Cash Transfers: from Conditional to Unconditional

In the international philanthropy and development fields, it’s often easier to agree on what problems need fixing than on how best to fix them.  The debate regarding what strategies are most effective is especially fierce in the anti-poverty arena.  The common proverb – Give a man a fish, and you feed him for a day; show him how to fish, and you feed him for a lifetime – underlies the widely held belief that charity should fight poverty through ‘sustainable’ solutions, ex: by providing access to skills, resources, and training, rather than the distribution of resources for immediate consumption.

However, governments and charities around the world have been using innovative solutions in recent years beyond the scope of the traditional charity paradigm to improve the lives of the world’s poor. An increasingly popular strategy is cash transfers, though how cash transfers should best be used is also hotly debated.

Conditional cash transfers (CCT’s) are used by around 40 governments globally to decrease poverty.  “CCT’s give families small monthly payments as long as they meet certain responsibilities, like keeping their children in school and getting health checkups. It’s an elegant idea- cut poverty for this generation while breaking the transmission of poverty to the next one.”  CCT’s were first implemented by Mexico and Brazil in the 1990’s; these two countries now have the world’s largest CCT programs.  Brazil’s conditional cash transfer program, Bolsa Familia, gives regular payments to 50 million Brazilians– and Brazil has experienced a dramatic decrease in economic inequality since 2003.

 “Conditional cash transfers give families small monthly payments as long as they meet certain responsibilities, like keeping their children in school and getting health checkups. It’s an elegant idea- cut poverty for this generation while breaking the transmission of poverty to the next one.”

Evidence shows that cash transfers can benefit children and have long-term positive impacts.  “An estimated one billion people in developing countries now receive some form of cash transfer from their government,” and many studies have documented positive effects of unconditional cash transfers, including “increases in nutrition, child schooling, child anthropometrics, investment, earnings, savings, and work hours.”  The International Food Policy Research Institute released an evaluation in 2010 of Bolsa Familia, showing that the cash transfers increased child vaccinations and school attendance, decreased school drop-out rates for children, and increased the number of pre-natal visits pregnant women had.  Smaller programs have also been successfully used by governments and NGO’s in countries like Uganda to improve economic welfare.

The number of governments using CCT's has significantly increased in recent decades.
The number of governments using CCT’s has significantly increased in recent decades.

Some organizations are taking these transfers one-step further from the traditional paradigm.  GiveDirectly (GD), a New York based non-profit that operates as a ‘wealth transfer service,’ has received extensive media coverage lately because of its radical charity philosophy. Simply put, GiveDirectly receives donations from donors online and then transfers that money to poor families in Kenya using cell phones.  Since GD does not use donations for marketing, outreach, or organizational growth – and because unconditional cash transfers are simpler and cheaper to implement than conditional ones – nearly 93% of donations are directly transferred to poor families.

The average individual recipient of a GiveDirectly donation lives on $0.65 per day, and 82% of recipient families report not having enough food for tomorrow.  Each family gets an average of $1,000 over one or two years, usually in two $500 payments.  These payments are unconditional, meaning that recipient families have the flexibility to use the money for anything they need. Unconditional cash transfers, like the GiveDirectly programs, are often unpopular because donors cannot control what the funds are used for after the transfer is made.  GiveDirectly recipients frequently use GD funds to replace thatch roofs with a metal ones, to pay educational and medical expenses, to buy food, or to start or expand small businesses.  These purchases often have far-reaching benefits. For example, GiveDirectly found that metal roofs increase household income, provide cleaner drinking water, and decrease mosquitoes.

Cash transfers seem to be an effective and efficient tool to decrease poverty, but cash transfer programs’ successes do not necessarily discount the usefulness of other strategies.   Poverty is a complex problem and each community and family in need is different, so anti-poverty programs should be flexible and tailored to fit each environment.   Instead of trying to find a best, ‘one size fits all’ approach to international aid, perhaps all kinds of programs and charity strategies can be used, when appropriate, to decrease poverty.   And, on another note, the debates over which philanthropic strategy is best are in themselves healthy and positive- they encourage research and evaluation, increase innovation in practice and theory, and, hopefully, will lead to even better programs in the future.

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