When it comes to fighting poverty, one question persists: Is it better to provide financial aid through small monthly payments or through a one-off sum? A concrete answer now emerges from the world's largest universal basic income experiment in Kenya, led by GiveDirectly. Started in 2016, the study compared the effect of monthly payments of $20 to a lump sum of $500. Under the guidance of MIT economists, Tavneet Suri e Abhijit Banerjee, preliminary findings are revealing critical insights into the transformative power of direct financial assistance.
Economic and social impact of basic income
The study results indicate that the group that received the one-time payment of $500 showed significant improvements in income, business start-ups, and education expenses compared to the group that received $20 per month. This initial sum provided the capital needed to start agricultural businesses and projects, providing an immediate and tangible economic boost. In contrast, the group with monthly payments would have had to save more conscientiously to accumulate a similar sum.
Basic income experiment: The dynamics of long-term stability
How can this inertia change? How can long-term basic income recipients (those who will receive about $20 a month for 12 years in the experiment) show similar results to the lump-sum group? This is a task for them savings and revolving credit associations (ROSCAs), which transform small sums into larger capital, usable for investments. The ability of these communities to effectively use basic income to generate significant investments is a key element emerging from the experiment, the largest ever carried out.
Field observations
In one of the beneficiary villages in 2016 the inhabitants formed ROSCAs and planned significant investments. Edwine Odongo Anyango, a father of two and all-rounder, he formed a ROSCA with 10 friends. His preference for a lump sum reflects a common sentiment among beneficiaries: the ability to undertake “big projects” at once. Surprisingly, the long-term basic income group showed the smallest increase in daily consumption, such as food and clothing. Instead of spending more each month, they chose to invest the funds. This demonstrates a mentality oriented towards investment, rather than immediate consumption.
Experiment results: benefits beyond the financial aspect
Despite the financial benefits of the one-off payment, the monthly payments group reported greater happiness and mental health. This suggests that the security of a stable monthly income offers psychological benefits, alleviating the stress associated with managing a large start-up capital.
This experiment not only highlights the importance of flexibility in financial assistance programs, but also raises questions about the optimal approach for long-term support for struggling communities. The ideal would be to offer beneficiaries the choice between monthly payments and lump sums, allowing them to decide on the method best suited to their needs and plans. Ultimately, Kenya's basic income experiment offers valuable lessons on poverty alleviation and economic empowerment, demonstrating that the best approach may be one that provides maximum flexibility and choice to individuals.
