Cash Transfers In The Developing World

The rush to cut government spending and further squeeze the poor in Europe and the United States shows a widening attitude gap with the Global South. For more than a decade, since the Asian financial crisis presaged the northern crash of 2008, southern governments have been moving in the opposite direction. In particular, in the late 1990s Mexico, Brazil, South Africa and Indonesia introduced cash transfer programmes in the form of child benefit schemes, non-contributory pensions and family grants, not just to cushion the lives of poor people, but explicitly to stimulate development and long-term poverty reduction. In the decade since then, more than 40 countries have introduced such programmes, and more than 100 million families are now receiving grants.


Their rapid expansion since then reflects the success of the programmes. Contrary to the ingrained prejudices of many in the developed world, poor people use extra money wisely. Half goes on more and better food, which improves health and nutrition, and is particularly important for the development of young children. Indeed, a large chunk of grants is spent on children – clothing, shoes, school books – and on replacing the pennies children would earn if they worked. One of the most important impacts of cash transfers is therefore increased school attendance. 


Finally, part of the grant is invested – in fertiliser or better seeds, in more goods to sell, or in going further afield to search for work. Far from making people lazy, grants stimulate initiative. You cannot pull yourself up by your boot straps if you have no boots, and cash transfers often provide the boots. As well as this direct investment in income-earning activities, much of the grant is spent locally – in most countries on locally produced food – which further stimulates the economy and promotes a positive growth spiral. 


Thus cash transfers are proving to be a double success, reducing immediate hunger and malnutrition, while also stimulating local economic growth. 


The North-South attitude gap is partly linked to beliefs as to who is to blame for poverty. Opinion poll surveys show that 61% of people in the United State think that poverty in the US is caused by laziness and lack of will by the poor themselves. By contrast, the same polls show that in Mexico and Brazil more than 75% of people think that poverty in their own country is caused by an unfair society. So the starting point is that the rich North says that it deserves to be rich and the poor are to blame for their poverty, while the poor South says that poverty is basically about a lack of money – which can be rectified by giving money to the poor.


Cash transfers have a long history in Europe. Pensions began in the late 19th century and family grants were introduced in the first half of the 20th century. Such benefits were less common in the United States and with the leading international financial institutions based in Washington, they tended to reflect an attitude that blamed the poor for their predicament and felt that aid and benefits should be tightly controlled. They also  argued that poor countries could not afford cash transfers – that economic growth had to come first. But the global South began to realise that in Europe, cash transfers had come first and had created the conditions for industrialisation and economic growth. So grants began to be introduced in the late 1990s, initially by newly industrialising countries that could afford to fund them from tax revenues and did not need permission from the International Monetary Fund.


Southern governments were impressed by the results, and programmes grew and expanded. The rich North (and, sometimes, the rich in southern countries) demanded that studies be carried out on the effectiveness and sustainability of these programmes, and as the studies mounted up, the results were confirmed: cash transfers reduce poverty, stimulate growth, and don’t make people lazy.


These studies form the basis for a new book I co-authored with Armando Barrientos, and David Hulme, called “Just Give Money to the Poor: The Development Revolution from the Global South”. Not all cash transfers work. The book notes that every cash transfer programme is different, and that the successful ones are locally developed and reflect local politics and history. Foreign models cannot be simply imported. And there are five principles for success.



  • Fair. Grants must be seen to be fair in the sense that most citizens must agree on who receives money. That usually means a broadly based scheme, covering one quarter or more of families. Systems which have tried to target the very poorest often fail because people who do not receive a grant will say they are as poor as a neighbour who does receive a grant. A child benefit going to all children is often seen as fairer than targeting the poorest.



  • Assured. Grants must be long term and rights-based. They cannot be temporary or short-term charity. People must be convinced the money will arrive every month so they can plan on it.



  • Practical. The civil service must be able to carry out the system. Conditions such as school attendance can only be imposed if there are enough school places.



  • Not just pennies. Grants must be large enough to cause a real change in behaviour, such as allowing children to attend school instead of working. A grant must be more than 20% of a poor household’s consumption.



  • Popular. Any grant must be politically popular and a vote winner, to ensure that it is continued after a change in government. That reinforces the need for cash transfers to be locally developed, usually with wide debate and consultation.


The range of cash transfers has proved to be very broad. South Africa has one of the biggest programmes in the Global South, spending $9 billion (3.5% of GDP) per year. A non-contributory pension reaches 85% of people 63 and older while a child benefit reaches 55% of children under 15 years old. These grants are unconditional. Research in South Africa shows that the type of grant does not make much difference, because both pensions and child grants are shared across the entire family. Brazil has a family grant plus social and rural pensions that benefit 39% of the population, about 74 million people. The cost is about 1.5% of GDP. 


Mexico also has a family grant, linked to requirement that children attend school; it reaches 22% of the population and costs only 0.3% of GDP. There is a debate about conditions, which the wealthy often wish to impose on cash transfers to ensure they are politically popular with those who do not trust the poor to spend the money wisely. But comparing Mexico to South Africa, which has no conditions, shows that they make little difference – poor people really do want to send their children to school and will do so if their children do not need to work. Interestingly, for secondary school age children, Mexico gives part of the grant to the children themselves if they attend school, and this does seem to improve school attendance.


Mongolia provides an example of how transfers evolve to reach large swathes of the population. Cash transfers started there with a form of benefit targeted at the poorest children, but the government found it difficult to accurately select the poorest, so expanded the benefit to all children. 


Cash transfers can be started with less than 1% of GDP, which is less than fuel and other subsidies in many countries, and can therefore be started simply from tax revenues. Some countries, including Mongolia, Ghana, and Bolivia (and the US state of Alaska) pay for cash transfers from oil and other mineral revenues, although the very poorest African countries may need aid money to support pensions or child benefits. 


All of this amounts to a new agenda being set by the Global South – one which simply amounts to giving money to the poor. The lesson from those who have taken on this idea is that it works. 


--


Joseph Hanlon is Senior Lecturer in Development Policy and Practice at the Open University, London, and co-author of Just Give Money to the Poor: The Development Revolution From the Global South (Kumarian Press, 2010). [LINK]