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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

cash grants in Kenya
If you have ever wondered what good remittances do for poverty reduction, a study done by the researching nonprofit Innovations for Poverty Action (IPA) could help put things in perspective. Researchers at IPA evaluated the economic progress of Kenyan villages from 2014 to 2017 after families were given unconditional cash transfers or UCTs. The cash grants in Kenya were provided by a charity organization called GiveDirectly.

The results of the study highlight the potential UCTs have to financially elevate communities around the world. However, when dispersed without careful consideration, some aspects of cash transfers can be detrimental. Let’s discuss GiveDirectly’s trial and why it was successful in initiating great economic stimulation in Kenya.

The Logistics of the Study

The study took place in villages surrounding Lake Victoria in Siaya County, Kenya. To avoid a concentration of funds, researchers categorized villages by two groups: villages with high saturation and low saturation status. Random assignment appointed two-thirds of high saturation villages and one-third of low saturation villages to the trial. As an extra measure to confirm financial need, GiveDirectly only chose families residing in homes with a thatched roof; about one-third of households qualified.

GiveDirectly provided money transfers in intervals to a family member, totaling 87,000 KES, or 1,000 USD. Data was recorded through baseline and closing surveys taken by the participating families and local business owners. The surveys covered topics such as “household financial, physical, and mental well-being, business performance, changes in market prices, and the provision of local public goods.”

Cash Grants in Kenya: The Results

The increase of income stimulated a surge in spending from recipient families. For the most part, these expenditures occurred in the region. Business disclosed that 86% of their clientele were from local or neighboring villages.

The increased consumption had a spillover effect, as non-participant households also saw an influx of income. According to their report, GiveDirectly claims that having higher local enterprise revenues, “in turn, appears to increase the income of local untreated households, leading to higher spending on their part.” The grants created a pattern of earning and consuming that resulted in overall higher cash flow in the area.

Furthermore, participant households across the board showed “higher levels of psychological well-being, food security, education, and security.” Increasing their financial security had an overall positive impact on many other aspects of their lives.

Why it Worked

Before the 2014 study, UCTs previously given by GiveDirectly were also proven to generate economic stimulation in Kenya due to rising consumption and investments. To fully understand the results of this study, it is important to note a few specific factors.

First, GiveDirectly provided UCTs rather than conditional cash transfers, or CTTs. The World Bank defines CCTs as being “contingent on behaviors like school attendance and visits to health clinics.” These requirements do not come as easily to some families as others, especially those living remotely. In contrast, UCTs provide financial support to families without burdening them with specific requirements that they may be unable to meet.

The location also played a big role in the success of this trial. GiveDirectly chose families from an area containing a major national road that IPA determines may be one of the reasons for economic overspill. The IPA report also depicts Kenya’s traditional “harambees,” gatherings meant for community fundraising, as another cause for the balanced wealth distribution.

Moving Forward

The economic stimulation in Kenya proves the efficiency of tactful cash grants. GiveDirectly’s accomplishments in poverty alleviation are just a fraction of what is possible. Moving forward, if more funds are devoted to foreign poverty aid, it is possible for such results to be seen on a global scale.

Lizt Garcia
Photo: Flickr