Why Giving Cash Is the Best Form of Aid

26 May

Show Them the Money

Why Giving Cash Helps Alleviate Poverty

 

Despite everything that cash transfers can do, their future role in poverty alleviation remains uncertain. The findings of small-scale experiments, involving just a few thousand recipients, cannot reliably tell what might happen when the same policies are rolled out to millions. One looming question is whether money transfers are more or less feasible on a large scale than traditional programs — whether, for example, corrupt officials and armed groups could exploit such programs more easily.

But the evidence from countries that already use cash transfers on a massive scale is promising. According to the United Kingdom’s Department for International Development, governments in the developing world already run cash-transfer programs that reach between 750 million and one billion people, whether by way of employment programs in India, pension funds in South Africa, or welfare schemes in Brazil. Many of these programs involve some kind of condition that must be met before recipients get paid, such as getting a checkup or a vaccine at a health clinic. But they all end in cash transfers. The worst fears surrounding them — of fraud, corruption, and plain ineffectiveness — have thus far not been realized.

New technologies have also made such programs easier to implement. In India, one of us (Niehaus), along with Muralidharan and Sukhtankar, recently worked with the government of the state of Andhra Pradesh to measure the effects of replacing paper money delivered through the mail to pensioners and workfare participants with digital payments using biometric authentication. We found that the new system both reduced theft and improved the speed and reliability of the payments. Taking this approach further, the nonprofit GiveDirectly (of which Niehaus is president) now delivers unconditional cash payments to thousands of extremely poor households in East Africa through accounts on their cell phones, all at a cost of less than ten cents per dollar donated.

 

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