A cash transfer is a direct transfer payment of money to an eligible person. 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.
Cash transfer programmes in developing countries are constrained by three factors: financial resources, institutional capacity and ideology. 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. The amount invested is influenced by ‘value for money’ considerations, as well as by political and ideological concerns regarding ‘free handouts’ and ‘creating dependency’. As random allocations are not particularly effective, there are two main forms of targeting:
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.
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.
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:
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. 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%.
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. 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).
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 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.
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.
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:
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). 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:
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. 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. Yet the actual risk of dependency proved to be far less than feared. 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. The same goes for institutional capacity which is widely believed to be improving.
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. 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. 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.
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.
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.