«DIREC TIONS IN DE VELOPMENT Human Development Public Disclosure Authorized The Cash Dividend The Rise of Cash Transfer Programs in Sub-Saharan Africa ...»
Sometimes these programs are also known as social cash transfer or social transfer programs. The transfers are noncontributory in the sense that beneficiaries do not pay into a system that later awards them the transfers. By definition, they exclude partially or wholly self-funded pension systems or other forms of deferred compensation. This definition includes noncontributory pensions, poverty-based transfers, and family grants.
Beneficiaries do not need to work to receive transfers; therefore, public works and guaranteed employment programs are excluded.4 However, other requirements or conditions may be placed on beneficiaries before they are allowed to receive their CTs. The source of the transfers is the state or other public entities; remittances and other private transfers are not included.
CTs are typically provided with relief or development goals in mind.
Emergency CTs are provided to help households smooth consumption in the face of a major crisis, whereas CTs for development are usually given at regular intervals for an extended period of time with longer-term goals in mind. Many CTs in Sub-Saharan Africa contain elements intended for both of these purposes. For additional information on the economic rationale for the use of cash transfer programs, see box 1.2. Box 1.3 also provides some additional references on the topic.
Some program design or implementation features are common across CTs. For instance, similar to other safety net programs, CT programs typically target beneficiaries in chronic or transient poverty or people belonging to vulnerable groups, such as those who lose out in reforms (Grosh and others 2008). Well-designed CTs are also characterized by objective targeting, payment, and monitoring and evaluation systems.
Conditional and Unconditional Transfers and In-Kind Transfers Cash transfer programs may be conditional or unconditional. Unconditional cash transfers (UCTs) provide cash to all eligible and registered beneficiaries. Conditional cash transfers (CCTs) provide benefits only to beneficiaries Cash Transfers 19 Box 1.2 The Economic Rationale for Cash Transfer Programs Several arguments have been made in support of CT programs. First, it is argued that distributing cash to the poor can be a more effective poverty-fighting instrument than other public sector investments. Other investments in areas such as infrastructure or public services can tend to be regressive, benefiting wealthy individuals more than the poor. Whether public investments are better spent on infrastructure, public services, governance reform, other social protection programs, or otherwise is not easily answered, and countries will have to weigh these trade-offs carefully.
A second argument is that CTs can be used to lessen the impact of failures in credit and insurance markets. CTs can allow beneficiaries to make investments or purchases they could not otherwise make, given credit market imperfections, and they can help beneficiaries smooth income and consumption, given limitations in insurance markets. Such a role for CTs is particularly important once an adverse shock has occurred. Similarly, providing (nonemergency) transfers at predictable intervals can help beneficiaries manage risks of idiosyncratic or systemic shocks ex ante. It is argued that cash transfers may significantly reduce the impact of market imperfections—and at a lower cost than intervening to fix the market.
From the perspective of utility maximization, CTs provide beneficiaries with as much or greater utility than any type of in-kind transfer, because the beneficiary can choose to spend the cash in the way that is most useful for him or her. Likewise, a CT allows households to achieve (weakly) higher utility than they could from a subsidy.
The rights-based perspective argues that CTs allow the state to redress inequalities in groups disadvantaged by exogenously determined characteristics, such as ethnicity, gender, or parents’ poverty levels. Individuals born into poverty have fewer opportunities than others, and the state may address this problem by providing CTs. The rights-based rationale also argues that a CT is less paternalistic than other government-provided benefits, particularly in-kind transfers, because it does not decide which bundle of goods or services will be most useful to the beneficiary.
Taken together, these arguments suggest that CTs can increase efficiency (that is, by replacing more regressive programs, reducing the costs of market failures, and allowing beneficiaries to achieve higher utility levels) and equity (that is, by acting as a redistribution mechanism).
Box 1.2 (continued) Cash transfers may also be linked to programs that encourage productivityenhancing or income-generating activities that will decrease poverty and vulnerability, and they are thought to play a productivity-increasing role themselves. They are seen as important for addressing short-term problems (such as a shortage of income in households with young children) that could have long-term deleterious consequences (such as malnutrition, which could lead to lower long-term productivity).
For additional references on cash transfer programs, see box 1.3. For more information about the economic rationale for CCTs, and additional references on the topic, refer to box 3.3 in chapter 3.
Source: Fiszbein and Schady 2009.
Additional References on Cash Transfer Programs Multiple valuable resources are available on various aspects of cash transfers.
Fiszbein and Schady (2009) discuss the rationale for cash transfers and CCTs and examine results from CCTs around the world. Arnold, Conway, and Greenslade (2011) provide evidence on the impact of CTs around the world. Hanlon, Barrientos, and Hulme (2010) also present arguments for the use of CTs around the world. They emphasize the importance of program context, as well as methods to improve CTs, particularly those that receive significant donor funding.
