Give cash to the poor?

New evidence on cash grants provides justification for development agencies to expriment poverty alleviation schemes.

Every year, rich countries provide billions of dollars in aid with the goal of trying to improve the lives of the world’s poor. This aid is channelled through different development projects implemented by a variety of entities, including multilateral and bilateral development agencies, government departments, non-governmental organisations, and community groups. However, the fact that the majority of people in the world continue experiencing different degrees of deprivation means that the interventions formulated to utilise aid are lacking.

Overhead costs of donor and implementing agencies, which use aid to help poor people, are only part of the problem. The actual process of determining what sort of aid should be provided to a given community, and the actual price of procuring and providing different goods and services ranging from livestock and textbooks to micro-finance or vocational training, is itself an arduous and costly process.

Based on recent research, the US Council on Foreign Affairs has advocated use of cash grants, arguing that this strategy may be as good, or better, than using aid to fund varied programmes and projects.



Providing cash to the poor is a much simpler process than providing poor families livestock, for example, along with training in how to raise and profit from these animals. While cows themselves usually cost no more than a few hundred dollars each, delivering them to deserving beneficiaries becomes rather expensive. Even if such programmes eventually help reduce poverty, they carry an exorbitant opportunity cost.

Over the past few years, randomised studies of cash transfers to the poor has shown impressive results in a wide range of situations, helping Mexican families, Ghanaian farmers, Kenyan villagers, Malawian schoolgirls, and war-affected Ugandans. These findings challenge typical reservations about giving cash to the poor based on assumptions that such an attempt would result in unproductive spending, or that cash handouts will make people ever more dependent on aid.

The above studies have shown that the world’s poorest people do not squander cash transfers, even when there are no strings attached. Interestingly, poor people were seen to use the provided cash to buy similar things that aid organisations usually provide. The advantage of cash is its flexibility. Although poor people may readily accept any asset being provided to them free of cost, be it a cow or goats, when the same people have cash in hand, they tend to buy a wider variety of goods and services. Not everyone, after all, wants to tend livestock.

Despite promising possibilities, there are still significant challenges to using cash grants to combat poverty. Effectively targeting the poor remains a major challenge. The poorest of the poor often do not have identity cards, for instance, which became a significant hurdle to providing cash grants to IDPs or disaster victims in our own country.

New technologies are, however, providing alternative solutions. Cell phone technology can now be used to cheaply provide cash to poor households. NGOs can also be used to help identify beneficiaries for cash grants, to address the plight of specific vulnerable groups.

Cash grants cannot solve all problems. The poor cannot use cash to build needed infrastructure. Nonetheless, the emergent evidence on cash grants provides justification for development agencies to begin experimenting with provision of unconditional cash payments to achieve poverty alleviation, rather than exhausting their resources on elaborate schemes which offer limited impact.

Published in The Express Tribune, September 12^th, 2014.

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