More on Conditional and Unconditional Cash Transfer Programs

Conditional cash transfer programs (CCTs) have been used as a way to increase incomes of the poor while also improving their human capacity and potential through conditioning receipt of cash on such requirements as school attendance, vaccination etc. The main characteristics of CCTs are conditionality and targeting. According to the research conducted by Alessandra Stachowski, majority of CCTs use mean-based targeting (offering cash transfers based on incomes of recipients). While CCTs with means-based targeting approach is the prominent method today, many propose utilization of unconditional cash transfers (UCTs) through  universalistic approach (when benefits are offered to all members of a certain group, regardless of income).

Proponents emphasize the following benefits of UCTs:

• Beneficiaries are empowered because they can dispose of their income as they see fit. More on that subject can be found in the following report by Dr. Duflo
• UCTs reduce administrative costs that are high when conditionality is enforced
• UCTs are less likely to result in reallocation of duties in a household. The study by the World Bank discusses a CCT program that resulted in shifting burden of household responsibilities to the siblings who were not receiving the CCT. Here you can view evalutions conducted by the World Bank of various cash transfer programs around the world
• If UCTs are distributed through universalistic approach, they are less likely to increase the size of informal sector (as cash is offered to the entire group rather than to those with the lowest income); while means-based targeting method can encourage recipients not to report their income in order to qualify for the cash receipts and thus increase the size of the informal sector

Proponents emphasize the following benefits of CCTs

• By conditioning receipt of cash on certain activities (attending schools or health checks), recipients are more like to develop their long term human capacities
• Money is more likely benefit those in need (children)
• According to this report, conditions make middle and upper class more support of cash transfers in general because they view such programs as a social contract rather than just "government handout"

While CCTs and UCTs received a lot of attention and praise from the development community, they do not address such supply side issues as job creation, quality of schools and hospitals, inability to reach the very poor that leave in the areas where there are no schools at all (they are therefore unable to meet conditions imposed by CCTs and cannot qualify for the transfers).

To learn more about it, please take a look at the following blog post by Holden Karnofsky, founder of GiveWell. To learn more about CCTs in Latin America and attempts to tie CCTs to savings and bank accounts please review my previous blog post.