Cash Transfer in the Chocolate Hills

Proper identification of the poor is the most important step for effective delivery of aid

A beautiful part of the Philippines, eloquently named Chocolate Hills, lies in the island of Bohol. It is a collection of over a thousand cone-shaped limestone mounds, 30-120-metre high and rich dark brown in colour. On a recent visit to Bohol with our board colleagues at the Asian Development Bank, we were delighted to find something as exciting as the natural surroundings: the success of the Pantawid Pamiliyang Pilipino Program, or 4Ps. It is a cash transfer initiative that is transforming the lives of poor people with children.

In Tagalog, the national language, 4Ps mean building bridges for the Filipino family programme. In practice, 4Ps mean a monthly conditional cash transfer that promotes the provision of health, education and other services as basic rights of children aged 0-14 years in poor households. Patterned after similar programmes in Mexico, Columbia and Brazil, it aims to keep 5.6 million children healthy and in school.

Recently, conditional cash transfer has attracted some attention in India. Union finance minister Pranab Mukherjee in his budget speech has referred to pilot projects for selling liquefied petroleum gas at market price and reimbursing the subsidy directly into the beneficiary’s bank account in Mysore and direct transfer of subsidy for kerosene into beneficiaries’ accounts in Alwar, Rajasthan. Aadhaar (under the Unique Identification Authority of India), with enrolments reaching 200 million, promises to provide an efficient platform for conditional cash transfers.

With Aadhaar, it should be possible to better identify the poor, target assistance to them, switch from subsidies to cash transfer to cut down costs and leakages as well as enhance choice. Subsidies are commodity-specific, e.g., subsidized food and cheap electricity. The debate between those who favour universal subsidies to conditional cash transfers is an old one. It emphasizes the risks of cash being used for alcohol or tobacco, inadvertently excluding some of the deserving disadvantaged and administrative costs and leakages. With funds seldom enough to implement what Jim Tobin called “specific egalitarianism” vis-à-vis all such critical elements as basic food and healthcare, policy often has to think of whom to help selectively and how.

The Philippines (per capita income of $2,254 in 2011) is richer than India ($1,527). But as a developing country it shares with India the problems of poverty and illiteracy. Average growth was 4.8% during 2003-09, but poverty rose from 24.9% to 26.5%. Roughly half the Filipinos remain vulnerable to falling or slipping deeper into poverty due to shocks such as illness, unemployment and price shocks. Proper education and healthcare of children is critical for sustained poverty alleviation. Underinvestment in human capital perpetuates cross-generational poverty traps.

In Bohol, areas are selected on the basis of poverty incidence according to the Philippine National Statistical Coordination Board data. For 2007, Filipino families consisting of five members with a combined monthly income of less than P6,195 (Rs7,125 at about Rs1.15 per peso; P for Philipino peso) were assessed to be “poor” and unable to meet their most basic food and non-food needs. In the selected areas, household income is estimated through socio-economic proxy variables such as housing conditions, education, access to basic services, assets and tenure status. Lists of poor households identified as potential beneficiaries are then validated in community assemblies, spot checks and cross-checks with other survey data.

Cash available to a family is P6,000 per year for health and nutrition, and P3,000 per year, per child, to a maximum of three children. Thus, a household with three qualified children receives a subsidy of P15,000 per year as long as the pregnant mother visits the local health centre for pre- and post-natal care, children below the age of 5 get immunized and get weight check ups, children between 6 and 14 years get dewormed twice a year and children maintain at least 85% school attendance rate. For a household meeting all the conditions, average annual transfer is roughly 23% of annual income, reportedly just enough to neutralize the tendency to use child-labour to supplement income. Transfers are typically made directly to the mother’s account. ATM cards facilitate withdrawal of money at the Land Bank of the Philippines. For remote communities located very far from bank branches, over-the-counter payments are used. Payment via mobile telephony has been introduced as well.

The 4Ps seemed to be not only increasing the beneficiaries’ incomes, but also, with appropriate conditionalities such as school attendance and vaccination, improving their long-term quality of life. Some signs of stepped-up investment in school facilities reflected demand-side pressures working on local governments. Financial incentives, with the appropriate size, timing and features—a potent tool for smart choice architecture—seemed to be at work in Bohol.

The success of cash transfer programmes depends, to a very large extent, on their effective reach. In Bohol, we could not get an idea of whether any or how many of the poor with children who should be included in the programme were left out of it. One of the major challenges of introducing cash transfer programmes in India will be the identification of the poor and targeting them appropriately. A successful launch of Aadhaar should help us in this regard.