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Cash Transfers

Time (GMT +01) 12:00 13:00

Paul Harvey
, Research Fellow, ODI
Armando Barrientos, Research Fellow, IDS
Katie Fawkner-Corbett, Economist, Equity & Rights Team, Policy Division, DFID


Rachel Slater, Research Fellow, ODI

Rachel Slater welcomed the participants and highlighted the uniqueness of this Development Policy Review and Disasters launch as the special issues are simultaneously focusing on one theme: cash transfers.

She introduced the speakers Paul Harvey, Research Fellow ODI, Armando Barrientos Research Fellow, IDS, and Katie Fawkner-Corbett, Economist, DFID.

Paul Harvey started his presentation by saying that the Disasters articles in this Special Issue reflect the ongoing research of using cash in emergencies. He emphasised that it is important to look at the overall picture: why give cash rather than food? Whilst this approach is not new, it is more unusual for international assistance to be delivered in the form of cash rather than in-kind.

In developing countries cash has been used as a marginal and small scale response. Recent experiences however, in using a cash based response in emergencies include the government-led response after the tsunami, hurricane Katrina; and the Pakistan earthquake.

There is certainly an emerging interest in using cash and in thinking about its appropriate role in relief interventions. In many cases this is being thought about as part of a Social Protection package, and illustrates a move away from the dependency on food aid. The Ethiopian Productive Safety Net Programme is an example of this.

Is there a case for expanding cash based responses? Paul demonstrated that experience of cash interventions in emergencies has been largely positive; people have spent the money 'sensibly', it allows greater choice and dignity to the beneficiaries, and it can create multiplier effects in local economies. However, caveats do exist and the small scale of existing experience means that we are not sure about the inflationary effects of a larger scale cash injection.

Paul then discussed further some of the case studies written in the Disasters articles. These include cash for work (CFW) projects in southern Somalia and in Aceh after the tsunami. The Merci-corps CFW programme in Aceh was particularly noted for its scale and the speed in which it got going. It was up and running two weeks after the tsunami hit, it reached 18,000 participants, and avoided disrupting labour markets. In Somalia the CFW programme was part of a relief response to the drought and was set up in the hope that people would restock their livestock. The findings showed that seasonality largely influenced whether beneficiaries spent their money on food or invested it in livestock. The timing of, and amount of cash given, have strong implications for spending behaviour.

Looking at the wider picture opens up the question as to whether the work requirement in CFW programmes makes sense. Do agencies prefer tying in a work component rather than giving cash simply on its own? Is there productive work to be done? Could beneficiaries be getting on better with their own priorities? There is a need to interrogate this further.

Another article reviewed the existing literature on using cash as part of the Disarmament, Demobilisation and Reintegration packages. This raises many concerns associated with giving cash transfers to ex- combatants. Is there potential of fuelling an arms trade? Does it invoke community resentment? In reality, experience has shown that misuse doesn't necessarily materialise. It is important to think about how cash is provided and how to use a cash grant as part of a more sensible package to mitigate these potential risks.

Paul concluded that the evidence discussed in the articles make a strong case for supporting cash transfer interventions in emergencies and providing more of it. He emphasised a number of implications for this:

  • Evaluations need to be less resource driven and to consider livelihoods and range of ways to respond to these.

  • Architecture - cash needs to be possible to implement within the system.

  • Expertise - as more people are involved and gain experience, there will be more opportunity to implement it in other contexts.

  • Cash is not a panacea and there is a need for good implementation and management. It will be important to continue to document experience.

Armando Barrientos explained that he would first talk generally about the impact and reach of cash transfers in developing countries and their increasing use for poverty reduction, and then about the article he co-authored for DPR, which discusses the potential for reducing child poverty with cash transfers.

Armando argued that cash is relatively underused in developing countries compared to developed countries. There is growing evidence however across countries and regions on the impacts of cast transfers on poverty reduction - not only on the impacts of their stated objectives, but also wider impacts on the local economy. The broad functions of cash transfers in developing countries include: to improve consumption; to facilitate investment in social services; and strengthen the agency of the poor.

There are wide ranging discussions on cash transfer programmes which the articles in DPR cover well. These include:

  • Are cash transfers feasible?

  • Design possibilities of cash transfers

  • The impact of cash transfers

  • The dynamics of cash transfers - what is the future of cash transfer programmes?

Armando then went on to talk about whether cash transfers can help in reducing child poverty, and focused on three questions:

  1. Is it effective to focus on children? Children are the majority of the poor in developing countries.

  2. Is it feasible to support children? They don't have bank accounts so the best way to reach them is through households.

  3. Should conditions apply? For example tying cash transfers to schooling or health care.

The DPR article by Barrientos and DeJong makes a comparative study on three cash transfers:

  • Child support grant in South Africa

  • Family allowances in transition economies

  • Targeted human development cash transfers in Latin America.

The key finding from the paper shows that despite different cash transfer models, they have similar impacts on nutrition and health care, on children and the household. Armando concluded by stating that focusing on children is a good way to reduce their poverty.

