Why don’t we just send aid money directly to poor people’s cellphones?

The following post was written by Duncan Green, Head of Research for Oxfam GB and author of “From Poverty to Power.”

Just before Christmas I had a thought-provoking discussion on the BBC World Service with Paul Niehaus, who has set up GiveDirectly, a US-based startup NGO pioneering a new financing model based on cash transfers. The idea couldn’t be simpler:

1. People donate through GD’s webpage
2. GD locates poor households in Kenya (see below)
3. GD transfers your donation electronically (through the M-Pesa mobile payments system) to a recipient’s cell phone (they send each household $500 per year for two years)
4. The recipient collects the transfer

GD reckons that in this way, it can get 90 cents in every donated donor into the hands of poor people. Step 2 is interesting: ‘We do this in give directly picthree steps.  We first select regions of Kenya with high poverty rates using census data.  We then identify villages with low-quality housing and access to an agent providing mobile-phone-based payment services. Finally, we identify the poorest households in these villages using simple, transparent criteria: we target all households living in homes made out of mud, wood, and grass. These criteria effectively identify relatively poor households and are generally perceived by the community as fair. We record eligible households’ phone numbers or, for those that do not have a phone, provide them with a SIM card. We follow up initial identification with a rigorous process of audits to prevent mistakes or fraud.’

What’s innovative about this is the coming together of cash transfers (CTs) and mobile payments systems to make the CT option available to individual donors, rather than (as previously) being exclusively a government, big aid donor or large NGO activity (Oxfam does lots of them – in fact it was our cash for coffins project that partly gave Paul the idea).

There was a high level of agreement in the BBC discussion (doubtless to the horror of the producer – arguments make much better radio). This kind of approach is exciting, but only relevant to part of the aid and development story – for example in the Horn of Africa, we are doing cash transfers, but also have to work to get market traders to re-establish supply chains in the worst-hit areas or there is nothing for people to spend the transferred money on.

While they help with short term consumption and investment, cash transfers don’t directly tackle the kinds of systemic problems that underpin poverty and inequality – dealing with those requires a more complex approach based on partnering with local civil society organizations, and all that brokering and convening stuff I write about on this blog. And what about gender – who owns the phones and gets access to the $500? It would be interesting to see if there’s a difference between how men and women phone-holders spend the money – I wonder if GD have included that in their monitoring and evaluation?

Finally the approach seems inherently individualistic – there is no obvious way to fund community organizations in this model. At least not yet. I talked to our fundraisers prior to the interview and they linked this to a generational shift. Younger people are less trusting of institutions than older ones, so the pressure for this kind of person-to-person ‘disintermediation’ (sorry) is only likely to grow. People only believe their money is doing good if they can see it drop into the hand (or cellphone) of a recipient. Oxfam has already responded to this with schemes like Projects Direct, and new initiatives like Kiva and now GiveDirectly are addressing the same disquiet.

An alternative approach is to do a better job in explaining why we need to use people’s donations to tackle the underlying structural causes of poverty, through a more complex (and expensive) engagement with the state, companies, civil society organizations etc.

But another might be to put the two together. If the new generation is both more activist (Occupy, Arab Spring etc) and more sceptical of give directly logoinstitutions, how about adapting the GiveDirectly model to ‘sponsor an activist’? Your $10 a month would go straight to the cellphone of a named HIV activist, or a land rights organizer. In return you would get regular tweets, blogs or whatever so you can follow what they’ve been getting up to. Paul says he’s going to think about the idea, but is anyone already doing it? If so, how’s it going?

You can listen to the piece here, with Paul Niehaus of GiveDirectly, Mike Jennings of SOAS and me, (although it might have got a bit truncated at either end of the 7 minute piece).

To see the original post, visit Duncan’s blog, (the TDC team does, all the time!) From Poverty to Power.

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