Unconditional cash transfers (UCTs) are rapidly increasing as a radical method of ending poverty. Cash assistance has doubled in size since 2016 and now constitutes nearly 20% of the entire humanitarian aid sector. In opposition to tradition, advocates of UCTs believe that the way forward is to provide people in extreme poverty with cash and allow them to make their own spending decisions. This approach seems to attract skepticism. However, countless cash transfer programs have shown criticisms to be misplaced while revealing the incredible power UCTs have at transforming people’s lives. The following are myths about unconditional cash transfers.

5 Debunked Common Myths about Unconditional Cash Transfers

  1. “People will waste money on drugs and alcohol”: A stereotypically held view is that if people receive unconditional cash transfers, they will waste the funds on items such as drugs, tobacco, alcohol, etc. rather than making investments toward their future.  Contrarily, countless studies have shown the opposite to be true. A 2017 study from The World Bank and Stanford University found that people don’t spend the transfers on alcohol, tobacco and other such items. As a result, concerns regarding wasting the money were therefore “unfounded.”
  2. “People in poverty don’t know what they need”: Traditionally, governments and NGOs decide what form of humanitarian assistance a particular region requires, rather than letting the people themselves make the decision. For years, there has been an assumption in development that ‘the West knows best’ and that developing regions require intellectual guidance from more developed nations to progress. This approach underestimates the importance of resources and places knowledge as a determining factor of regional development levels. Furthermore, research has consistently shown that cash transfers allow those living in poverty to make effective individual choices that improve their lives. Spending choices routinely include increased investment in agriculture, health care and enrollment in education.
  3. “It is inefficient”: There is a belief that UCTs are simply inefficient. However, the available evidence suggests otherwise. Not only do the UCT recipients tend to spend their grants in a manner that effectively improves their lives, but they also do it in a way that is often far more cost-effective than existing aid programs. Just on its own, the World Bank spends nearly $1 billion dollars per year on aid programs. A 2015 study from The University of Chicago showed that skills training had a limited impact on poverty or stability in developing countries and was not cost-efficient. Conversely, cash transfers have proven to be a successful method of stimulating wealth and long-term earning potential with a more cost-effective result.
  4. “Giving people money will make them Lazy”: This is a common stereotype of welfare recipients. Again, evidence shows that the opposite is true. Studies have shown that cash transfers actually increase workers’ productivity. Moreover, unconditional cash transfers act as a kick-starter for many communities, stimulating them to invest more time and effort into achieving prosperity for themselves and their family.
  5. “It’s physically impossible to give away that much cash”: In the past, this may have been true. However, technological evolution now means that distributing large sums of money directly to individuals is not much of a challenge. GiveDirectly is an example of an NGO that uses electronic payment services such as M-Pesa and MTN that have unlocked the possibility of a mass-scale distribution of cash. GiveDirectly sends money to the recipients’ cell phones, allowing them to either convert this electronic balance into physical cash or use their cell phones to pay merchants directly. This gives people personal, secure access to life-changing financial aid.

Looking Ahead

In summary, the remarkable achievements of UCTs continue to defy expectations and change lives. Moreso, the world is beginning to see the merits of the cash movement, with recent research by the United States Agency for International Development (USAID) suggesting that up to 50% of all humanitarian assistance could now be effectively distributed as cash. Hence, unconditional cash transfers have the potential to revolutionize the development sector and nudge societies closer to minimizing or alleviating poverty.
Henry Jones
Photo: Flickr

Money Transfers
Through the process of mobile transfer, recipients in villages have empowered themselves economically to pay for urgent health care delivery, education of their children and wards, clothing, accommodation, travel and sundry other needs that village dwellers have. Village dwellers in the developing world have one common problem when dealing with daily survival tasks like health care delivery, food, travel, trade, education and more. That common problem is access to cash. Long distances separate them from banks and automated teller machines (ATMs). Therefore, they need help paying for urgently needed products and services. This situation compounds their poverty.

Farmers, craftsmen and producers often have to wait for designated market days to sell their products for badly needed cash. During days in between, they have to endure extreme lack and deprivation and sometimes, the conditions of sick persons get worse and in some cases may lead to death. Even when relatives living in cities or abroad have the means and desire to assist their kin, they cannot do so due to the non-existence of rural banking or cash points/ATMs. However, the situation is now improving. The introduction of mobile money transfer technology enabled by widespread ownership of mobile phones in rural areas and the emergence of several network providers has brought relief to village dwellers. In Nigeria, Mobile Telephone Network (MTN) introduced MTN Mobile Money, popularly called MOMO and its impact on the villagers is like a miracle.

The MTN mobile money transfer launched in Nigeria on August 29, 2019. Although it had been operating in smaller African countries including Ghana and Cameroon, its potential to affect a larger population and therefore be able to lift more people out of poverty on the continent is bigger in Nigeria.

Definition of Mobile Money

The Centre for Economic Policy Research (CEPR), Europe’s leading network of Economic Research defines Mobile Money as follows: “Mobile money refers to financial transaction services potentially available to anyone using a mobile phone, including the unbanked global poor who are not a profitable target for commercial banks.”

