One Tool, Many Problems: the Case for Cash Transfers (Part 1)


The following three articles seek to provide an overview of recent literature on the ongoing debate on cash transfer programming (CTP) essentially using cash to combat poverty instead of food aid or subsidised goods, an approach seen as more efficient and possibly more sustainable.

This follows the start of Conditional Cash Transfer trials in Sadr City, Baghdad in July 2017. There are many types of cash transfer programs with different aims related to welfare, development and humanitarian aid, all of them seeking to break with disadvantages found with traditional aid given as food, medicine or subsidised goods.

The line between different types of cash transfers is often blurred. In Basra, poverty and the collapse of services is now seen as a humanitarian emergency, while in northern Iraq cash transfers are used for conflict-displaced people. In theory, all types of cash transfer serve a stabilisation purpose in Iraq’s context, but it is important to note that using CTP for humanitarian means or development goals is quite different, as the WHO noted earlier in 2018, “evidence on CTP for health from development contexts cannot always be extrapolated to humanitarian contexts..”

For simplicity, this article uses the Red Cross definition of cash transfers, which excludes microloans: “Cash transfer programming” (CTP) is the provision of cash and/or vouchers to individuals, households or communities to enable them to access the goods and services that they need.”

Cash Transfer Programming: A Brief Introduction

Cash Transfer Programming (CTP) whether conditional (CCT) or unconditional (UCT, sometimes wrongly conflated with Universal Basic Income/UBI) are still discussed as a new topic in development. This is a testament to the radicalism of the idea, which is at least twenty years old, if we take Mexico’s landmark CCT, Prospera (originally called Progresa) as a milestone. In recent years, various cash programs have been discussed as being more effective than conventional development programs, perhaps even far more effective.

These articles, which provide an overview of this development tool and the arguments surrounding the use of CTP, will focus on CCTs, both globally and in the context of Iraq, and to a lesser extent UCTs, but not UBI. UBI comprises cash given to everyone regardless of socioeconomic status. By contrast, CCTs and UCTs are more generally associated with the more tangible goal of helping impoverished or crisis hit segments of society.

UCTs are currently in place in Iraq covering 700,000 households, in the form of the Social Safety Net (SSN), established in 2009 by Iraq’s Ministry of Labor and Social Affairs (MoLSA) and USAID. CCTs are also being trialled in Sadr city and are in widespread use in northern Iraq, but a number of other ideas have been discussed in Iraq to reform the welfare system, which shall be discussed in part 3.

The Latin American Model

Arguably, CCTs have had the greatest global impact to date, due to the immense popularity of Mexico’s pioneering programs. However, UTCs have expanded massively, numbering at least 40 in sub-Saharan Africa by 2016. The premise of CCTs is simple: make cash welfare payments conditional on the beneficiaries’ actions to create momentum for sustainable poverty reduction. Beneficiaries must demonstrate improved school attendance, health program participation (e.g. vaccinations) or participation in nutrition promotion activities to receive the payment.

A second promise is that this is more efficient than traditional government assistance, for example, food Public Distribution Systems/PDS, vouchers or subsidised goods. The PDS system in Iraq has been highly criticised for corruption and helping the “non-poor.” Iraq is not alone here. A 2015 study in India found that as much as 50% of grain intended for the PDS was stolen before reaching government warehouses, a problem that echoed the major corruption scandals within the Iraqi PDS at the end of the last decade. Another attraction is that CTP is considered a “bottom up” social safety net, where the neediest people are considered the best individuals to decide where they must spend funds, rather than remote institutions in faraway capitals with high overheads.

In Mexico, the famous Prospera CCT has involved handing out cash ($35- $150 per month, depending on the number of children in the family) with the condition that school attendance is 85%, generally targeting the rural poor. This is a more targeted form of social security than food or fuel subsidies, which often benefit the “non-poor” as much as, if not more than, the poor.

As a result of CCTs a long term study in Mexico pointed to greater “educational attainment, geographic mobility, labor market performance, and household economic outcomes in early adulthood.” Similar findings have been found in many other cases, but there is a growing critique of both UCTs and CCTs.

This has not stopped a global surge in the popularity of cash to fight poverty or for humanitarian interventions. By 2013 it was estimated that one in four people in Latin America were covered by a type of CCT. Likewise, in the Philippines, 20 percent of the population now benefit. In Africa, by 2015 there were 14 new cash transfer programs, both conditional and unconditional, every year. Beyond national governments and the NGO sector, CTP is now widely used by Western government agencies including USAID and DFID and in 2016 “cash-based programming” was suggested by the UN as a preferred form of humanitarian intervention. Even China, which has CTP for its own citizens, is assisting Pakistan on cash-based social safety net programs.

