Cash transfer

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 transfers constitute a critical element in the realm of global social policy, addressing needs ranging from poverty alleviation to crisis response.
Cash transfer programs can be classified into humanitarian cash transfers, which address urgent needs in crisis situations guided by humanitarian principles, and social assistance cash transfers that form a key component of ongoing welfare policies and systems.
Humanitarian cash transfers provide life-saving humanitarian aid in emergencies like natural disasters, conflicts, and famines, focusing on short-term, immediate relief.
As of 2015, only approximately 6% of humanitarian aid is provided in the form of cash transfers and vouchers. Evidence indicates that it is more cost-effective, better for recipients and more transparent than in-kind aid.
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.
Cash transfer programs may be provided to recipients based on means testing, random-sampling mechanism or through universal provision.
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.
Proxy means testing refers to using proxy indicators to estimate income based on household characteristics when access to databases that contains personal income is not available.
A universal basic income provides everyone in a designated social, geographical, age or other such category with the allocated benefits.
Examples include selecting under 5s, pensioners, disabled, and woman-centered households.
It 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:
Cash transfers have been criticized for being financially unsustainable due to the dependency they can create.
The dean of Ateneo de Manila University's government faculty points to the buffer that the Philippine government had “worked so hard to build” in the decade before the COVID-19 community quarantines, which he stated would fall apart with future humanitarian cash transfers to 80% of the population.
Likewise, Joel Ruiz Butuyan also questioned the effects of increasing cash transfer budgets on the annual national debt.
A High Level Panel on Humanitarian Cash Transfers was convened in 2015, which found that in many cases, cash transfers were better for people in humanitarian crises. In Somalia, 2.5 times more of aid budgets went directly to aid recipients when given cash rather than food aid. In Iraq, 70% of Syrian refugees resold large parts of their food aid, in order to purchase what they needed more urgently.
Similarly, a study in Ecuador, Niger, Uganda and Yemen found that 18% more people could have been helped if everyone was given cash, not food.
The panel suggested that governments and non-governmental organizations increase amount of unconditional cash transfers, invest in planning and preparedness, explore delivering cash transfers through private sector systems, longer-term social protection systems and digitally, and improve coordination in the humanitarian aid system.
Cash transfer programmes in developing countries are constrained by financial resources, institutional capacity and political 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’.
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.
Cash transfer programs have been criticized for enabling political patronage between legislators and voters and serving as a conduit for legalised vote buying. These programs may be duplicated under different names to provide each prominent legislator a program that can be credited towards them.
JC Punongbayan argued that the selection process, due to their control by representatives' district offices, has led to multiple cash leakages, with barangay officials prioritize relatives and friends in the handing out of benefits, leading to nonpoor and undeserving people receiving benefits. He also points to legislators such as the Speaker of the House of Representatives of the Philippines hosting mass distributions of cash transfers “like a gameshow host giving out prizes in a noontime show” and their allies crediting longstanding Department of Labor and Employment to congressional leaders as evidence of patronage politics.
The City Post claimed that cash transfer programs blur the line between governance and vote-buying. It also excoriated legislative bodies that usurp the functions of the executive and frowns on legislators that use cash transfer programs to promote their candidacies in future elections.
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. 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. The present study concluded that cash along with ECD activities have positive impact on child development in Bangladesh.
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. 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.