Expert Commentary

Cash assistance programs for the poor: How families use the money. A look at Kenya.

A study in The Quarterly Journal of Economics suggests poor families in Kenya spend most of the money received from charity on such things as home improvements and livestock, not alcohol and tobacco.

( Modola)

The issue: Government and non-profit agencies across the globe use cash assistance programs to help the poor. Some programs require participants to meet certain criteria or complete certain tasks before they can receive the money, referred to as a Conditional Cash Transfer (CCT). Examples of the types of requirements that participants must meet to qualify include attending a training workshop or ensuring the female children in a household go to school. These programs are designed to help in two ways, by alleviating short-term cash constraints and investing in human capital and health to reduce poverty over the long term.

CCT programs were used in 63 countries in 2015, and are particularly favored in low and medium-income countries. A well-known and documented example of a CCT program is Mexico’s PROSPERA (formerly Oportunidades and Progresa), which has served 5.8 million families since 1997. By 2011, the International Labor Organization of the United Nations estimated that as many as 1 out of 7 people in the world received a CCT at some point in time.

Another type of cash assistance is an Unconditional Cash Transfer, which is offered without conditions on the recipient’s actions.UCTs have long been in existence in the form of social pensions, but in more recent years, they have garnered attention from economists for use in developing countries. Researchers argue that direct cash infusions to poor households do not distort markets and could have psychological benefits. The premise that UCTs can work just as well or better than CCTs in helping low-income families depends on the assumption that the poor don’t need to be told what to spend money on. If that premise is true, then UCTs may be preferable to CCTs because they require little to no monitoring and are, therefore, cheaper to administer.

An academic study worth reading: “The Short-Term Impact of Unconditional Cash Transfers to the Poor: Experimental Evidence from Kenya” published in The Quarterly Journal of Economics, 2016.

Study summary:  Johannes Haushofer, an assistant professor of psychology and public affairs at Princeton University and founder of the Busara Center for Behavioral Economics in Nairobi, teamed up with Jeremy Shapiro, president of the Busara Center for Behavioral Economics, to study how UCTs impacted rural households in Kenya between 2011 and 2013. Using a randomized control trial methodology, 1,008 poor households were randomly assigned to receive or not receive an amount of money that was at least twice what the average household in the area consumed in a given month. The only criterion to receive a cash transfer was a thatched-roof house. The study randomly varied whether households received the transfer as a lump-sum payment or through monthly installments, who (husband or wife) received the cash transfer and the amount of the transfer. The nonprofit organization GiveDirectly, which was cofounded by Shapiro, delivered the cash transfers through the Kenyan mobile money provider M-Pesa. The authors looked at how the money affected households in a variety of areas, including food security, assets and revenue from self-employment. They also sought to determine whether UCTs would improve psychological well being and reduce participants’ levels of the stress hormone cortisol. This study differs from earlier studies of UCTs in that the cash amounts were relatively large and delivered in a concentrated period of time.

Key takeaways from the study:                                                                   

  • Households used the bulk of the transfer money for home improvements and investments in small businesses and livestock holdings. Recipients were 24 percentage points more likely to have an iron roof relative to non-recipients, and recipients also increased livestock holdings by 50 percent over non-recipients.
  • Recipients did not report statistically significant increases in spending on temptation goods such as alcohol and tobacco compared to non-recipients. However, because of the study’s small sample size, the authors noted that further studies should be done in this area to “provide more definitive evidence on the treatment effect on these outcomes.”
  • Households that received transfer money saw statistically significant increases in spending on food, medicine, social events and health compared to households that did not receive money. The largest absolute increase in spending was on food. Food spending rose 19 percent.
  • Monthly transfers were associated with greater reductions in food insecurity while lump-sum transfers were more often invested in durable goods such as iron roofs.
  • Outcomes were not statistically different when the husband received the transfer money compared to when the wife did.
  • The transfer led to substantial improvements in self-reported well being. Cortisol levels for households that received cash transfers were not statistically different from those that did not.

Helpful resources for reporters writing about this issue:

Related research:

  • A 2011 study published in The Quarterly Journal of Economics , “Cash or Condition? Evidence from a Cash Transfer Experiment,” compares the effectiveness of a UCT to a CCT that is conditional on school attendance for girls in Malawi.
  • A 2013 World Bank working paper, “Cash Transfers and Child Schooling: Evidence from a Randomized Evaluation of the Role of Conditionality,” found that when families in Burkina Faso received cash assistance on the condition that they enroll their children in school, girls and children with lower abilities were more likely to go to school. The study indicates that “UCTs and CCTs have similar impacts increasing the enrollment of children who are traditionally prioritized by households for school participation such as boys, more able children, and those of core school-going age.”
  • Several organizations and researchers have conducted meta-studies of CCTs and UCTs, their impacts and how variations in program design and implementation affect outcomes. For instance, the Overseas Development Institute of the United Kingdom published a 2016 report that examines  201 studies spanning 15 years. A 2012 working paper from the RAND Corporation analyzes the impacts of 42 CCT programs on educational outcomes in 15 developing countries.
  • A study published in 2015 in the Journal of Development Effectiveness “Economic Impacts of Conditional Cash Transfer Programmes: A Systematic Review and Meta-analysis,” looks at how CCT programs affect such things as child labor and household consumption and investment in 46 randomized and quasi-experimental studies.

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