Cash transfer

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A cash transfer is a direct transfer payment of money to an eligible person. [1] Cash transfers are either unconditional cash transfers or conditional cash transfers. They may be provided by organisations funded by private donors, or a local or regional government. [2]

Contents

Cash transfers constitute a critical element in the realm of global social policy, addressing needs ranging from poverty alleviation to crisis response. This article distinguishes between two main types of cash transfers: humanitarian cash transfers, grounded in international humanitarian principles, and social assistance cash transfers, integral to long-term social welfare strategies.

Humanitarian cash transfers are aligned with the principles of humanity, neutrality, impartiality, and independence, which are fundamental to humanitarian aid. These principles, endorsed by UN General Assembly resolutions 46/182 and 58/114, ensure that humanitarian aid, including cash transfers, prioritizes human suffering and assists the most vulnerable without favoritism or discrimination. Humanity underscores the need to address human suffering universally. Neutrality ensures that aid does not favor any party in a conflict or dispute. Impartiality dictates that aid is based solely on need, without discrimination. Independence highlights the autonomy of humanitarian objectives from political, economic, military, or other objectives. Adhering to these principles, humanitarian cash transfers provide life-saving assistance in emergencies like natural disasters, conflicts, and famines, focusing on short-term, immediate relief.

Conversely, social assistance cash transfers are part of broader social protection systems aimed at reducing long-term poverty and vulnerability. These transfers target various demographic groups, including the unemployed, single parents, and individuals facing disabilities or old age challenges. By enhancing the capacity of individuals to manage socioeconomic risks and promoting efficient labor markets, social assistance cash transfers contribute to social equity and stability.

While both humanitarian and social assistance cash transfers aim to provide monetary support to those in need, they differ significantly in their objectives, implementation, and impact. Humanitarian cash transfers are typically responsive, addressing urgent needs in crisis situations guided by humanitarian principles. In contrast, social assistance cash transfers are more proactive, forming a key component of ongoing welfare policies and systems.

Targeting

Cash transfer programmes in developing countries are constrained by three factors: financial resources, institutional capacity and ideology. [3] Governments in poorer countries tend to have restricted financial resources, and are therefore limited in the amount they can invest both directly in cash transfers and in measures to ensure that such programmes are effective. [3] The amount invested is influenced by ‘value for money’ considerations, as well as by political and ideological concerns regarding ‘free handouts’ and ‘creating dependency’. [4] As random allocations are not particularly effective, there are two main forms of targeting: [3]

Means testing potential recipients of cash transfers is the more politically acceptable, as money is not perceived to be wasted by including those who do not have a desperate need for the money ("leakage"). This can either be achieved through a screening process of potential recipients, or else by making the benefits of the transfers so low only the most desperate will apply. Yet there are also many problems associated with this method as the transaction costs of screening are very high, due to the need to pay for assessment, the travelling cost of candidates to and from the assessment and also the potential risks for corruption. There also may be a negative effect on social capital as resentment develops of those who receive support by those who do not. [3]

A universal approach, i.e.selecting all the under 5s, or pensioners, disabled, female led households, etc., does have many advantages as it increases social unity amongst a section of society benefitting from the programme and avoids the transaction costs of screening. A universal approach requires carefully selecting a target group as some groups may cover a greater number of poor families, but include the less needy. Similarly a more narrow recipient group risks excluding many of those who do actually need support. [3]

Lump sums

One method of managing a cash transfer is to provide all the money at once in a lump sum, rather than in small regular amounts. Researchers at the Overseas Development Institute carried out a study on the effectiveness of the Swiss Agency for Development Cooperation's experiments with lump sum cash transfers and came out with the following six findings: [5]

  1. Lump sum transfers work better in post-emergency than developmental contexts as their potential to be rapidly transferred to the recipients suits the urgency of post-emergency requirements.
  2. Success of lump sum transfers greatly depends on the local market and whether there are long-term income generating investments to be made. Areas affected by illness (e.g. HIV/Aids) or other such problems are likely to benefit more from regular small payments.
  3. Economic conditions other than limited markets or limited investment opportunities are also important, for instance, if the scale of the transfer greatly exceeds several years of local incomes recipients are unlikely to be able to know how to prudently invest the cash. Where there is a clear investment potential, care should be made to support the recipient while lump sum investment matures, e.g. someone who buys a cow still needs to eat while waiting for the long term benefits (calf, milk) and so must be helped in order to ensure s/he doesn't sell the cow.
  4. While business planning, skills enhancement and training support is useful, if a clear investment opportunity (fishing boat, cow, etc.) is available, that is normally enough.
  5. Context must be considered, e.g. people cannot build a house if they have no access to land.
  6. Large cash transfers risk creating corruption or being used as a tool to gain political support for the government.