A blog on the World Bank website further defines mobile money as “……Services whereby customers use their mobile device to send and receive monetary value – or more simply put, to transfer money electronically from one person to another using a mobile phone.”

For the village dweller, the rapid transaction that results in ready cash for his immediate needs is a miracle. Relatives and buyers of products and services across the globe can remit money home or pay for services rapidly. Through the process of mobile transfer, recipients in villages have empowered themselves economically to pay for urgent health care delivery, education of their children and wards, clothing, accommodation, travel and sundry other needs that village dwellers have.

What is the Attraction of Mobile Money Transfers?

  • Lower Costs of Transactions: To the village dweller, the costs of transportation, time and risks going to the cities and towns to receive or deposit money in banks are drastically reduced.
  • Ready Availability of Cash: The ready availability of cash to meet urgent needs is the most significant attraction.
  • Empowerment and Ability to Save: Women and young people will empower themselves when they receive money through their phones. The privacy of transactions enables them to save.
  • Economic Growth: The village economy grows with the ability of recipients to engage in buying and selling, especially during harvest seasons.
  • Earning Money: Mobile money transfer agents earn money from their charges and can meet their immediate family needs.

The Impact

In a study conducted on the impact of mobile money transfers on rural dwellers in the Niger Delta region of Nigeria. The conclusions found that: 

  1. It empowered rural women to become economically independent of their male counterparts in critical decision-making about themselves as well as increasing their capacity to save. Similar studies in Kenya and Bangladesh validated this as well.
  2. Mobile money enhances the informal insurance in the community against natural disasters through sharing.

Looking Ahead

The full impact of mobile money transfers on alleviating global poverty in rural areas continues to unfold as new studies into the technology and its application emerge. Many more countries in the developing world are now catching up to the miracle of mobile money transfers. It enables governments to put into practice the policy of financial inclusion that international financial institutions have advocated for as the gateway to alleviating global poverty.

Friday Okai
Photo: Flickr

Cash Transfer Programs
For the last 30 years non-government organizations (NGOs) like the Transfer Project and Concern Worldwide have been working with the governments of African nations and conducting trials and experiments with African villages to gauge how simple cash transfer programs will benefit their communities. The idea is to give households a small increase in their spending power through cash transfers. Then, after several months, see if these transfers had a lasting economic benefit on the affected households and villages.

Kenya’s Cash Transfer for Orphans and Vulnerable Children (CT-OVC)

Kenya’s Ministry of Home Affairs began a cash transfer program in 2004 with additional aid and funding from UNICEF. This program provides a cash transfer equivalent to $21 for households in Kenya that have a chronically ill caregiver for a child under 17 years of age. Since its implementation, this cash transfer program has aided more than 250,000 households and nearly 1 million people. It provides necessary resources for vulnerable children, such as food security and health care.

Niger’s Temporary Cash Transfer Program

Niger experienced a food and water crisis after a catastrophic drought threatened the agricultural industry in 2009 and 2010. The government of Niger implemented a temporary social program with the help of the NGO Concern Worldwide. This program aimed to provide cash transfers to families in order to prevent malnutrition and resource exhaustion. This program lasted for five months and provided more than 10,000 affected families with $45 each month in order to guarantee food security during the shortage crisis.

Niger’s Childhood Development Cash Transfer Program

After the successful trial of the cash transfer program during the drought and food crisis in 2010, Niger’s government decided to implement Project Filets Sociaux. This is a national cash transfer program dedicated to providing families with the extra help needed for childhood development. Since 2011, this program provided more than 87,000 households with nearly $16 a month for 24 months.

However, this program provided more than just cash transfers to hundreds of thousands of individuals. This program also included a behavioral change component which supplied education for thousands of households on early childhood development practices. Such education practices included breastfeeding, diarrhea rehydration, sleeping under mosquito netting and family planning. Later modules also included school readiness, brain development and discipline. This program experiment turned out to be so successful that many villages that were not receiving cash transfers still benefited from the behavioral modules and learning programs. These educational materials increased the number of affected households to as many as 200,000 with more than 1.5 million people aided.

Cash Benefits

Cash transfer programs have become one of the most popular ways for a government to address poverty within its country. Based on the success of previous cash transfer programs, Niger’s government knew that a cash transfer system would help alleviate poverty. In 2012, Niger began giving its most impoverished citizens about $16 a month for two years. This doubled the spending power of most of these citizens. Despite the fears that these individuals would instead spend this money on luxury items such as alcohol, the opposite was true. The recipients used their extra money productively.

A similar program in Kenya provided around $1,000 to more than 10,000 households in more than 650 random villages. Incredibly, economic activity also increased in nearby villages that had not received the cash transfer, further supporting the idea that cash transfer programs can reduce poverty in African nations.

A Promising Way Forward

A 2021 World Bank report identified nearly 200 similar cash transfer programs across 75 different countries, all providing food security and increasing the quality of life for nearly 92 million people. With such a promising track record, cash transfer programs have firmly established their usefulness in the fight to alleviate global poverty.

– Declan Harkness
Photo: Flickr