Common sense is not very common, impact investing can help

Imagine if there was an experiment to test whether giving cash to someone poor vs just providing them social welfare benefits, letting them choose to spend it however they want. At the end of the experiment, it turns out that those individuals receiving cash were able to optimize their money by investing it and improving their situation (in some cases not even needing the handout anymore) rather than going out and spending it all on booze as is the typical assumption. Now you have a new bucket of money to spend, what would you do? Go back to the social welfare benefits or try to scale the cash distribution experiment given the extraordinary results? That is essentially the decision that faced the Zambian government. 

The results from the Zambia experiment with cash transfer are finally in, the social impact has been even more positive than what the researchers had anticipated. You would think that given such impressive returns on the lowest income individuals, the government would want to scale it...which they did, but shockingly, not in the way that one would expect. As this NPR report demonstrates, sometimes the public sector is just not efficient at allocating capital given the motivations they are under, much like philanthropy where common sense is not very common. In the case of Zambia's experiment with cash, the government leaders knowingly choose to ignore the positive facts for the convenience of managing public social perceptions. What they decided to do is completely contrary to rational logic. This is where impact investing could potentially bridge the connection tying funding to outcomes that can scale and be sustainable in the right scenarios (Zambia cash transfer case in point), rather than blindly doling our resources wastefully because it "looks" or "feels" good. Other countries have explored similar cash transfer experiments, let's hope they are more rational about the lessons learned.