Problems with CCTs, generally related to concerns about inequality where some people qualify for funds and others do not have led many to argue for larger scale UCTs, larger than current projects.

This has been the case in the Philippines where areas that did not qualify for CCTs saw an increase in child malnutrition, possibly because the cash injection increased prices of vital goods. CCTs have also been singled out for higher costs of monitoring, although many studies have shown recipients tended to spend funds on what was required, rather than “temptation goods.”

Earlier this year, Saksham Khosla argued that UCTs should be scaled up to 1.3 billion Indians as the government considers future risks of automation on employment, severe PDS inefficiency and deindustrialisation–essentially arguing for UBI. In India too, there have been early problems with CCT administration, leading some to argue for UCTs. But the larger these projects become, the greater the risk.

Clearly, there is tremendous excitement and ambition surrounding new variants of CTPs. On the largest scale, Iran introduced a cash transfer in 2011 to alleviate subsidy reduction, which went on to cover almost 90% of the population. Twenty four million Iranians were cut from the program in 2016 due to the oil price collapse although a new program using an electronic “goods card” is being rolled out to 10 million impoverished Iranians.

This is one example of how cash transfers have taken on a vast number of different forms and aims, from improving women’s welfare to stimulating the private sector, improving access to banking, improving child nutrition, reducing inefficiency in welfare and stabilising post-conflict areas. In Indonesia and the Philippines, cash transfers have also been given to conflict veterans as part of a stabilisation program.

As the popularity of CTP has increased, so has the evidence base on their effectiveness. By October 2018, there had been at least 165 studies conducted on CTP in addition to many other assessments. This has led to the CTP movement taking on another direction with high profile charities such as Give Directly winning Silicon Valley support for “disrupting” the perceived inefficiency of a bureaucratic, corruption-prone world of conventional aid.

Some reports suggest Give Directly is succeeding in areas of Kenya where much other aid has failed. In Iraq, where the public sector has been blamed for colossal inefficiency and corruption, there has been interest in reforming the PDS to a cash-based system, but also handing out oil revenues to citizens or dividends from an oil revenue investment fund. Given the scale of Iraq’s SSN, it is difficult to argue this is not already happening to some extent.

A Paradigm Shift in Development?

CTP still seems radical given ongoing controversy about the direction of more conventional development aid, explaining why it is sometimes described as “new.” It has been difficult to escape the drumbeat of attacks on conventional development, particularly from those who believe that prosperity creation, rather than poverty reduction, is the pathway to development. To the strongest advocates of CTP, it is clearly superior to traditional aid, having been described as “winning” against conventional aid following trials in Rwanda.

In the wider context, there have been a growing number of critiques of conventional development aid: a Harvard Kennedy Centre study in 2016 looking at 102 “historically developing countries” (HDCs) highlighted that, “only eight HDCs have attained strong capability, and since most of these are small (e.g., Singapore, UAE), less than 100 million (or 1.7%) of the roughly 5.8 billion people in HDCs currently live in high capability states.”

Similarly, a World Bank study on aid effectiveness between 1990-2015 found that countries receiving more overseas development aid (ODA) saw considerably slower rates of poverty reduction than countries receiving much less aid. Therefore, the argument that CTP is a much needed radical new direction, appears to be a strong one. But so far, studies on CTP are mostly small scale and in many cases, short term, a point made by World Bank economist Berk Özler.

Other advocates of CTP suggest it may do something that aid cannot: changing the relationship between a government and its people. This is one aspect that Iraq could consider as important regarding a CTP, particularly in the many communities across the country that feel a weakening connection to government. In Brazil, the CCT Bolsa Familia, has been described as improving government-society links in poor areas, although The Economist has observed it has had low coverage in poor urban areas. Based on similar arguments, Khosla’s vision for UBI in India promises that it could “reimagine the social contract between 1.3 billion citizens and their state.” This is potentially dangerous, risking dependency cultures and the risk of economic populism, especially in a country such as Iraq with a rapidly growing population.

The next article in this series will examine CTP in Iraq, while part 3 will look at some of the opportunities and risks associated with CTP.

Editor, Iraq Energy Institute | + posts

Robert Tollast, is a freelance political risk analyst focused on Iraq who is the editor at the Iraq Energy Institute. His previously worked for the Iraq Advisory Group, CEIS (France) and the Brecon Group.

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