New research suggests that recipients of cash grants use money strategically to start businesses and provide themselves with sustainable incomes.

“We’ve been doing ‘trickle down’ for a long time before starting cash transfers and we’ve never seen the kind of impact we have with cash transfers,” says Carolyn Heinrich, professor of public affairs and economics at Texas University.

Recent studies to support Heinrich’s observation include the Transfer Project, which focused on the impacts of grants to individuals in Zambia, Ghana and Malawi. The results were positive: cash grants improve not only quality of life and overall happiness levels, but also eating habits.

The Ugandan government experimented with the idea of cash grants in 2008. Thousands of poor 16 to 35-year-olds in Uganda were grateful recipients of $382 dollars if they could provide a plan for how the money would help them start a trade. The results were analyzed by Columbia University’s Chris Blattman.

Blattman, along with his co-authors, looked at the status of the recipients in 2012 and found that they were earning 40 percent more money than before, and were 40 percent more likely to be paying taxes. So, not only were they personally benefiting from the cash grants, but the money also enabled them to contribute to society by paying taxes and providing services with their new trade.

The Ugandan case introduces the power of conditional grants within cash grants. By placing conditions on the money, cash grants can be used to enforce positive behavior.

For example, Berk Ozler of the World Bank explains that grants conditional on a child being enrolled in school resulted in 41 percent more children attending school. Programs without that condition still resulted in improved school attendance, but by only 23 percent.

Even without the conditions, cash grants can have a range of positive benefits in areas including crimes rates, children’s health, child mortality, early marriage and teenage pregnancy.

The idea of providing the poor with money is not a new one. In the 1960s, economist Milton Friedman advocated for a “basic income guarantee,” where the U.S. government would ensure all Americans make a minimum income. This would replace other aid programs the U.S. employs, such as food stamps.

Friedman’s idea is similar to cash grants – instead of giving food or supplies to those in need, give them the one tool they need to provide for themselves: money.

It was not until the 1990s, that cash grants were first distributed in Latin America. The long-term effects were enough to prompt the spread of cash grants to Africa, and then Asia.

Now, Michelle Adato, a researcher on the impact of cash transfers, says, “Cash grants are now being seen as part of a comprehensive development strategy as opposed to just a safety net.”

– Julianne O’Connor

Sources: The New Yorker, Business Week, IRIN
Photo: Business Week