Wider economic, political and social implications

Many governments in poorer countries, where cash transfers could potentially have the most impressive impact, are often unwilling to implement such programmes due to fears of inflation and more importantly, dependency on the transfers. [6] Quite often it is NGOs who encourage the schemes. If introduced, these schemes are often directed at the non-working poor (although the DfID backed Hunger Safety Nets Programme is a notable exception). In sub-Saharan Africa transfer values are normally limited to 10 to 30% of the ultra poverty line, though donors are now recommending the provision of a transfer level equivalent to 100%. [6]

Whether due to the cautious approach or not, studies have shown that inflation is often avoided as traders increase their stock in anticipation of the schemes. [7] Furthermore, the projects have often helped to build the state's legitimacy as it helps ensure citizens survival and programmes are targeted at marginalised groups and support their integration (e.g. in Nepal successive governments have used cash transfers to help integrate marginalised groups and reduce the risk of conflict). [6]

Monitoring and evaluating cash transfer programmes

Ensuring the participation of poor communities in the monitoring and evaluation (M&E) of social protection programmes – and cash transfer programmes in particular - is gaining support from donors and governments who see potential gains in efficiency, legitimacy and satisfaction. ‘Participatory monitoring and evaluation’ (PM&E) techniques and mechanisms are particularly effective at giving a voice to the people who receive the money, and, when they work well, they serve increase the accountability of governments, local officials and programme implementers.

Qualitative and participatory research carried out by the Overseas Development Institute (in Kenya, Mozambique, the Occupied Palestinian Territories, Uganda and Yemen) investigating individual and community perceptions of cash transfer programmes [8] reveals that the money has a number of positive, and potentially transformative, effects on the lives of the individuals and families that receive them, including:

• People prefer to receive cash than other forms of assistance (food aid, public works, etc.) because it gives them the freedom to spend the money on the things they feel they need.

• People experience an increase in their quality of life e.g. they are able to construct permanent shelters, have three meals a day and pay health-related costs.

• More children are going to school as a result of receiving the transfer.

• Particularly vulnerable or excluded beneficiaries felt that they were now able to meet the basic needs of their families, giving them greater economic freedom, security and enhanced psychological well-being.

Examples

Humanitarian cash transfers

As of 2015, only approximately 6% of humanitarian aid is provided in the form of cash transfers and vouchers, even though evidence indicates that it is more cost-effective, better for recipients and more transparent than in-kind aid. [13]

A High Level Panel on Humanitarian Cash Transfers was convened in 2015. It found that in many cases, cash transfers were better for people in humanitarian crises. For example:

In order to scale up cash transfers in humanitarian aid, organisations need to:

Case Study: Sierra Leone

Research has been carried out by the Overseas Development Institute into the challenges of implementing cash transfers in Sierra Leone and in ensuring their success. After a decade of conflict over 70% of the population lives in poverty and over 25% in extreme poverty (defined as being unable to achieve the bare minimum nutritional food intake). [14] Given the poverty and the high levels of fragmentation in society, cash transfer schemes have been small scale to date, but include:

Any expansion of the system has to take into account: [14]

Researchers at the Overseas Development Institute found that the perceived risk of dependency was very high and that transfers of tools, sewing machines, or agricultural inputs have proved to be more popular. [14] Furthermore, organisations such as the World Food Programme were of the belief that giving food, instead of cash, in payment for public works was more culturally relevant, in an area where workers had traditionally been paid this way. [14] Yet the actual risk of dependency proved to be far less than feared. [14] The research has also shown that despite poor infrastructure, administering cash transfers has not presented as great a challenge as expected. Informal networks have ensured cash is flowing from the urban to rural areas, even if by hand, and local councils and schools far from the capital are now also receiving payment through bank accounts and not in cash. [14] The same goes for institutional capacity which is widely believed to be improving. [14]

Corruption in Sierra Leone continues to pose a serious challenge and the country ranked only 142 out of 163 in Transparency International's 2006 rankings. [14] Cash transfers are no more prone to corruption than other sources of government spending, yet specific parts of the process of implementation must be carefully monitored. [14] Affordability is argued to be low. Total government expenditure on social protection was budgeted at around US$1.5 million in 2006 and US$2.8 million in 2007 and social protection expenditure is estimated at around 1.5% to 2.5% of non-salary, non-interest recurrent government expenditure, 0.3–0.6% of total government expenditure and a small fraction of a percentage of GDP. [14]

