Markets & Finance

Cash transfers to poor in Western Kenya comes like manna from heaven

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A house in Nakuru belonging to an internally displaced woman, which was constructed through donor funding. Donors are looking past food aids to help the poor. Photo/FILE

From food handouts to skills training programmes to microfinance initiatives, aid agencies around the world have been looking for various ways to alleviate poverty.

An American non-profit organisation operating in Kenya is daring to walk in unchartered waters by seeking answers to a simple question: What if we just gave poor people cash with no strings attached?

Launched in 2008, Give Directly distributes one-time cash transfers of Sh85,000 to poor people living in rural areas of Nyanza, with no other condition than having an M-Pesa account to receive the transfer.

George Otieno Were is one of the people that is seeing the benefits of the cash-for-aid programme. To Mr Were, the Sh85,000 was like manna from heaven. He didn’t apply to get the funds. Like all recipients, he was approached by Give Directly, which was looking for the poorest households in the area.

Recipients selection

Selection of recipients was done using satellite imagery to spot grass-roofed houses— an indicator of poverty in Kenya and other poor nations. Mr Were received the cash in three instalments over the past year and discussed with his wife how they would spend the money. They agreed that a new house was a priority.

He used the money to build a new house with iron sheets roofing. He and his family previously lived in a small grass-thatched house with a leaking roof which needed to be replaced several times a year.

“We’re sure that we’ll be able to stay in the new house for 30 or 40 years without doing any repairs to the roof,” Mr Were told the Business Daily.

The couple says they will save on the regular roof repairs with the money going into other expenses like school fees and food.

About 3,700 people have so far received the cash, with another 1,300 earmarked for the next round. In Uganda, the programme has benefited 960 people so far.
For many years, aid agencies thought they knew what the poor needed most.

It was often thought that programmes aimed at teaching people new skills or helping them launch a business was the best way to improve their lives.

Aid agencies assumed that poor couldn’t make the best investment decisions for themselves. However, new research in development economics and behavioural economics, as well as growing concern over how much impact aid programmes really have led to a shift in the way donors view the less-privileged.

By letting recipients spend money the way they want, Give Directly bets on the fact that no one knows better what’s best for the poor rather than the less -privileged themselves.

The unconditional cash transfers (UCTs) programme seems to be working. A recent study conducted by Innovations for Poverty Action revealed that most people spent the money from Give Directly on home improvement, as well as on food, school fees, healthcare and some invest in small businesses or livestock.

Very few spent the money on alcohol, tobacco, prostitutes and gambling as feared. The cash transfers had a substantial long-term effect on consumption and income generation, and decreased food insecurity, the research noted.

The money also helped reduce stress among recipients and increased their general well-being. “People are able to take care of their urgent needs, then beyond that they can make a large investment with long term payoff,” said Carolina Troth, Give Directly’s field director in Kenya.

While giving people money with no conditions is a relatively new idea in the sector, conditional cash transfers programmes (CCTs) have been run around the world by charities and governments. Such schemes often come in the form of grants matched with training programmes, or monthly subsidies associated with requirements that recipient families must fulfil, such as sending children to school.

Brazil’s Bolsa Familia, a government-run programme, delivers monthly payments to poor families who send their children to school and for medical checkups.

Bolsa Familia has been credited for lifting 36 million people out of extreme poverty in the past 10 years, and millions more have benefited from similar initiatives in Mexico, China, India and South Africa.

But CCTs can have limitations. Conditions can be hard to meet if families live far away from schools or dispensaries and monitoring that families are indeed fulfilling the requirements is costly.

Lately, development economists have been wondering if giving money unconditionally could have the same results as conventional cash transfer programmes, but at a lower cost.

Results from recent studies are mixed; a study conducted in Malawi showed that school attendance rates rose equally among recipients of conditional and UCTs. But while Give Directly’s transfers have been proven to increase the quality of life of recipients, it doesn’t have an impact on school attendance or health.

Additionally, another study from Morocco revealed the potential of “labelled” transfers —sending cash for families under conditions, but not monitoring whether these conditions are met.

In reality, cash transfer programmes probably have a different impact depending on the targeted recipient group, the socio-economical context, the amount of cash transferred, and whether transfers are recurrent or not. CCTs and UCTs can also impact poverty indicators (school attendance, health, consumption) differently and on a different time frame.

Give Directly’s formula’s works because the organisation’s mission is to have an immediate impact on extreme poverty and overall quality of life; it can also count on M-Pesa to help deliver cash in remote areas where people don’t have bank accounts.

But designing a cash transfer programme also depends on the organisation’s philosophy. Give Directly, which has been thinking of other ways to run the programme, such as expanding the transfers to more households and not just the poorest, is aware that such decisions should be taken in line with their core mission.

“You would have to think about, do I want to maximise the returns that people are getting, or do I want to be alleviating poverty for the most underserved people? It’s a bit of a values decision,” said Ms Troth.

Researchers are still trying to figure out how to master different variables and help programme managers design initiatives that are best fitted for each situation.

Even when they do so, cash transfer programmes will remain just one of the tools available to non-profit organisations and governments to help alleviate poverty, but will not eliminate poverty altogether as long as the root causes are not addressed by governments.

Despite all, unconditional cash transfers have launched a necessary and healthy debate in the aid world about the cost-effectiveness of poverty-reduction programmes, and whether it might be better to let aid recipients decide what’s best for themselves.

They can also inspire governments in developing countries to use innovative ways of redistributing wealth —provided they are committed to ending poverty.