Katie Fawkner-Corbett started by saying that social protection is an essential public service, and the use of cash transfers is rising up the development agenda, but there are gaps in our understanding of it.

She pointed out that whilst social protection is a fundamental human right, this declaration hasn't been considered until recently. This has been changing in the last 18 months, reflected by the DFID White Paper which states social protection as one of four core components in addressing poverty.

Katie highlighted the importance of learning from the experience of OECD countries in providing social protection, and emphasised that expenditure on social protection and GDP growth are compatible.

Using a simulation model based on ILO work in Tanzania and Senegal, Katie argued that the effects of an old age pension on current poverty levels would have significant poverty reduction effects on the elderly and households.

Social Protection isn't just about poverty reduction, but it also includes issues of welfare, relief and stability. Importantly, she urged that we need to build on our understanding of how social protection facilitates economic growth to ensure more political buy-in.

DFID is publishing a guidebook on understanding, designing and implementing social transfers. They are working in partnership with country governments in Kenya, Ghana and Pakistan on developing social protection programmes, and DFID are also working with the ILO on cost studies and offering technical support to continue to build an understanding of social protection.

Katie finished by presenting three sets of challenges to us all in thinking about social protection, the role of state, and where we're heading in the long term. These three policy issues are:

·  policy processes, acceptability, affordability

·  preconditions, sequences and complementarities

·  targeting and conditionality

Discussion from the floor and panellists included:

It is important to think about the whole package of expenditure and resource allocation on social protection. Cash transfers need to be sensibly designed, and effectively managed and implemented. There doesn't appear to be a conflict between spending on cash transfers and investment on other social expenditure.

Many governments in developing countries and NGOs are often sceptical about cash transfers and argue that they create dependency. However, as the panellists argued, dependency in the context of relief response is in itself problematic and assumes that poor people are to blame for their poverty. The real issue is with the possibility of cash transfers being a disincentive to work, but this doesn't apply because there is no other benefit (such as unemployment benefits) to fall back on or create that disincentive. In the development context, benefits only comprise a fraction of household consumption (less than 20%) and many programmes have exit strategies.

Is there is a tendency that investments in social protection in the short term have been made to capture political votes? This can undermine the long term social investment objectives. The panel responded by arguing that cash transfers really need to be thought about over the long term, they will need to be predictable and reliable, and that means getting a long term commitment from the donors as well as governments. Cash transfers can also serve as establishing a social contract between citizens and the state. It is also not so clear that cash transfers are an instrument used to win the votes of poor people. In Brazil, the government spends 4-5% of GDP on a subsidy for social assistance to the better off, and 1-2% is targeted on poor.

How can cash transfers be used to stimulate the economy? It was suggested that if you provide a universal grant there will be more opportunity for more people to invest it in productive activities. The panel answered that we do need to find ways to enable the productive element of cash transfers to become part of the whole package.

Many of the questions raised and decisions made about cash are actually the same for food. The speaker also raised doubts over whether cash is more inflationary than food. The panel identified that there are two sets of concerns with inflation: implementing cash where there is inflation (will it create additional inflation?); and will cash transfers themselves cause inflation in poorly functioning markets?

Intra household issues - is it important to the poor who is targeted in the household and what are the diversions of the resource? The panel responded by highlighting that many of the concerns about intra-household dynamics in giving women cash have largely not materialised. Evidence suggests that it is effective to target women, especially for the benefit of children and that there is a degree of joint decision making in the household. Can we use mothers as instruments for social policy? Are mothers happy to do this?

The mechanisms developed for delivering cash transfers in relief responses might have implications for the applicability of cash transfers in long term development. If you have long term cash transfers in place it may reduce the need for relief. There would also be ready made mechanisms for delivery and capacity to deal with emergencies. Additionally, safety nets are important to have in place before it is too late - it is good to have systems that can be expanded.

There is a question of how to engage with the political economy and with Ministries, in particular, Ministries of Finance. Making the case in terms of cost efficiency to the Ministries of Finance for a social protection budget is important, also framing objectives in the realm of broad impacts on livelihoods.

The final point highlighted five key constraints to linking the delivery of social protection in governments:

·  Donors - budget support

·  Un - architecture

·  National government and Ministry of Finance

·  Need for decentralization

·  Building up civil society demand


Emerging evidence on the role of cash transfers in poverty reduction means that they are on the agenda in emergency and developmental contexts across the developing world. In a unique initiative, the two ODI journals Development Policy Review and Disasters have published simultaneous special issues on cash transfers for September 2006. The political, financial and operational challenges associated with the increased use of cash for governments, donors and NGOs are considered in both issues.

Development Policy Review (DPR), guest edited by John Farrington and Rachel Slater, considers the growing use of cash transfers in development in Africa and Asia and draws on lessons learnt from the implementation of cash transfer schemes in Latin America.

Disasters is edited by Paul Harvey. It explores recent experiences of cash transfers in emergencies, including the Asian tsunami and post-conflict scenarios, and shows that cash transfers can be implemented both rapidly and at scale.

This meeting launched and provided the opportunity to discuss the contents of both special issues.