Ever since I learnt that money has value and it can buy things that can satisfy human needs, I have seen my mother (who lives in India) and uncle (who lives in the U.S) give money to my other poorer relatives. While in some cases these relatives have abused their trust, in many others, there has been a genuine need (emergency or situation that demanded a lot of money) during which they could not get access to credit, due to their financial standing. The loans (and other times, financial gifts) that my mother and uncle have given out have been life-savers for them. This ‘conditional cash transfer’ of sorts has worked, albeit with some flaws. This brings me to the discourse surrounding ‘conditional cash transfers’ (CCT) and also the ‘unconditional cash transfer’ (UCT) system pioneered by ‘Give Directly’ an American NGO and will show that what they are offering is not drastically new, though their approach seems new. This method simplifies the complex problem of addressing poverty and dumbs it down. I will treat both CCT and UCT together.

 

Source: Google awards website

Is this really new?

CCT and UCTs’ are not “new” by any means. They have been around since at least 2008, in their ‘modern’ form.  As this blog points out, “First launched in Mexico, Brazil, and Bangladesh over a decade ago, CCT programs had spread to about 23 developing countries by 2008. In Latin America alone, some 93 million people are said to be enrolled in CCT programs.”  The writer further elaborates that the program Bolsa Familia in Brazil has over 12 million families participating in it, with support from multilateral institutions. It has been credited for lifting 20 million Brazilians from absolute poverty and pushing 31 million into middle class. According to one report in the Guardian, “One of the biggest successes has been the enormous advances made to the school enrollment program. This is largely thanks to Bolsa Familia (“Family Fund”), which pays poor families if their children attend school. This fund has pushed children off the street and into the school room, while also providing the poorest with a well-needed form of income support.”

In India, there has been a Public Distribution System (for food) for decades now, and a recent move to introduce the Direct Benefits Transfer (DBT) for cash transfer for those below the poverty level. This is meant to transfer funds to the poor directly. As Amartya Sen pointed out recently, in an interview, “ However, the Direct Benefits Transfer (DBT) programme is a particular scheme of cash transfer, and we have to ask what it may be displacing and whether the losers will not be plunged into more poverty. It is not the modality of cash transfer that is the only issue, but also how much, and for whom, and also, instead of what. If, for example, it is instead of subsidized food, we have to make sure that the people who depend on cheaper food will have enough cash to buy the unsubsidised food.” He goes on to further point out that this system may be harmful to girls and women in particular.

 

Why this system works?

The preliminary results from Give Directly’s work are encouraging. The question is, why? The answer seems deceptively simple: if you trust people with their welfare, most of them will do what is good for them. Humans are exceedingly good at self-preservation and in most desperate situations, people do what is good for their material wellbeing.

There are a few reasons why this seems to work. I outline a few here:

1. Efficiency – The money is given directly to the beneficiary. This removes all administrative and other related costs and this is extremely efficient, if one considers that other traditional NGOs’ have overhead costs ranging from 15% to over 50% of the entire program costs
2. Knowing who needs help and targeting them directly– This is also significant, as the costs of doing business i.e., identifying recipients, ensuring they are the right candidates and screening them etc. takes overhead costs. Middle-men also take away precious dollars as in other systems of aid delivery.
3. Use of technology – Giving directly uses mobile transfer of money and is very efficient. All it requires for implementation is a good mobile system and willing participants. The rest is upto the implementing organization to set up a method of evaluation.

 

Gaps in the system:

1. CCTs are about poverty containment rather than poverty reduction – As several studies including a few at DFID have pointed out, CCTs are about poverty containment and not poverty alleviation or reduction. They help in desperate situations of poverty, but are not so good in conditions where the clear stated objective is poverty reduction. The latter process requires structural changes in the system that are macro-economic in scale and require large systems to be integrated – including financial, physical infrastructure, availability of transport, credit etc.

1. Gender perspective – In a recent interview with The Hindu, Amartya Sen pointed out that Cash transfers may actually hurt women and girls. “But when the subsidy is given as cash directly it may benefit adults and boys more due to biased social priorities in Indian society. Dr. Sen said the transition delays in cash transfer could cause extreme hardship to people, many of whom lead a hand-to-mouth existence,” he added.

 

Will it pay off?

Anecdotally, I would say that many of the individuals that my mother and uncle have supported have thrived. Two people I know have started small businesses and are (relatively) better off than they were. Many others still depend on support, in times of crisis. Given the lack of a ‘welfare-state’ relatives who are somewhat better-off become the support mechanism in India and other developing countries.

On a similar note, one of the reasons the ‘Give Directly’ model works is that there is an implicit trust in the recipient, that he/she will use the money wisely and with care. There is also a normative belief that giving money helps people and is in itself good (remember that this is NOT a loan). So, this does call for a leap of faith, rather than just a philanthropic instinct to give in order to see “results.” I believe that given our obsession with results, data, metrics and the need to see “results” this system is bound to fail. In the short-run, there may be successes, but the inherent contradiction that this system carries with itself will bring it down. This tension between giving to “help” versus the need of scientific philanthropists and “development experts” to see results will be too much for this method to bear.

A related concern that has not been stated is the value system behind this giving. Why would a multi-lateral bank or a philanthropist such as Bill Gates or Soros just hand out money to poor people? Given their proclivity for managing and running their philanthropies like businesses, I believe the large foundations are highly unlikely to adopt this mode of giving. It calls for a radically new (or rather old) way of thinking – i.e., giving because it is a “good” thing or because you believe in the goodness of mankind and want them to improve their lot, on their own terms.

Finally, one must remember that this model is not entirely “new” by any means. CCTs’ have been in existence since 2008 and are operational in many countries of the global south, particularly in South Asia, South East Asia and Latin America. So, the claims of ‘pioneering’ and ‘radically new’ are anything but that. As a reminder, one must ask whether the claims of ‘eradicating poverty’ that many of these organizations are making are exaggerations. While well-meaning philanthropists have been doling out billions for several decades now, this seems to have made a small dent in global poverty. The scale of poverty, disease and hunger in the world is so large that even philanthropists like Bill Gates have acknowledged that they cannot address them alone, and it calls for action from the government, private sector and wealthy individuals. So, how does one small NGO hope to revolutionize the field of development and eliminate poverty? The scale of the problem defies such simple explanations and the structural problems in these countries are far too many to be solved by just lending a few hundred or thousand dollars to one person.

So, does giving directly work?  Yes, it does – but only with many pre-conditions and in a limited context. While I am not referring to the NGO here, but rather the concept, as such.  Finally, I would say that what works for an individual may not work for an entire country. Keeping this in perspective will help future planners, nonprofit practitioners and policy makers from making obvious mistakes.