Conditional Cash Transfers Decrease Poverty in Asia | Asian Development Bank

Conditional Cash Transfers Decrease Poverty in Asia

Article | 24 October 2012

Offering cash allowances to poor families in exchange for sending their children to school might appear to be a small idea. Yet, the impact it can have on breaking the cycle of poverty for those families is all but negligible.

Children of families living in extreme poverty often miss out on the opportunity to go to school because they instead want to support their family and put food on the table.

Mired in malnutrition and illiteracy, the next generation continues the cycle of poverty, unless these families receive financial support.

A simple idea that has registered positive results first in Latin America and now in Asia, as well as other parts of the world, is to provide cash grants to poor families if they agree to send their children to school and take them to health clinics for preventive care.

These conditional cash transfers (CCTs) are more effective in addressing poverty than general price subsidies and food distribution programs.

The income transferred is in the form of cash instead of a product (e.g., bread) or service (e.g., electricity), says Santiago Levy, vice-president for sectors and knowledge at the Inter-American Development Bank, which provides multilateral financing in Latin America and the Caribbean.

A former deputy finance minister of Mexico, Levy gave a talk on 19 October at ADB headquarters in Manila on CCTs, a concept that he pioneered with Progresa-Oportunidades, an incentive-based health, nutrition, and education program for the poor.

"Cash transfers are conditioned on socially desirable behavior," he explains.

This means that they encourage poor families to invest in their children's education and health. The program provides temporary support for the families while it helps them break the cycle of poverty. It creates a generation of healthier and more educated people who would have a greater chance of landing higher-paying jobs than their elders.

In Latin America, Levy estimates that governments using CCTs invest about half a percent of the gross domestic product in 25% to 30% of the population through such mechanisms.

A spur rather than a trap

The impact CCTs can have on breaking the cycle of poverty for poor households should not be underestimated, provided that governments ensure that these do not create poverty traps, Levy says. A monthly stipend may become a crutch for the poor rather than a means to become financially independent, he explains.

At some juncture, families need to "graduate" from such programs, ideally into decent jobs that provide sufficient remuneration to meet basic needs.

Introduced in the 1990s in Mexico, CCTs have proven effective in increasing that country's school enrolment, improving health, and promoting gender parity in education.

Levy says CCTs can be used to encourage parents to send their daughters to school by offering a higher cash incentive for girls.

"The balance of power in the household also changes since the government gives the allowance to the mother," he adds.

The Asian experience

Countries around the world have been introducing CCT schemes. In Asia and the Pacific, ADB has supported CCT initiatives, such as the Pantawid Pamilyang Pilipino Program in the Philippines and a technical assistance project supporting the design of a CCT program in Indonesia.

CCTs however are not a silver bullet for poverty reduction, cautions Levy. They are one useful component of the strategy to eradicate extreme poverty, but cannot address all problems. For example, while more children are going to school thanks to CCTs, they are not necessarily learning more. Another mechanism is needed to ensure that the teachers know how to teach.

"We now need to improve the supply side of the equation," he says.