GiveDirectly

GiveDirectly is a non-profit organization, headquartered in the United States and currently operating in Kenya, that aims to help people living in extreme poverty by making unconditional cash transfers to them via mobile phone (through m-Pesa). It is the first charity dedicated exclusively to cash transfers. It claims that 90% of donor funds are utilized in the form of the actual cash transfers, with the remaining 10% being split between fees for money transfers and recipient identification costs. Their model is closer to the "lump sums" transfer model than the "regular income supplement" model that has historically been used more by governments.

Impacts on health

The first comprehensive systematic review of the health impact of unconditional cash transfers included 21 studies, of which 16 were randomized controlled trials. It found that unconditional cash transfers may not improve health services use. However, they lead to a large, clinically meaningful reduction in the likelihood of being sick by an estimated 27%. Unconditional cash transfers may also improve food security and dietary diversity. Children in recipient families are more likely to attend school, and the cash transfers may increase money spent on health care. [15] An update of this landmark review from 2022 confirmed these findings, plus concluded that there is now sufficient evidence that such cash transfers also reduce the likelihood of recipients living in extreme poverty. [16] The present study concluded that cash along with ECD activities have positive impact on child development in Bangladesh. [17]

Impacts on subjective wellbeing

In 2022, a systematic review and meta-analysis of 45 studies examined the impact of cash transfers on self-reported subjective wellbeing and mental health outcomes, covering a sample of 116,999 individuals. [18] After an average follow-up time of two years, the study found that cash transfers have a small but statistically significant positive effect on both subjective wellbeing and mental health among recipients. The value of the cash transfer, both relative to previous income and in absolute terms, is a strong predictor of the effect size.

See also

Related Research Articles

<span class="mw-page-title-main">Extreme poverty</span> Condition characterized by severe deprivation of basic human needs

Extreme poverty is the most severe type of poverty, defined by the United Nations (UN) as "a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to services". Historically, other definitions have been proposed within the United Nations.

Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. For example, a person's income in an economic sense may be different from their income as defined by law.

<span class="mw-page-title-main">World Food Programme</span> Food-assistance branch of the United Nations

The World Food Programme (WFP) is an international organization within the United Nations that provides food assistance worldwide. It is the world's largest humanitarian organization and the leading provider of school meals. Founded in 1961, WFP is headquartered in Rome and has offices in 80 countries. As of 2021, it supported over 128 million people across more than 120 countries and territories.

<span class="mw-page-title-main">Department for International Development</span> Former department of the UK Government

The Department for International Development (DFID) was a department of HM Government responsible for administering foreign aid from 1997 to 2020. The goal of the department was "to promote sustainable development and eliminate world poverty". DFID was headed by the United Kingdom's Secretary of State for International Development. The position was last held by Anne-Marie Trevelyan, who assumed office on 13 February 2020 and served until the department was dissolved on 2 September 2020. In a 2010 report by the Development Assistance Committee, the department was described as "an international development leader in times of global crisis". The UK aid logo is often used to publicly acknowledge DFID's development programmes are funded by UK taxpayers.

Welfare reform is the process of proposing and adopting changes to a welfare system in order to improve the efficiency and administration of government assistance programs with the goal of enhancing equity and fairness for both welfare recipients and taxpayers. Reform programs have various aims: empowering individuals to help them become self-sufficient, ensuring the sustainability and solvency of various welfare programs, and/or promoting equitable distribution of resources. Welfare reform is constantly debated because of the varying opinions on a government's need to balance the imperatives of guaranteeing welfare benefits and promoting self-sufficiency.

<span class="mw-page-title-main">Transfer payment</span> Governmental wealth redistribution

In macroeconomics and finance, a transfer payment is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return. These payments are considered to be non-exhaustive because they do not directly absorb resources or create output. Examples of transfer payments include welfare, financial aid, social security, and government subsidies for certain businesses.

<span class="mw-page-title-main">Development aid</span> Financial aid given to support the development of developing countries

Development aid is a type of foreign/international/overseas aid given by governments and other agencies to support the economic, environmental, social, and political development of developing countries. Closely related concepts include: developmental aid, development assistance, official development assistance, development policy, development cooperation and technical assistance. It is distinguished from humanitarian aid by aiming at a sustained improvement in the conditions in a developing country, rather than short-term relief. Development aid is thus widely seen as a major way to meet Sustainable Development Goal 1 for the developing nations.

