Every day, billions of dollars are transferred to individuals around the world but only a tiny percentage of this is in the form of conditional cash transfer (CCT) programs which are usually government programs that are designed to alleviate poverty. Unlike in-kind goods and services that are provided to low-income and other qualifying individuals, CCT programs are direct money transfers from the government, requiring citizens to obey specific mandates such as attending school or receiving certain types of healthcare.
Understanding conditional cash transfer programs
While there is no one global definition of a cash transfer program, the term generally refers to a range of strategies in which financial support is provided directly to low-income, disabled, and other qualifying individuals by a national government.
CCT programs are not to be confused with Universal Basic Income which is when individuals are provided with monthly payments, unconditionally, in order to survive or other government programs such as unemployment payments, welfare relief, job seeker benefits, old age pensions, and housing support.
The biggest and most well-known CCT programs are in Latin America and include Mexico’s Prospera (Prosper), Colombia’s Familias en Acción (Families in Action) and Brazil’s Bolsa Familia (Family Allowance) programs. Mexico’s Prospera (formerly known as Oportunidades) was founded in 2002 and is the oldest nationwide CCT program in the world, while Brazil’s Bolsa Familia is the largest, with nearly 12 million Brazilian families enrolled on the program.
CCTs have also been tried elsewhere to a limited extent, including in the United States, but the vast majority continue to be in Latin America where, in 2010, an estimated 110 million people were enrolled on CCTs.
Challenges and limitations
Setting up and implementing large-scale CCT programs have proved to be a challenge for governments. Firstly, changes in political leadership, bureaucratic obstacles, and limited budgets can make it hard to introduce all the legislation and legal frameworks necessary to start a CCT or maintain this for a longer period of time.
Other challenges facing large-scale cash transfer programs include identifying and reaching eligible beneficiaries, technological barriers in receiving the cash, software and hardware requirements, and administration difficulties. Cash transfer programs have also run into problems during times of a natural disaster or during financial crises that drastically reduce the available funds in a government’s budget.
However, according to the World Bank, the biggest obstacle for conditional cash transfers is that many of the neediest beneficiaries are difficult to reach. For instance, remote and impoverished communities may find it problematic or prohibitively expensive to meet requirements such as regular hospital visits or attending school, and establishing digital means to transfer and receive funds can be challenging in areas without internet and mobile phone coverage.
Mechanisms of effectiveness in poverty reduction
The authors of one study in 2009 found that there was “considerable evidence” that CCT programs improved the lives of poor people. At the same time, they claim that CCT programs “cannot fulfill” comprehensive social protection systems and therefore need to be complemented by other interventions (employment, welfare, pensions, etc.).
Nevertheless, even the World Bank admits that evidence on the outcomes of CCT programs are “mixed” with very little proof available to indicate long-term transformative change in the beneficiaries’ behavior. In some cases, the basic premise that cash transfers are conditional has impeded the program’s success as some of those citizens most in need of help are excluded because they fail to satisfy the program’s conditions.
The World Bank has also noted that CCT programs outperform unconditional cash transfer programs in a limited number of targeted outcomes, including higher levels of school enrollment and visits to health centers. However, government programs that do not have any prerequisites tend to do better in areas such as improving psychological well-being, reducing the number of teen pregnancies, and reducing the rates of child marriage. Furthermore, unconditional cash transfer programs ensure that impoverished communities can be served without any qualifying criteria, ensuring that aid gets to the people who need it most, regardless of their circumstances or compliance with rules.
Perhaps one of the most unexpected results of CCT programs has been the decline in life satisfaction and psychological well-being amongst the non-beneficiaries who live in the same community as the beneficiaries.
Another issue revealed by studies of existing cash transfer programs is price increases in remote areas. Unfortunately, these price spikes lead to situations where only the beneficiaries are able to afford adequate nutrition, especially for their children, while non-beneficiaries are unable to afford to feed their families.
In conclusion, there is limited evidence of the success of CCT programs in reducing poverty levels. While in some countries this tool has proved to be efficient for the targeted groups, in others it has caused an imbalance in some communities. So far, researchers agree that, as a stand-alone instrument, CCTs cannot outperform other government programs and ought to be complemented by employment, welfare, and social pensions.
