An unprecedented experiment is underway in Kenya pertaining to aid, social structure and economics. Since 2017, the U.S.-based charity, GiveDirectly, has been providing thousands of villagers what’s called a “universal basic income” – a cash grant of about $50, delivered every month, with the commitment to keep the payments coming for 12 years. It is a crucial test of what many consider one of the most cutting-edge ideas for alleviating global poverty. This week, a team of independent researchers, who have been studying the impact of this experiment, released their first results.
Their findings cover the first two years of the program. The findings compare the outcomes for about 5,000 people who received the monthly payments with nearly 12,000 others, in a control group, who got no money. The researchers also compared the recipient group to people in two other groups: The first of these other two groups, nearly 9,000 people, received the monthly income for just two years, without the promise of another decade of payments afterward; the second group, also of roughly 9,000 people, got that same two years’ worth of income but in a lump-sum payment.
Aid, and how it’s distributed, has always been a controversial subject: How much aid agencies charge to operate such programs; the sometimes extortionist salaries that some aid agency personnel receive; the corruption on the receiving end, which often means only a small fraction of what is donated benefits those in need; and a whole gambit of other concerns. This new approach can potentially address those concerns.
So, how much of a difference has the experiment made so far? Here are five takeaways from the first batch of findings, and they are significant in a way that should influence all aid packages in the future:
1. Giving cash aid in a lump sum:
Those who got the money in a lump sum vastly outperformed people who were promised the same amount for just two years but received it in monthly installments. For instance, lump-sum recipients started 19% more enterprises – businesses such as small shops in local markets, motorbike taxis and small-scale construction concerns. And the lump sum recipients’ net revenues from their businesses were a whopping 80% higher than the group receiving the money monthly.
2. Monthly recipient groups created their own lump sums:
When groups were promised 12 years, or even only 2 years, of monthly payments, they did something very interesting. They found a way of converting their monthly payments into lump sums. They did this by making use of a creative financing tool known as a “rotating savings club”. Every month members of those groups pooled their money, and then took turns getting the entire payout from that pot.
Rotating savings clubs are enormously popular among Kenyans who don’t have access to traditional banking. Even people who got the monthly income for just two years managed to put about 8% more money in a rotating savings club than those who got no aid.
One of the reasons for this very entrepreneurial approach is that each individual knows that every one of their neighbors will be getting the same monthly payment, so they feel safe in pooling their monies.
3. The increased impact of making the benefit universal:
The researchers might have expected the groups receiving aid to invest in their farms; more fertilizer, better seed, possibly the purchase of a tractor. In other words, traditional responses to aid packages. In fact, the people who chose to invest their cash grants did so by starting businesses. The researchers expected that they would see tons of investment in agriculture – basically improvements to the tiny plots on which many villagers raise subsistence crops. That’s what earlier studies suggested. However, the fact that everyone was receiving the same amount apparently gave them the confidence to invest in more profitable businesses.
4. The grants did not seem to fuel inflation:
Despite the sudden influx of money into these impoverished communities, the data suggests that inflation there did not go up, which was a major concern of Give Directly.
5. Will the benefits of lump-sum payments last.
What remains to be seen is whether the relative benefits of the lump-sum payments endure. Are the businesses that people start durable? Do they generate enough income to lift people out of poverty? The jury is still out on that question, but the program and the research continue. Only time will tell but so far, at least, the results suggest that the radical new way of distributing aid (lump sums) may well produce better and more sustainable results than previous piece-meal programs.
The findings, so far, already have potential implications for policy. For instance, at present, a lot of cash transfers that the World Bank runs in poor countries tend to be of the monthly-for-two-years kind. This new data suggests that that policy is probably not smart. The study indicates that if you give the money out in a lump sum, you get much better and bigger results.
