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Wednesday, 17 September 2014

Cash transfers

Community Development Minister Emerine Kabanshi recently announced that the Government plans to extend the cash transfer scheme to cater for up one million households. Government has sensed that it is onto an election winner.

GRZ is currently running two cash protection schemes that gives support to the vulnerable in the community : social cash transfer and social protection fund. The cash transfer is a bi-monthly cash allowance of $25 and $50 dollars for vulnerable households and households where there are people with disabilities respectively.

The social protection fund is a once-off grant of up to $670 dollars for viable business proposals. This gives cash grants targeting vulnerable families to either boost and/or venture into viable businesses. Not only are the grants helping encourage people to consider new businesses, it is also leads families to widen the sort of business they engage in.

Cash transfers have become the darling of the development world in tackling poverty. They are favoured over transfers in kind (e.g. food subsidies) because cash transfers have the advantage of permitting beneficiaries to use the money flexibly on their own priority needs unlike in-kind transfers that prescribe to the beneficiaries what to consume. Cash transfers also inject cash into local markets and the community, whereas handouts may even distort prices and disadvantage local markets. Not to mention they are cheap to run.

A key concern people raise is that the money given to the poor just goes on beer and tobacco. But as the latest empirical evidence shows there does not appear to be evidence in that direction :
"We have investigated evidence from around the developing world, including Latin America, Africa, and Asia. There is clear evidence that transfers are not consistently used for alcohol or tobacco in any of these environments. This is particularly true when relying on the randomized trials....We see no difference between conditional and unconditional cash transfer programs, so this does not seem to be a function of conditions. We also observe no difference depending on the region of the transfer program. These results provide strong evidence that concerns that transfers will be used on alcohol and tobacco are unfounded. We do have estimates from Peru that beneficiaries are more likely to purchase a roasted chicken at a restaurant or some chocolates soon after receiving their transfer, but but hopefully even the most puritanical policymaker would not begrudge the poor a piece of chocolate.."
There are some interesting dimensions with respect to how the cash transfer operates in Zambia that can be developed further to make it stronger nationally. For example, it would be ideal to complement these schemes with concerted efforts to provide cheap credit and incentivising the poor to work hard than giving them indefinite free handouts. Free handouts may not empower them, it may in fact enslave them further.

Some may even argue that politicians tend to favour free handouts to the poor precisely because it makes the poor depend on them. Come 2016 one would not be surprised to hear a politician say, "if you don't vote us back in your handouts will go". To a poor person who has come to depend on $50 bi-monthly such a threat would be credible enough to enduce them to keep the incumbent. Unless of course another politician promises $100 per month then we have a problem - as the bidding war begins! In short we need to think around how to avoid such challenges!

Question :

Do you support the current policy of cash transfers?  

You can leave your comment below or join the discussion on Facebook

Chola Mukanga 
Economist | Researcher
Copyright © Zambian Economist 2014

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