Purpose
The goal of this note is to assess the effectiveness of cash transfers as a tool for achieving development goals.
Background
Cash transfers are a common tool governments and organizations use for social protection services or as temporary relief to constrained households. These programs provide financial assistance directly to individuals or households as either conditional, unconditional, or business grants. Conditional grants are cash transfers with conditionalities or programs for planned usage by the recipients based on their demographic characteristics (Give Well, 2012). Unconditional transfers involve the provision of funds to recipients without requirements on usability, while business grants are given to single businesses. They offer money to economically disempowered households to alleviate poverty, improve spending, and spur development. However, inherent concerns over the suitability and sustainability of these programs for low-income populations often bring conflicting outcomes. This is particularly true for conditional grants, which often exclude other subsets of the population, thus losing the essence of the transfer program (Ozler, 2020).
Discussion
Cash transfers in any form, conditional or otherwise, have accrued diverse benefits to the beneficiaries:
- Cash transfers encourage investment. According to Give Well (2012), unconditional cash transfers that encourage investments positively influenced Ugandan recipients, with a turnover of about 35% on the initial grand.
- Cash transfers improve food security. Give Well (2012) reveals that cash transfers improve food spending and access to quality food, thus alleviating the recipients’ nutritional needs.
- Cash transfers reduce poverty rates. Recipient households invest their cash in livestock and farming activities that sustain agricultural produce for domestic consumption (Aggarwal et al., 2023). This results in improved economic conditions and psychological well-being.
- Therefore, cash transfers, especially unconditional ones, are appropriate social protection tools as they provide direct and actionable responses to shocks.
Conversely, cash transfers have notable issues, especially with how they are organized and disseminated.
- There is little evidence of long-term sustained outcomes of cash transfers on the target population (Loeser, Ozler, and Premand, 2021).
- Small and ongoing transfers fail to attract investment as they are spent on meeting daily needs (Give Well, 2012).
- Therefore, some conditional grants fail the social protection value by design since they exclude those who do not meet the conditions.
Nonetheless, cash transfers could be improved to better meet the needs of the target population.
- Conditional and unconditional grants should be combined to provide social protection and alleviate the human condition of the recipients (Ozler, 2020).
- While unconditional transfers act as a safety net for entire populations in need, carefully crafted conditionalities could help improve human agency through training and initiating income-generating activities. (Loeser, Ozler, and Premand, 2021).
Conclusion
Cash transfers have substantial benefits to recipients. Conditional or otherwise, cash transfers improve the living conditions of the affected recipients in different aspects. These transfers enhance access to food, improved nutritional intake, school enrollment and educational attainment, access to health, and investment. The combined effect of these transfers on the social condition of the recipient is perceived through their improved psychological wellness and enhanced agency of the households. Accordingly, although there are limited long-term sustained outcomes of cash transfers, in the short term, these programs alleviate the recipients from their most immediate social challenges. Given the improved social condition, cash transfers should focus on addressing the human agency of the affected population to empower them through investment opportunities in areas such as agriculture, which could be sustained over a period of time.
References
Aggarwal et al. (2023). The dynamic effects of cash transfers: Evidence from Liberia and Malawi. https://voxdev.org/topic/public-economics/dynamic-effects-cashtransfers-evidence-liberia-and-malawi
Give Well (2012). Cash transfers. Last updated: November 2018. https://www.givewell.org/international/technical/programs/cashtransfers
Loeser, Ozler and Premand (2021). What have we learned about cash transfers? https://blogs.worldbank.org/impactevaluations/what-have-welearned-about-cash-transfers
Ozler (2020). How should we design cash transfer programs? https://blogs.worldbank.org/developmenttalk/how-should-wedesign-cash-transfer-programs
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