Conditional Cash Transfers Programs

Conditional Cash Transfers (CCTs) are a type of welfare program in which money is given directly to the poor as long as they meet certain conditions, for instance: making sure their children attend school, getting vaccinated, attending educational workshops, etc. While CCT programs have been implemented in one form or another for a long time by the aid community, recently CCTs have started attracting more attention from the development community. CCT proponents argue that by ensuring that the poor meet certain requirements in order to qualify for the cash transfers, CCTs increase empowerment, incentivize behavior change, and promote social responsibility. In addition, because the money is transferred without an intermediary, administrative waste and corruption are reduced.

Conditional cash transfer programs are now found in 14 countries in Latin America and some 26 other countries, according to the World Bank and reach about 25 million families in Latin America, Africa and Asia. Two of the most successful and well-researched CCT programs are Oportunidades in Mexico and Bolsa Familia in Brazil.

Oportunidades and Bolsa Familia

Oportunidades was launched 14 years ago and now it covers 5.8 million families, about 30 percent of the population. Three different presidents in Mexico endorsed the program, which allowed for long term impact. Oportunidades focused on empowering women by making transfers directly to them. Experience has shown that when women receive such transfers, they invest in improving the nutrition of their households. By making transfers conditional on keeping children in school, Oportunidades is attempting to decrease inter-generational poverty as well. For a more in-depth analysis on Oportunidades, check out this New York Times article.

Santiago Levy, former official of Mexico's Ministry of Finance and Public Credit, and the architect of the Oportunidades program gave an interview where he stated that the next challenge that Mexico faces will be creating enough jobs to employ young people who went through programs like Oportunidades.

Another well known CCT program is the Brazilian Bolsa Familia that was launched in 2003 and has already proven to be effective at reducing poverty in Brazil, according to the report published in New York Times. Bolsa Familia covers 50 million Brazilians and it pays a monthly stipend equivalent to US$13 to poor families for each child 15 or younger who is attending school. Families can get additional payments of US$19 per month for each child of 16 or 17 still in school. For more information on Bolsa Familia and its impact, take a look at this International Food Policy Research Institute (IFPRI) study.

That doesn’t mean that programs like Oportunidades and Bolsa Familia are a cure-all for economic, social and health issues. Public Radio International (PRI) has reported on some of the limitations of the program. For example, while more children attend schools because of the CCT criteria, the quality of schools and levels of teacher absenteeism remain problematic. Also, very poor communities that have no schools in their proximity are excluded from participating in the program. To listen to PRI’s coverage of the initiative, check out its "To the Point" report. Even PRI agrees that CCTs have resulted in a “dramatic reduction in poverty” in Mexico.

Savings-Linked CCTs

As CCTs are proving to be an effective poverty eradication tool, the development community has focused on linking CCTs to savings. You can learn about some conditions that have been suggested in order to make Savings-Linked CCTs more effective on the New America Foundation blog. While some experts argue that there is a trade-off between consumption and savings, and that the very poor cannot afford to save, there is a strong argument that when CCTs are not distributed electronically directly to the bank accounts, recipients spend 5-20% of cash transfers on traveling to the nearest kiosk to receive the CCTs. Therefore, this 5-20% can contribute to savings when CCTs are distributed electronically. Besides, when recipients of CCTs open bank accounts, they are included in a wider financial system, which among other things, allows them to build self-esteem and confidence.

On May 3, New America Foundation organized a panel to discuss challenges and opportunities of linking CCTs to savings. The panel included Shari Berenbach (Director of Microenterprise Development Office at the US Agency for International Development), Frank DeGiovanni (Director of Financial Assets at the Ford Foundation), Alberto Chaia (Partner at the McKinsey & Company, Mexico City Office); Selwyn Jehoma (Deputy Director-General Comprehensive Social Security for the South African Government); and Fermin Vivanco (Investment Officerat the Inter-American Development Bank, Multilateral Investment Fund).

It is interesting to note that a similar CCT program was implemented in New York. Here is a recent MDRC report on Opportunity NYC’s initiative.