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Cash Transfers

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Cash transfers are direct transfer payments of money to eligible people. Cash

transfers are usually provided by the state and federal government.

Targeting

Cash transfer programmes in developing countries are constrained by three

factors: financial resources, institutional capacity and ideology. Governments in

poorer countries tend to have restricted financial resources, and are therefore

limited in the amount they can invest both directly in cash transfers and in

measures to ensure that such programmes are effective. The amount invested is

influenced by ‘value for money’ considerations, as well as by political and

ideological concerns regarding ‘free handouts’ and ‘creating dependency’. As

random allocations are not particularly effective, there are two main forms of

targeting:

 means tested

 universal (everyone in a designated social, geographical, age or other

such category)

Means testing potential recipients of cash transfers is the more politically

acceptable, as money is not perceived to be wasted by including those who do

not have a desperate need for the money ("leakage"). This can either be

achieved through a screening process of potential recipients, or else by making

the benefits of the transfers so low only the most desperate will apply. Yet there

are also many problems associated with this method as the transaction costs of

screening are very high, due to the need to pay for assessment, the travelling

cost of candidates to and from the assessment and also the potential risks for

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corruption. There also may be a negative effect on social capital as resentment

develops of those who receive support by those who do not.

A universal approach, i.e.selecting all the under 5s, or pensioners, disabled,

female led households, etc., does have many advantages as it increases social

unity amongst a section of society benefitting from the programme and avoids

the transaction costs of screening. A universal approach requires carefully

selecting a target group as some groups may cover a greater number of poor

families, but include the less needy. Similarly a more narrow recipient group

risks excluding many of those who do actually need support.

Lump sums

One method of managing a cash transfer is to provide all the money at once in a

lump sum, rather than in small regular amounts. Researchers at the Overseas

Development Institute carried out a study on the effectiveness of the Swiss

Agency for Development Cooperation's experiments with lump sum cash

transfers and came out with the following six findings:

 Lump sum transfers work better in post-emergency than developmental

contexts as their potential to be rapidly transferred to the recipients suits

the urgency of post-emergency requirements.

 Success of lump sum transfers greatly depends on the local market and

whether there are long-term income generating investments to be made.

Areas affected by illness (e.g. HIV/Aids) or other such problems are

likely to benefit more from regular small payments.