GiveDirectly, a non-profit charity that sends cash directly to low-income families, has been running the world's largest basic income test for years: It started in 2016, distributing a basic income of just over $20 a month to about 6,000 people in rural Kenya until 2028. Tens of thousands more are receiving payments with shorter terms or different structures.
One of the big questions GiveDirectly is trying to answer is how to get cash directly to low-income families. "Just give me cash" is fun to say, but it misses some important operational details. It matters whether a person gets $20 a month for two years or $480 all at once. $20 per month can help people budget and cover daily expenses, while taking out $480 at once can give people enough funds to start a business or another big project.
The latest study of the GiveDirectly pilot program by MIT economists Tavneet Suri and Nobel laureate Abhijit Banerjee compared three groups: short-term basic income recipients (who receive $20 for two years), long-term basic income recipients (who receive it for a full 12 years) and lump-sum recipients (who receive a lump sum of $500, roughly the same amount as the short-term basic income group). The paper is still being finalized, but Suri and Banerjee shared some results during a conference call with reporters this week.
The lump sum group outperformed the monthly payment group by almost every financial measure. Suri and Banerjee found that the lump-sum payment group had higher incomes, started more businesses, and spent more on education than the monthly-payment group. "What you end up seeing is a doubling of net income in the one-time payment group, a doubling of profits for the small business," Suri said. "Whereas the short-term group of $20 a month is about half as effective."
The explanation they came up with was that $500 in one fell swoop provided valuable start-up capital for new businesses and farms, whereas the $20-a-month group required very serious long-term savings to replicate. "The lump sum group doesn't need to save money. They just have money advanced that can be invested," Suri explains.
Interestingly, the results for the long-term monthly recipient group (receiving about $20 a month for 12 years rather than two years) look more like the lump sum group. The reason, Suri and Banerjee discovered, was their use of rotating savings and credit associations (ROSCAs). These institutions are popping up in small communities, especially in developing countries. In these institutions, members make small periodic payments into a mutual fund in exchange for the right to withdraw larger sums at regular intervals.
Suri concluded: "It converts small flows into one-time funds. What we see is that the long-term sector is actually using ROSCA. A lot of their outstanding debt is going into ROSCA to generate one-time funds that they can use to invest."
This attitude is reflected so frequently in Suri and Banerjee’s data. They found that consumption (actual fixed spending on things like food and clothing) increased the least among people who had no fixed income over the long term, but in most cases they didn't do that: they invested the money.
Given the entrepreneurial spirit of recipients, the researchers found no evidence that the money would discourage work or increase alcohol purchases -- two common criticisms of direct cash payments. In fact, many people who used to live on wages turned to entrepreneurship, reducing competition for wage jobs and raising overall wages in the village.
While one-time payments are great for starting a business, they find that monthly payments have one major advantage over one-time payments. People who receive monthly checks are generally happier and have better mental health than lump-sum recipients. "People on lump sums are getting a large sum of money and have to invest it, which may cause them some stress," Suri speculates. "Long-term monthly recipients are the happiest anyway, and some of the reasons for that are they know the money will be there for 12 years... It's good for mental health in the sense of stability."
This suggests that the implications of this study are not "give people money no matter what." Ideally, you would ask specific people how they would prefer to get their money. For example, if you were a politician in Kenya designing a permanent basic income policy, you could design it in such a way that recipients could choose to receive $500 every two years or $20 a month.
But other than that, long-term monthly payments seem to be the best option as one can take advantage of ROSCAs to get a lump sum payment whenever needed. This allows for flexibility: people who want monthly payments can get it, while people who need cash upfront can organize with peers and get it.