EVIDENCE December, 2011 from to POLICY a note series on learning what works, from the Human Development Network 72241 Can Cash Grants Help Create Jobs and Stability? Policymakers throughout the world struggle to boost employ- opportunities, the World Bank sponsored an evaluation of a ment. Creating jobs—or giving people the right training to Government of Uganda program that gave young men and get jobs—is not only good economics, but especially in devel- women cash grants to start new businesses or get training. oping countries, it may be a way to reduce social instability Based on mid-term results two years after the intervention, and with it the threat of crime and unrest. In the push to fig- the Ugandan program made significant impacts: Beneficia- ure out what works, development organizations and govern- ries reported large increases in skilled employment and in- ments are looking beyond the more traditional voucher and comes, and modest gains in social cohesion and stability. In microfinance tools to decentralized programs that give cash the constrained credit markets of many developing countries, grants and leave it to recipients to decide how to use the mon- where available financing is usually short-term and can carry ey. But can you give young people a lump sum and, with only a 200 percent plus annual interest rate, the poor often have limited supervision, expect them to build a profitable busi- few viable options for getting the start-up money they need ness? And, assuming they do, does this in turn improve social for skills training or small business development. At the same cohesion and reduce the chances of aggression or unrest? time, it may not always be feasible for governments to set At the World Bank, we are committed to ending pov- up grant-making programs that require extensive oversight. erty and we are working to help meet the United Nations As this impact evaluation shows, there are other options. In Millennium Development Goals, including eradicating ex- certain circumstances, unsupervised cash grants can be used treme poverty by raising incomes and making sure everyone successfully with poor entrepreneurs, something policymak- has decent employment. To help policymakers judge the ef- ers will want to consider when looking to boost employment fectiveness of different approaches to building employment and income among young adults. Case Study Uganda Researchers and Innovations for Poverty Action (IPA) partnered plan a business together or each on their own (mostly they proceed- with the Ugandan government to evaluate the effectiveness of the ed on their own). While they did have access to a facilitator to help Youth Opportunities Program, introduced in 2006 to raise incomes organize, build budgets and apply, these facilitators played no role and employment among young adults aged 16 to 35 in the country’s after the application phase, and there was no formal mechanism of northern region by offering them cash grants for training and busi- follow-up or accountability for the funds after disbursement. Most ness materials. To qualify, young adults had to organize in groups of group members planned to go into tailoring, carpentry, metal fabri- 10 to 30 people and submit a proposal for a grant to cover training cation, mechanics or hairdressing. programs and what tools and materials they needed to run a busi- Groups were responsible for creating a five-person manage- ness. Groups had an average of 22 members each and they could ment committee and doing their own budgeting and allocating. The management committee handled disbursing the funds and was accountable only to other members of the group. Because Did You Know… groups rarely kept records, it was not possible to measure how Uganda has a labor force growth rate of nearly 3 percent a year. exactly the money was distributed within groups. Sometimes But the formal sector is able to absorb only one-fifth of new entrants to they made bulk purchases for materials such as tools; other times the labor market. And 37 percent of people live on less than $1.25 a day. they gave money directly to members. Source: World Bank data The average grant received was $7,108 per group, or about $374 for each group member, with the money deposited in a joint bank account. On a per person basis, the grant was 20 times more random sample of five individuals in each group, or 2,675 indi- than young adults were earning in a month. Overall, grants gener- viduals, conducting a baseline survey in early 2008 and an end ally ranged from about $200 to $450, in Ugandan shillings. line survey between mid-2010 and mid-2011, about 12 to 18 Prior to the evaluation, the Government disbursed hundreds months after most groups had finished their training programs. of grants in a first large phase. Researchers studied the second Taking into account group disbanding or members moving and last phase of grant-making, when an additional 265 grants away, researchers were able to track 99 percent of the groups and were available. Of the 535 eligible groups that applied, those not 87 percent of the targeted individuals. picked were tracked as a control group. Researchers followed a Background The gradual end of civil war in Uganda over the last decade new Youth Opportunities Program provided large cash grants and the weakening of armed conflicts in neighboring coun- to self-created groups of young adults so they could get vo- tries allowed the Ugandan government to increase its reach cational training and buy materials to start or expand a small and work to develop the regional economy in the north. The business. The program sought to offset difficulties young Northern Uganda Social Action Fund, created in 2003, of- adults faced finding credit in northern Uganda, where loans fered grants for infrastructure construction, income support —mainly offered by small associations and moneylenders— and livestock. The fund was expanded in 2006 to help young generally carried an interest rate of about 10 percent a month adults find work outside of the informal farming sector. The and were for one month to three month periods. The Findings Young adults who applied for the program spanned Fears that the money would be mismanaged or Uganda’s very poor to those who would be consid- misappropriated were unfounded. Overall, young ered “middle class.