Are cash transfers an effective poverty reduction tool in post conflict societies? Intuitively one would think that they would be, given the comparatively low demands that they make on state service delivery agencies and the dire poverty of people in these countries.
Cash transfers have recently been the topic of hot debate in richer countries such as South Africa and India. But what can they do in post conflict situations? Below we list and discuss some of the findings of Rebecca Holmes and Adam Jackson of the ODI’s briefing “Cash Transfers in Sierra Leone: Are they appropriate, affordable or feasible?“.
Are Cash Grants Affordable?
As a result of its recent history of conflict, Sierra Leone will not be able to finance its own expenditure anytime in the foreseeable future. So the debate about whether cash transfers are affordable in Sierra Leone is largely a debate about whether donors will funds such grants. Given the diversification and deepening of donor funding, existing donors in country such as Sierra Leone may soon be replaced by the entry of new players such as China and the growing body of private donors.
Does Sierra Leone have the state capacity to deliver them?
Do they create Dependency?
Holmes and Jackson indicate that donors’ main reservation about cash grants is that they could create dependency. There is however no evidence to support this fear.
Do they raise expectations unnecessarily?
One of the strongest arguments against cash grants is that they may create the expectation of long term cash support. In kind transfers such as agricultural equipment do not run the same risk.
The need to target
Cash grants should be carefully targeted. Policy instruments targeting the economically active population should have strong linkages to sustainable economic activity, for example public works programs that construct local economic infrastructure such as markets. The economically inactive such as children and the elderly are best reached through cash grants that do not set such preconditions.
Economies of scale and the multiplier effect
Donors argue that in kind transfers benefit from economies of scale because donors can negotiate better prices when purchasing in bulk. The downside of this argument is that such bulk purchases are often made outside the targeted communities and even outside the targeted countries. Such ‘external’ purchases negate the multiplier effect that communities would otherwise benefit from, were good purchased locally, albeit at a potentially higher price.
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Cash transfers have been used for Mexico’s one quarter poorest population for over a decade now. Overall, the largest program responsible for cash transfers (Oportunidades) is viewed as highly successful, due to a series of particularities: First, the cash transfer is linked to the children in schoolage within the household. As such, the money is dependant on children actually going to school–and is an incentive for keeping them there. Girls receive a slightly higher sum than boys, in order to ensure their enrollment and permanence in school. Second, the money is disbursed by bank transfer directly to the mother, with the dual effect of reducing leakages and corruption along the system, and ensuring that the transfer is used “for the benefit of the household”.
It is fair to say that one elements that has made the Oportunidades program successful is the fact that it is tied to government services. Cash transfers operating in a vacuum of public services would probably have a much more limited impact on overall social development. Also, targeting the right communities and households within them is one of the most important issues with cash transfers–and it also requires a structure and information on which to be built on.