a wealth of evidence on the positive impacts of cash transfers
One potential reason for the lack of proven impact of micro-loans is the high rates of interest (up to even 100% per year) charged on micro-loans due to the costs of administering and monitoring many small loans (Fernando 2006). These high interest rates limit the benefit to the household of obtaining a sum of money to spend or invest. Also the term structure of micro loans, which requires that borrowers begin making repayments as soon as 1 week later, may induce households to invest loans in activities that generate income relatively quickly, such as a small vending enterprise, rather than long-term investments, such as in their health or the education of children. Our goal is to provide the flexibility to make longer-term investments.
Finally, the poorest households often cannot afford high rates of interest and lenders will not give them loans. GiveDirectly seeks to fill this gap by providing assistance to those too poor to access microfinance.
Fernando, Nimal. "Understanding and Dealing with High Interest Rates on Microcredit." Asian Development Bank, May 2006.
Do transfers create conflict or tension between recipients and non-recipients?
We ask recipients this question in follow-up calls after they have received transfers. To date, recipients report relatively low levels of tension: 15% report tension within their communities as a result of the transfer, and no recipient has reported experiencing violence as a result of the transfer.
Do transfers create conflict or tension within households?
We ask recipients this question in follow-up calls after they have received transfers. To date 1% report tension within their household. This is in line with a number of studies suggesting that conflict is driven primarily by economic hardship, which necessitates hard choices: for example, which child should be allowed to starve. As one woman put it, "there is no peace in the family when there is no food to eat" (Slater & Mphale 2008
). Cash transfers help reduce this kind of tension.
Slater, Rachel and Matseliso Mphale. "Cash transfers, gender and generational relations: evidence from a pilot project in Lesotho." London: Overseas Development Institute. May 2008.