For a long time, governments and aid agencies have decided how money is best allocated to help the poor. Spending has often involved investments in large-scale projects such as building schools, expanding health services, or improving water and sanitation facilities.
Freedom of choice
This century, ideas have moved on and more money is targeted down at an individual level, largely thanks to the proven success of social welfare schemes for poor households. So-called ‘conditional cash transfer’ schemes such as the Bolsa Familia have improved living standards by offering families small cash incentives each month. Extra cash is given to low-income parents on the condition that their children attend school and are taken for standard vaccinations and health check-ups. Schemes such as the Bolsa Familia are credited with significantly reducing extreme poverty in South America and other developing regions.
Now an idea is being tested which goes one step further. Instead of offering extra income to poor households with conditions attached, why not simply give poor families cash to spend how they choose?
A recent article in The Economist looks at a ‘Give Directly’ scheme in Kenya which is doing just that. Poor families are identified using a web-based service which distinguishes homes with a thatch roof. This is a good indicator that the family inside is poor. A field worker then visits the identified houses and registers families to take part. With the ‘Give Directly’ scheme, these households receive an unconditional cash transfer through M-Pesa (Kenya’s money transfer system which works through mobile phones).
So how do families spend their unexpected windfall? It’s still early days, but results suggest that most households use the money for items which directly alleviate their poverty. For example, one recipient bought a different roof, since thatch is leaky and needs replacing twice a year at a cost of around 40 dollars. With the remaining money, this same householder acquired timber and chickens for new businesses and has begun making a monthly profit from them. His verdict on the unconditional cash is that it can “change your life”.
Sceptics argue that not all families will spend their money wisely. For example, one woman in Kenya used the windfall to bail her husband out of jail and it’s unclear if he will repay her by finding work and helping to improve the family finances. But an initial independent study of the scheme suggests that this kind of spending is unusual. Taking a random sample of poor households in more than 60 villages, most Kenyan families who had received the cash reported that their children were less frequently going without food and that livestock holdings had risen significantly. A year after the scheme started, the incomes of these families had also risen by around a quarter and recipients were less stressed, according to measurements of their cortisol levels.
The test of time
It is early days for this Kenyan scheme, which has been running for just three years. But cash giveaways elsewhere in the world also suggest that poverty rates fall significantly when families are given a helping hand in this way. Such schemes would appear to be particularly successful where charities need to keep administration costs low and in communities where people have nothing to begin with. The success of giving money to such families lies in the fact that the people themselves know what they need to improve their lives. When communities are slightly better off, schemes which provide funds to help individuals or groups set up new business enterprises have also proven to work extremely well (as can be seen in the case of the community programmes run by SOS Children, such as the one in Chipata, Zambia).
Fair comparisons between unconditional giveaways and conditional cash transfer schemes are hard to make, since giveaways like the Kenyan scheme normally offer families a much more generous amount of money (the grants in Kenya amount to two year’s worth of local income). However, researchers believe that conditional cash top-ups for poor families retain the key advantage of ensuring that learning improves in the next generation. The benefits of education may not always be apparent to struggling families, but education proves to be a gift which keeps on giving.
SOS Children helps struggling Kenyan families create a sustainable livelihood. Find out more about our work in Kenya...