Source: Council on Foreign Relations
For several years now I’ve been following the progress of an innovative new philanthropy: GiveDirectly. Its cofounders, Michael Faye and Paul Niehaus, started the organization in 2008 while doing their PhD’s in economics at Harvard. Their idea was simple. Given mounting evidence that cash transfers are among the most efficient and effective ways to address poverty (and that the poor know very well what to do with money), why not start a charity that skips the rigmarole of providing services to poor people in poor countries and just gives them cash? Satellite imagery allowed GiveDirectly to efficiently and objectively identify the poorest in their chosen test sites in rural Kenya–those living in huts with only thatched roofs. The spread of mobile payments via cell phones provided a reliable and inexpensive way to distribute money. Committed to measuring results every step of the way, GiveDirectly collaborated with Innovations for Poverty Action (IPA) to conduct a randomized control trial and have been transparent with the results. And so far, those results have been impressive: recipients increased their assets and income significantly; their food security and mental health improved; violence against women fell. GiveDirectly achieved these results with an expense ratio of roughly seven percent–far less than what most NGO’s spend. “We want cash transfers to be the benchmark against which everything else is judged,” says Niehaus.
Not surprisingly, GiveDirectly has gone from success to success, winning accolades and raising millions from the likes of Google and Good Ventures. But despite these gains, and talk about scaling the organization to disperse billions, it wasn’t clear to me how they were going to evolve from reaching a few thousand recipients now to their lofty goal of reaching millions. With their announcement today of the formation of a for-profit spin-off company, I’m beginning to see the way.
The new company is called Segovia after one of the largest aqueducts of the Roman Empire–an engineering feat that carried water for two thousand years. Segovia’s founders hope the name will evoke “good governance.” Essentially, the company will build out a technology platform to make cash transfers efficiently to millions of people, with its eye on governments and other institutions as clients.
Undoubtedly, Segovia’s potential market is enormous. A World Economic Forum report estimates that government cash transfers to the unbanked in emerging markets are nearing $550 billion. India’s cash transfer program to workers alone is $14 billion. Already, approximately a billion people are reached by cash transfers in emerging markets, and that figure is only likely to grow as research continues to demonstrate their efficiency and effectiveness at poverty alleviation.
Segovia’s goal is to partner with governments and other institutions to streamline those cash transfers–to make the process better, faster, cheaper. The same World Economic Forum report estimates that the potential savings of migrating government cash transfer payments onto a digital platform could be as high as $100 billion. This includes reducing the leakage, transaction, and administrative costs of existing programs and realizing the economic benefits of greater ease and safety for recipients. Michael Faye, who will head up Segovia as CEO, believes that the sophisticated modeling behind GiveDirectly, and the insights they’ve gained by working in the field on cash transfers, give them a distinct advantage in building out the platform and becoming the partner of choice for governments looking to more efficiently manage their cash transfer programs or to start one.