Billions of dollars are used the world over to respond to humanitarian crises or to lift people out of poverty. In January 2020, around 10% of the world population lived under the poverty line, about 75% in Sub-Saharan Africa. These are people living on less than $2 a day. With businesses closing down and the resultant job losses in the aftermath of COVID-19, it is safe to say that these numbers have increased. While we worked on flattening the curve, measures like locking down the country and asking people to work from home meant that numerous informal workers lost jobs, affecting their income and ability to support themselves and their families.
The world over, governments came up with stimulus packages to help those in need. You’ve heard of governments delivering food to the vulnerable, waiving utility charges or rents in government properties, minimum salaries for the unemployed, temporary part-time employment, and an increase in unemployment benefits. Another method that caught on quickly to help the most affected people in the community improve their quality of life has been cash transfers.
Cash transfers (CTs) are direct payments, usually from governments or donors (private and humanitarian aid groups), made to eligible groups of people. Eligibility varies from case to case based on the purpose of the transfer. For instance, governments could set up CTs for refugees, victims of natural disasters, displaced people, orphans, persons with disabilities, and youth, among others. CTs can be a one-off payment or small sums given recurrently over a period. CTs are either conditional (CCTs) or unconditional (UCTs).
CCTs have strings attached, and the recipient must meet specific criteria like school attendance or vaccination to continue receiving the transfers. The transfers could also be for particular purposes such as a transfer to youth to set up a business. Unconditional transfers have no strings attached, and the recipient decides what to do with the money and doesn’t need to meet any specific criteria to keep receiving the transfer. The recipient chooses what to do with the money and doesn’t report back.
The middle ground between these two is the labelled cash transfer which has conditions attached to it, but the donor does not enforce them. For instance, the donor can specify that the transfer should be used by youth to start businesses but doesn’t check that the recipient has set up a business.
Why Use Cash Transfers?
Leah, a victim of a landslide that destroyed her home saved most of her property, and her primary need is to rebuild her house and move out of her in-law’s home. Traditionally, well-wishers would give food and clothes to Leah, but she doesn’t need food or clothes. Further, a lot of administration goes into fundraising, purchasing the items, and delivering them to Leah, which reduces the total value that gets to her. If you donate KES 1,000, it is unlikely that the full amount will reach Leah since we need to cover logistics, administration fees, and salaries for the donor agency.
When the food and clothing finally reach Leah, she sells them at a loss to raise money to rebuild the house. We could have saved a lot of money and time and had more impact if we just gave Leah the KES 1,000 and let her decide what she needs most.
This scenario replays in different contexts every day. Whether it is refugees, orphans, the displaced or other vulnerable groups, a cash transfer maintains the dignity of the person. It enables them to make choices about how to use the money for the benefit of themselves and their families.
Benefits of Cash Transfers
Regardless of the type, CTs have a positive impact on social protection and poverty reduction. Giving a vulnerable family a consistent income and the choice of how to spend the money has led to direct and second-order benefits like;
- Improved health and nutrition for the family: Access to diverse nutritional options has led to better health for the members of the family. Children and expectant mothers in particular benefit from this.
- Improved school enrolment and attendance and a reduction of child labour: With the additional income, parents are more likely to send their children to school and invest in their future rather than pulling them out of school to work. Further, recipients are also more likely to invest in themselves by taking courses that help them get work, e.g. skilled trades.
- Improved housing: CTs are frequently used to improve housing with recipients building new roofs, improving access to water, upgrading ablution facilities, and renovating existing premises.
- New businesses: Whether it is buying a motorbike to use as a boda or opening a shop or food kiosk, recipients are using CTs to fund new business ideas, thus increasing their revenues.
- Savings and investment: With the surplus, recipients are also building their reserves and investing in assets (livestock, land, bikes) that generate income or enhance their financial security.
- Increased empowerment: Where the recipients are female, CTs have often helped women grow their role in financial decision making in their homes and promote more gender-balanced relations.
- Improved trade in the community: As individuals' spending power increases, their demand for more goods and services increases which grows the economy of the area. Further, CTs encourage spending within the local economy rather than in-kind donations sourced outside of the community.
- More money gets to the recipients with CTs than in-kind donations: In-kind donations incur costs to fundraise, purchase, administer and deliver food, clothing or medicine. These costs are lower when it comes to managing CTs.
But why hasn’t it caught on?
CTs are not a catch-all solution for all development problems. They will not result in improved infrastructure, access to facilities, goods and services, or aid in capacity building within the community. CTs complement other aid interventions.
- Donors are afraid that giving cash may lead to misuse. Often, people refuse to give money directly for fear that the recipient will spend the money on vices like alcohol and gambling. This is a legitimate concern, given our experience with beggars on the streets of Nairobi; however, GiveDirectly research shows that the majority of people use the money for good.
- Donors are afraid that giving money is not sustainable and will create dependency. The opposite is true as with the basics covered, recipients are more likely to focus on improving their health, literacy, and their financial wellbeing by starting businesses, purchasing assets and furthering their education or members of their family. The only people likely to stop working are the elderly and primary caregivers.
If the Kenyan government gave you a basic income every month, for being a citizen, would you still work?