<span class="mw-page-title-main">Aid</span> Voluntary transfer of resources from one country to another

In international relations, aid is – from the perspective of governments – a voluntary transfer of resources from one country to another.

<span class="mw-page-title-main">Poverty reduction</span> Measures to reduce poverty permanently

Poverty reduction, poverty relief, or poverty alleviation is a set of measures, both economic and humanitarian, that are intended to permanently lift people out of poverty.

Conditional cash transfer (CCT) programs aim to reduce poverty by making welfare programs conditional upon the receivers' actions. The government only transfers the money to persons who meet certain criteria. These criteria may include enrolling children into public schools, getting regular check-ups at the doctor's office, receiving vaccinations, or the like. CCTs seek to help the current generation in poverty, as well as breaking the cycle of poverty for the next through the development of human capital. Conditional cash transfers could help reduce feminization of poverty.

Monga is a Bengali term referring to the yearly cyclical phenomenon of poverty and hunger in Bangladesh. It is also called "mora Kartik," which means "months of death and disaster." It refers to two times per year, from September–November and from March–April. These natural phenomena lead to fewer available job opportunities for rural workers, resulting in the workers becoming migrant and moving to towns. Those who cannot migrate can face malnutrition and starvation. The public awareness of Monga has risen with media focus in the 2000s. It was cited in Bangladesh's Poverty Reduction Strategy Paper, and has been the subject of NGO aid programs.

<span class="mw-page-title-main">Social protection</span>

Social protection, as defined by the United Nations Research Institute for Social Development, is concerned with preventing, managing, and overcoming situations that adversely affect people's well-being. Social protection consists of policies and programs designed to reduce poverty and vulnerability by promoting efficient labour markets, diminishing people's exposure to risks, and enhancing their capacity to manage economic and social risks, such as unemployment, exclusion, sickness, disability, and old age. It is one of the targets of the United Nations Sustainable Development Goal 10 aimed at promoting greater equality.

Social protection in sub-Saharan Africa tends not to be very developed and yet the growth of some of the region's economies and concerted attempts to tackle poverty mean that this situation may change considerably in the future.

The social protection floor (SPF) is the first level of protection in a national social protection system. It is a basic set of social rights derived from human right treaties, including access to essential services and social transfers, in cash or in kind, to guarantee economic security, food security, adequate nutrition and access to essential services.

Welfare dependency is the state in which a person or household is reliant on government welfare benefits for their income for a prolonged period of time, and without which they would not be able to meet the expenses of daily living. The United States Department of Health and Human Services defines welfare dependency as the proportion of all individuals in families which receive more than 50 percent of their total annual income from Temporary Assistance for Needy Families (TANF), food stamps, and/or Supplemental Security Income (SSI) benefits. Typically viewed as a social problem, it has been the subject of major welfare reform efforts since the mid-20th century, primarily focused on trying to make recipients self-sufficient through paid work. While the term "welfare dependency" can be used pejoratively, for the purposes of this article it shall be used to indicate a particular situation of persistent poverty.

GiveDirectly is a nonprofit organization operating in East Africa that helps families living in extreme poverty by making unconditional cash transfers to them via mobile phone. GiveDirectly transfers funds primarily to people in Kenya, Uganda, and Rwanda.

<span class="mw-page-title-main">Benazir Income Support Programme</span> Poverty reduction programme in Pakistan

The Benazir Income Support Programme (BISP) is a federal unconditional cash transfer poverty reduction program in Pakistan. Launched in July 2008, it was the largest single social safety net program in the country with nearly Rs. 90 billion distributed to 5.4 million beneficiaries in 2016.

Universal basic income in India refers to the debate and practical experiments with universal basic income (UBI) in India. The greatest impetus has come from the 40-page chapter on UBI that the Economic Survey of India published in January 2017. It outlined the three themes of a proposed UBI programme:

Unconditional cash transfer (UCT) programs are philanthropic programs aim to reduce poverty by providing financial welfare without any conditions upon the receivers' actions. This differentiates them from conditional cash transfers where the government only transfers the money to persons who meet certain criteria. Unconditional cash transfers have developed on the premise that giving cash to citizens allows them to have autonomy over their own lives.

In the realm of humanitarian aid, Cash and Voucher Assistance (CVA) is recognized as an umbrella term for two of the common modalities of assistance for delivering swift and flexible humanitarian aid support to populations affected by various crises, the third being in-kind assistance.

