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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.