Cash transfers: What are they good for?

There is convincing evidence from a number of countries that cash transfers can reduce inequality and the depth or severity of poverty. For example, in Brazil a combination of cash transfer programmes accounted for 28 percent of the total fall in the Gini index (a summary measure of inequality) between 1995 and 2004…. Well-designed and implemented cash transfers help to strengthen household productivity and capacity for income generation. Small but reliable flows of transfer income have helped poor households to accumulate productive assets; avoid distress sales; obtain access to credit on better terms; and in some cases to diversify into higher risk, higher return activities. These intermediate outcomes help draw poor people into the market economy on terms that allow them to benefit from and contribute to growth.…

There is robust evidence from numerous countries that cash transfers have leveraged sizeable gains in access to health and education services…However, transfers have had less success in improving final outcomes in health or education.  Cash transfers can help the poor overcome demand-side (cost) barriers to schooling or healthcare, but they cannot resolve supply-side problems with service delivery (e.g. teacher performance or the training of public health professionals). Cash transfers therefore need to be complemented by ongoing sectoral strategies to improve service quality.

From a new paper on the evidence for cash transfers from Britain’s aid agency.

I’ve heard people talk about cash transfers as the next silver bullet. They’re frequently mentioned in conversations about what’s “new and innovative” in aid. Studies like this one, that synthesize what we know so far and point out where knowledge is still uneven, can help calibrate those expectations.