As a species, we are superb at making assumptions. But how often do we actually check ourselves? And, more importantly, what are the repercussions when we fail to do so?

In the financial services industry, we see a lot of assumptions. And we also see just how damaging they can be. We've listed a few below.

In order to act sustainably, you need to sacrifice profit.

Quite the opposite actually.

Developed countries don’t face human rights issues.

Threats are closer than most think.

Women are taking a more active role in their finances.

Unfortunately not.

And now to the main assumption we'd like to tackle today – Giving directly to those living in poverty is ineffective.

It's a common notion – everywhere from the streets of Chicago to far away countries classified as developing. And it's an adage as old as colonialization (and just as troubling) – that those living in poverty are not as capable of making economically sound decisions. And therefore, giving funds directly to them is ineffective.

In order to make real progress, we're reevaluating our preconceptions.

Today, cash counts for less than 10 percent of humanitarian aid.1 And this means that it's the providers of aid who decide what poor people need most. A non-profit organization we partner with is questioning whether this approach really helps lift people out of poverty for good.

GiveDirectly has explored sending money (usually instalments totaling ~USD 1,000 – approximately a year of income) directly to people living in extreme poverty. They send the money unconditionally, then record the results.

GiveDirectly's fundamental premise is quite simple – that people living in poverty know their own needs better than anyone else. And when given cash transfers, they can, and do, change their futures positively.

So far, this is what the evidence on cash transfers says:

1. Recipients often save or invest a large proportion of the money they receive.

2. Cash transfers have been shown to have sustained impact – one study found that four years after youths received one-time grants, they earned 41% more than those who had not.

3. Cash transfers positively affect children's health – growth standards improved in South Africa, HIV infection declined in Malawi and incidences of low birth weight in Uruguay decreased.

How it works

GiveDirectly does their homework to make sure transfers get to those who need them.

They begin by using public data to locate extremely poor families and then send staff door to door for enrollment. They use criteria that varies by region to identify the poorest – including looking at housing materials to identify the poorest families.

Independent checks (background and data consistency checks, image verification, etc.) help ensure recipients are eligible and did not pay bribes.

After an electronic transfer, recipients receive an SMS and can then withdraw cash at a mobile money agent. Finally, each recipient receives a call to verify the transfer was received and GiveDirectly staff often follow up in person.

The results

Recipients do a variety of things with the transfers. Some swap out the thatched roof of their home for a metal one. A recipient named Gabriel in Kenya built a house and a chicken coop and bought woodworking tools with the cash. Another Kenyan recipient, Joseph, bought a generator and a water pump to irrigate his crops.

For every USD 1,000 given, GiveDirectly reports an average of:
+ USD 270 in earnings
+ USD 430 in assets
+ USD 330 in nutrition spend
+ 0% on alcohol or tobacco spend

Individuals can support recipients online. But GiveDirectly has also attracted large-scale donors such as Good Ventures, Google and the UBS Optimus Foundation.

On the GiveDirectly website, you can read testimonies from the numerous recipients. They are often asked what the biggest differences in their lives have been. Most mention that, for perhaps the first time in their lives, they feel peace and relief.

I will come up with a strategy to ensure my daughter finishes school. This will bring peace in my mind. Peace is what I have been praying for in my life more than anything else.


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