References

  1. ↑ O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action . Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p.  69. ISBN   0-13-063085-3.{{cite book}}: CS1 maint: location (link)
  2. ↑ McCord, Anna (3 June 2011). "Cash transfers and political economy in sub-Saharan Africa" (PDF). Overseas Development Institute. Archived from the original (PDF) on 3 June 2011.
  3. 1 2 3 4 5 Rachel Slater and John Farrington (2009) Cash transfers: targeting London: Overseas Development Institute
  4. ↑ Sony Pellissery and Armando Barrientos (2013) Expansion of Social Assistance: Does Politics Matter?
  5. ↑ John Farrington (2009) Cash transfers: lump sums London: Overseas Development Institute
  6. 1 2 3 Anna McCord (2009) Cash transfers and political economy in sub-Saharan Africa London: Overseas Development Institute
  7. ↑ Rebecca Holmes (2009) Cash transfers in post-conflict contexts London: Overseas Development Institute
  8. ↑ Jones, Nicola; et al. "Transforming cash transfers: beneficiary and community perspectives on social protection programming". Overseas Development Institute . Retrieved 23 January 2013.[ dead link ]
  9. ↑ "SBY Diminta Belajar dari JK" (in Indonesian). 27 May 2010. Archived from the original on 28 October 2014. Retrieved 15 December 2020.
  10. ↑ "Wiranto: BLT Konsep dari Jusuf Kalla" (in Indonesian). Rakyat Merdeka. 13 June 2013. Archived from the original on 24 September 2015. Retrieved 15 December 2020.
  11. ↑ Jamsostek Indonesia. "Social Security in Indonesia". Archived from the original on 26 August 2020. Retrieved 15 December 2020.
  12. ↑ Kementerian Koordinator Bidang Kesejahteraan Rakyat (February 2009). "PELAKSANAAN PROGRAM BANTUAN UNTUK RUMAH TANGGA SASARAN DALAM RANGKA PENANGGULANGAN KEMISKINAN" (PDF).[ permanent dead link ]
  13. 1 2 3 4 High Level Panel on Humanitarian Cash Transfers (2015) Doing cash differently: how cash transfers can transform humanitarian aid Overseas Development Institute
  14. 1 2 3 4 5 6 7 8 9 10 11 Rebecca Holmes and Adam Jackson (2008) Cash transfers in Sierra Leone: Are they appropriate, affordable or feasible? Archived May 26, 2010, at the Wayback Machine Overseas Development Institute
  15. ↑ Pega, Frank; Liu, Sze; Walter, Stefan; Pabayo, Roman; Saith, Ruhi; Lhachimi, Stefan (2017). "Unconditional cash transfers for reducing poverty and vulnerabilities: effect on use of health services and health outcomes in low- and middle-income countries". Cochrane Database of Systematic Reviews. 11 (4): CD011135. doi:10.1002/14651858.CD011135.pub2. PMC   6486161 . PMID   29139110.
  16. ↑ Pega, Frank; Pabayo, Roman; Benny, Claire; Lee, Eun-Young; Lhachimi, Stefan; Liu, Sze (2022). "Unconditional cash transfers for reducing poverty and vulnerabilities: effect on use of health services and health outcomes in low- and middle-income countries". Cochrane Database of Systematic Reviews. 2022 (3): CD011135. doi:10.1002/14651858.CD011135.pub3. PMC   8962215 . PMID   35348196.
  17. ↑ Hossain, Sheikh Jamal; Roy, Bharaty Rani; Sujon, Hasan Mahmud; Tran, Thach; Fisher, Jane; Tofail, Fahmida; El Arifeen, Shams; Hamadani, Jena Derakhshani (2022-01-01). "Effects of integrated psychosocial stimulation (PS) and Unconditional Cash Transfer (UCT) on Children's development in rural Bangladesh: A cluster randomized controlled trial". Social Science & Medicine. 293: 114657. doi: 10.1016/j.socscimed.2021.114657 . ISSN   0277-9536. PMID   34942577. S2CID   245284715.
  18. ↑ McGuire, Joel; Kaiser, Caspar; Bach-Mortensen, Anders M. (2022). "A systematic review and meta-analysis of the impact of cash transfers on subjective well-being and mental health in low- and middle-income countries". Nature Human Behaviour. 6 (3): 359–370. doi:10.1038/s41562-021-01252-z. ISSN   2397-3374. PMID   35058643. S2CID   246082713.

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