Where Does Cash Aid to the Poor Go?
Is it wasted on tobacco and alcohol?
Not at all. Or at least not necessarily. The fact is that cash transfer programmes –regular money payments to poor households—are meant to reduce poverty, promote sustainable livelihoods and increase production in the developing world. One in four countries on Earth are applying them. But are they effective?
That depends. In some countries, like Brazil, the so-called Bolsa Família is cited as one of the key factors behind the positive social outcomes this Latin American giant has achieved in recent years.
The programme is an innovative social initiative taken by the Brazilian Government, says the World Bank (WB), which has provided technical and financial support to it.
In fact, Bolsa Família reaches 11 million families, more than 46 million people, a major portion of the country’s low-income population. The model emerged in Brazil more than a decade ago and has been refined since then.
Poor families with children receive an average of 70.00 R (about 35 US dollars) in direct transfers. In return, they commit to keeping their children in school and taking them for regular health checks.
And so Bolsa Família has two important results: helping to reduce current poverty, and getting families to invest in their children, thus breaking the cycle of inter-generational transmission and reducing future poverty.
Although relatively modest in terms of resources when compared with other Brazilian social programs, such as Social Security, the Bolsa Família programme may be the one that is having the greatest impact on the lives of millions of low-income Brazilians, according to the WB.
But what about other countries, regions?
The Food and Agriculture Organisation of the United Nations (FAO) on Jan. 4 reported that during the past decade, an increasing number of governments in sub-Saharan Africa have launched cash transfer programmes that target the most vulnerable groups, including subsistence farmers, people with disabilities and HIV/AIDS, as well as families caring for elderly and disabled.
But “although local economies and numerous households have benefited from this social protection measure, critics remain doubtful.”
Five Common Myths
Whatever the case is, there are at least five common myths about cash transfers.
FAO elaborated the following list aimed at evaluating how they play an important role in improving food and nutrition security and reducing rural poverty, basing on evaluations carried out in seven African countries - Ethiopia, Ghana, Kenya, Lesotho, Malawi, Zambia and Zimbabwe.
Myth: Cash will be wasted on alcohol and tobacco.
Reality: Alcohol and tobacco represent only 1 to 2 per cent of food expenditures in poor households. Across six countries in Africa where FAO and partners carried out evaluation of cash transfer initiatives, no evidence of increased expenditures was found.
In Lesotho, for example, alcohol expenditures have actually decreased after the introduction of cash transfer programmes.
Myth: Transfers are just ‘hand-outs’ and do not contribute to development.
Reality: In Zambia, cash transfers increased farmland by 36 percent, and with that the use of seeds, fertilisers and hired labour, which resulted in stronger market engagement, and prompted the use of more agricultural inputs.
The country recorded an overall production increase of 36 percent. Furthermore, the majority of programmes show a significant increase in secondary school enrolment and in spending on school uniforms and shoes.
Myth: Cash causes dependency and laziness.
Reality: In several countries, including Malawi and Zambia, research shows a reduction in casual wage labour and a shift to more productive and on-farm activities.
In fact, in sub-Saharan Africa cash transfers lead to positive multiplier effects in local economies and significantly boost growth and development in rural areas. Thus, cash does not create dependency, but rather spurs beneficiaries to invest more in agriculture and to work more.
Myth: Transfers lead to price inflation and disrupt local economies.
Reality: Ethiopia, Ghana, Kenya, Lesotho, Malawi, Zambia and Zimbabwe were all part of the Protection to Production project, which, among other things, analysed the productive and economic impacts of cash transfer programmes in sub-Saharan Africa.
None of the seven case study countries experienced inflation. Beneficiaries represent only a small share of the community (15 to 20 per cent), and because they come from the poorest households and have a low purchasing power, they do not buy enough to affect market prices, thus enabling local economies to meet the increased demand.
In Ethiopia, for every dollar transferred by the programme, about 1.5 dollars are generated for the local economy.
Myth: Child-focused grants increase fertility.
Reality: In Zambia, cash transfers showed no impact on fertility. In Kenya, adolescent pregnancy even decreased by 34 percent and in South Africa by over 10 percent.
Meanwhile, FAO, together with its partners, continues to generate evidence on the impacts of social protection interventions on the reduction of poverty and hunger.
Findings have shown that the implementation of such programmes leads to increased food consumption, better nutrition, improved school enrolment, reduced child labour, economic development, agricultural investment and many other benefits, it says.
“Cash transfer programmes have become an increasingly important tool in finding the path out of poverty and have contributed to making a long-term impact on the lives of many families.”
So far, so good.
The fact, however, is that there are still almost a billion people who still live in extreme poverty (less than 1.25 US dollar per person per day) and 795 million still suffer from chronic hunger, according to this UN leading agency in the filed of food and agriculture.
“Most of the extreme poor live in rural areas of developing countries and depend on agriculture for their livelihoods... They are so poor and malnourished that their families live in a cycle of poverty that passes from generation to generation.”
What About Women?
The case of women is particularly flagrant – although representing nearly half of all rural workers worldwide --with peaks of up to 60 per cent in some developing countries—they have always been among the poorest poor.
FAO informs that their main goal is economic growth rather than the economic empowerment of their beneficiaries –-who are usually ultra-poor people; however, evidence of their development impacts is contributing to a shift in how policy-makers perceive these programmes.
On the specific case of women, it says that in many countries, the majority of cash transfers beneficiaries are poor and vulnerable women.
“As a result, it is often claimed that cash transfers have an empowering effect on women based on the assumption that, as the main recipients of the transfers, women gain greater control over financial resources.”
Nevertheless, “available evidence on empowerment outcomes is far from being conclusive, particularly as to whether cash transfers actually improve women’s bargaining power and decision-making in the household.”