Samson, van Niekerk, and Mac Quene (2006) highlight issues to consider when designing and implementing social cash transfers. They also provide a good overview of how CTs fit into various conceptual frameworks for social protection.
Samson (2009) discusses the potential of CTs to stimulate pro-poor growth.
Harvey (2007) examines the role of CTs for humanitarian relief, as well as the ties between emergency transfers, development, and social protection. References for how to set up emergency CTs include Harvey and others (2010) and International Red Cross and Red Crescent Movement (2007).
Devereux and Pelham (2005) review unconditional cash transfers used in Southern and Eastern Africa and discuss lessons learned. Holmes and Barrientos (2009) examine how CTs can be used to address child poverty in West Africa.
Cash Transfers 21 who have fulfilled prescribed conditions, known also as co-responsibilities. Common conditions include the requirement that children regularly attend school; that they obtain prescribed medical checkups; or that a household adult attend educational seminars covering basic nutrition, health, and other topics. Throughout the remainder of this book, the term CTs will refer to both unconditional and conditional cash transfers.
Typically, most CCTs—and some UCTs—provide benefits to female, rather than male, adult household members. This design feature is expected to increase females’ household bargaining power and to improve children’s well-being. It is based on empirical evidence suggesting that greater control of household resources by females is associated with larger expenditures on items for children (see Quisumbing and Maluccio 2000 for just one example).
Whether CTs should be conditioned has been hotly debated. It is generally recommended that conditions be used when households are investing in suboptimal levels of human capital or when conditions help garner political support for the program. However, even when these conditions exist, the cost of imposing conditions should be weighed against the benefits they are expected to generate.5 For additional information regarding the rationale for using conditions in CTs, see box 3.5 in chapter 3.
Although this review does not discuss extensively whether cash or in-kind transfers are more appropriate in a given setting, this aspect is important to consider. In general, cash transfers are recognized as more efficient than food or other in-kind transfers, both from a logistic and from a utility-maximizing point of view. However, additional important issues should be considered before CTs are used, particularly during times of food shortages, droughts, or other natural disasters. When food supplies are extremely limited, food transfers are preferable to cash, because CTs may drive up local food prices and not protect consumption levels. The value of CTs can also erode significantly in a highinflation environment. Unless the CTs are indexed to food prices, food transfers may be more appropriate. Thus, CTs are not a universal solution, and local factors affecting their effectiveness need to be carefully considered. For more information about the use of food and cash transfers, see box 3.3 in chapter 3.
Other Commonly Recognized Benefits of CTs Relatively strong evaluation designs and program monitoring systems have contributed to the measurement of the clearly beneficial effects of 22 The Cash Dividend CTs on poverty, school enrollment and attendance, per capita consumption, children’s growth indicators, and more. CTs have also been found to increase investment in productive activities (see box 3.7 in chapter 3 for results from selected CCTs).
A generally recognized benefit of CCTs is their potential to combat short-term poverty by ensuring that minimum consumption levels are met, while encouraging households to invest in human capital, which will provide many long-term benefits. UCTs can do the same to a potentially different degree.
Other commonly mentioned benefits of CTs include their ability to maintain relatively low administrative costs and encourage interinstitutional coordination and institutional strengthening. CTs have also played a key role in developing more coherent, coordinated national social protection policies and strategies. In addition, some CTs may encourage inclusion of the poor in the financial system. Depending on local markets and infrastructure, transfers have varying multiplier effects on local economies (Sabates-Wheeler, Devereux, and Guenther 2009). Finally, some countries, such as Ethiopia, have been able to scale up their programs in response to crises, thereby establishing that appropriately designed CTs may be able to provide a temporary, wide-scale response to crises.6 Cash Transfers within the Social Protection System Although they are important programs on their own, CTs are a vital component of a country’s social protection system (when it exists). Many authors have thoughtfully addressed the concepts of social protection and safety net programs. Such detailed discussions are beyond the scope of this book. However, for the purposes of the review, this book relies on a recent World Bank definition of social protection as “private (both formal and informal) and public initiatives that connect men and women to labor markets, reduce people’s exposure to risks, and enhance their capacity to protect themselves against hazards and loss of income that threaten their present and future well-being” (World Bank 2011, 9).
Programs classified as social protection include social assistance, social insurance, social funds, social services, and public policies related to issues such as labor or gender (Ellis, Devereux, and White 2009; Grosh and others 2008; Slater and others 2008). These categories include noncontributory and contributory transfer schemes ranging from subsidies and transfers to unemployment insurance and pensions.
Cash Transfers 23