In 2018, a non-profit gave every adult in western Kenya’s Ahenyo village $500. Most of their families had lived in extreme poverty for generations, and this sum was roughly equivalent to most recipients’ annual salaries. Despite all this, the money came with no strings attached outside a commitment to speak with researchers after two years.
They hoped this influx of cash would lift the villagers out of poverty. But they also knew this could easily be the latest in a long line of failed philanthropic interventions. In the 1960s, charitable organizations began ramping up their philanthropic efforts, spending billions funding education, job training, agricultural development, infrastructure projects, and health care programs in attempts to help poor countries.
These programs hoped to create a springboard of knowledge and capital that would foster financial independence and bolster struggling economies. But when economists started studying this kind of aid in the late 90s and early 2000s, they made some surprising discoveries. After running various randomized control trials, where one group received education or job training and another group did not, the researchers found this kind of aid often had minimal impact.
School supplies failed to improve education. Job training didn’t always raise incomes. And the benefits of nutrition education varied dramatically from group to group.
These disappointing results even extended to newer philanthropic models. At this time, many theorists advocated heavily for microfinance, a model that offered small loans to aspiring entrepreneurs in weak economies. But while microfinance recipients consistently repaid their loans with interest, the programs failed to meaningfully raise their incomes.
All these failures led researchers to consider a strategy many considered ridiculous: direct cash giving. Most philanthropists saw this approach as the worst kind of shortsighted philanthropy. They assumed recipients would quickly spend the cash and then end up back where they started.
But when researchers returned to Ahenyo two years later, the results were astonishing. Business revenues were up 65%. Families saved more and ate more.
Kids were doing better in school. There was less alcoholism, depression, domestic violence, and inequality between families. And these impacts weren’t unique to Ahenyo.
Since this study, direct cash giving has become one of the most researched poverty interventions, and it's consistently shown impacts that often exceed traditional aid programs. In fact, a subsequent study spanning hundreds of Kenyan villages found the surrounding economy grew by more than twice what was given out just a year after the cash transfers. However, direct cash giving isn’t a silver bullet.
Poverty is a generational issue that requires long-term changes to solve; and since this intervention is relatively new, we still don’t fully understand the effects of cash giving on extended timelines. For example, a Ugandan study beginning in 2008 found that while a cash transfer improved some families’ earnings over the first four years, the positive effect disappeared after the next five years. Then it returned again under the pressure of the COVID-19 pandemic.
Clearly, we still have a lot to learn about how cash giving unfolds over time. But regardless of what we learn in the future, the theory for why direct cash giving works can help change how we think about poverty today. Where traditional aid programs assume that philanthropists have the best knowledge of a community's needs, cash giving programs believe the people experiencing poverty best understand what they need to escape it.
For example, perhaps for one person, repairing their home is more important to long-term success than starting a new business. And for another, ensuring their child can finish school might allow them to bring in more money in the future. Fortunately, we can afford this kind of help.
Today, wealthy countries spend $200 billion a year in international aid, and philanthropists have a trillion and a half more sitting in private foundations. We already have the means to eliminate extreme poverty. But doing so will require these institutions to trust the expertise of the people actually living in these conditions.
