What impact do cash transfers have on reducing poverty and increasing the resilience of poor households? This paper assesses the evidence and looks at the extent to which it can be generalised. It shows how design and financing features help to maximise transfers’ effectiveness in a range of circumstances. Ultimately, cash transfers work as part of a broader strategy to achieve economic and social development.
Cash transfers are direct and regular non-contributory payments that raise incomes with the objective of reducing poverty and vulnerability. The field of cash transfers encompasses various types of transfer (conditional and unconditional), development objectives, design and implementation choices and financing options. Appropriate design will depend on context, including political economy constraints. Transfers are often targeted at the poorest households and at sections of the population that are regarded as vulnerable, such as older people, persons with disabilities and children.
While the evidence base for cash transfers is better than for many other policy areas, it is also uneven. Less is known about some instruments (public works) and outcomes in certain regions (sub-Saharan Africa). Capturing the full range of effects is challenging and variations in assessment methodology make systematic review complex. Nevertheless, there is evidence that cash transfers can:
- Reduce inequality and the depth of poverty and support ‘graduation’ from poverty for those of working age, although complementary interventions such as skills training are necessary to promote livelihoods.
- Help poor people to access healthcare and education. Cash transfers are less successful in improving final outcomes since they cannot resolve problems with teacher performance or the training of public health professionals.
- Help to strengthen household capacity for income generation and stimulate local market development in poor remote areas.
- Contribute to long-term growth by raising the human capital of the next generation.
- Influence gender relations and empower poor people to make their own decisions to change their lives.
- Contribute to conflict prevention and peacebuilding by promoting social cohesion and (emerging evidence suggests) to integrated approaches to strengthening resilience to climate change.
There is a growing evidence base regarding the design and implementation choices that can maximise the impact of cash transfers in different contexts. Key factors shaping implementation are: the quality of administration and monitoring; choice of payment mechanisms; investment in capacity building; and involvement of recipients in design and monitoring. Other important issues include the following:
- Cash transfers need to be complemented by ongoing sectoral strategies to improve service quality.
- While conditional cash transfers have been successful, it is not clear whether conditionality contributes to their effectiveness.
- Public works programmes reduce poverty through wages and improving infrastructure. However, their performance need to be improved.
- Targeting choices need to be determined by context rather than by one-size-fits-all approaches. Programmes often achieve optimal results by combining targeting mechanisms.
- Gender-sensitive design is critical to ensure that increased household income is effectively allocated.
- Fiscal and political space is required to introduce and sustain cash transfer programmes. Politicians and policymakers need to secure and retain political legitimacy; control costs by starting small and expanding gradually; and consider trade-offs between targeted and universal transfers. International assistance, particularly in analysis and programme design and reform, can play an important role.
- Evidence of success is critical for long-term political sustainability. Good monitoring and evaluation, and communication of results, help to inform public debate and engage civil society support.
- Whether cash transfers represent value for money depends on how the balance of benefits and costs compares with alternative uses of public (tax and donor) finance.
