Cash transfer

Cash transfers are direct transfer payments of money to eligible people. Cash transfers are usually provided by the state and federal government.

Cash transfer programmes in developing countries are constrained by three factors: financial resources, institutional capacity and 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’. As random allocations are not particularly effective, there are two main forms of targeting:

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.

A universal approach, i.e.selecting all the under 5s, or pensioners, disabled, female led households, etc., 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:

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%.

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