� adults who received the unsupervised grants stuck to their stated plans, using the majority of the Applicants were self-selected, so they may have been more mo- money for vocational training and to acquire tivated to work and more likely to have the skills and aptitude materials to run a business. to benefit from such a program. Nonetheless, many were drawn from Uganda’s very poor and undereducated: More than one- Nearly 80 percent of those who received the cash transfer en- quarter had not finished primary school and more two-fifths rolled in vocational training, with levels similar for men and said they had no income or employment. Prior to starting the women, compared with 17 percent of the control group. The program, more than half their reported time was spent on chores most popular training program was tailoring, followed by car- and agricultural activities and, on average, they reported weekly pentry, metalworking and hairdressing. About 13 percent of revenues of about $4, which put them exactly at the interna- those who got grants re-enrolled in secondary school, compared tional poverty line of $1.25 a day. with 10 percent of those in the control group. This brief summarizes the results of a mid-term report by Christopher Blattman, Nathan Fiala, and Sebastian Martinez, “Employment Generation in Rural Africa: Mid-term Results from an Experimental Evaluation of the Youth Opportunities Program in Northern Uganda.� (http://www.poverty-action. org/project/0189) The evaluation was funded in part by the World Bank’s Spanish Impact Evaluation Fund (SIEF), Gender Action Plan (GAP), the Bank Netherlands Partnership Program (BNPP), and Yale University. These findings are preliminary, and final, long term impacts will be collected and ana- lyzed in 2012 with another round of data collection. household chores. Women, in particular, spent 18 hours less on chores over a four-week period, compared with a five hour drop for men. However, there was no decline in time spent on subsistence activities. Incomes also were higher for those who had received grants… On average, grant recipients had 50 percent higher net incomes over the control group, translating to an extra $9 a month. Male and female incomes both increased by similar amounts. There is huge variation incomes and success, but the members of groups that received the grant are doing better at almost every point of the income distribution. Groups functioned well, with less than two percent …and they also saved more. reporting that the leader took all or most of the funds. The amount of money saved was about 50 percent greater for Among the concerns about giving cash grants is that leaders will the treatment group, though this is variable and not statistically take all the money for themselves. This occurred in only four of the robust. Consumption, based on a wealth index, was also signifi- groups—1.7 percent of the total—indicating that this is an uncom- cantly greater. mon occurrence. While group leaders did seem to receive a dispro- portionate share of the grant, they did not take so much that other Based on the average grant amount of about $374 members suffered lower returns. Most of the groups that received per person, the returns on investment were about the grants were still functioning after the grant period ended, with 2.9 percent a month—or 35 percent a year (non- 82 percent of members of treatment groups reporting that they felt compounded). their group cooperates well. Giving cash grants did not only provide young adults with ac- Not only did grant recipients enroll in training cess to capital that they otherwise would have trouble getting, programs at a higher rate, but also they spent more but it made good business sense. Even with money being spent on business materials than the control group. primarily on vocational training and tools, returns reported were close to the 40-60 percent “high� returns reported for Since starting their business, grant recipients spent 4 to 5 times microenterprises in Sri Lanka, small businesses in Mexico and more than control group members on new acquisitions of business traditional crop farmers in Ghana. equipment. Two years after the grant was given, recipients valued their stock of business assets at $390, compared with $158 for the While about a third had some experience with control group (at 2010 market exchange rates). borrowing money, the amounts they had previously borrowed usually were too small to cover the costs of More than one year later, grant recipients were more a training program or to build a business. likely to be doing some type of skilled work than those who didn’t get money. Eleven percent had saved money in a bank account or association over the six months prior to the baseline survey, with a median sav- Some 68 percent of grant recipients were working in a skilled ings of $22. A third had a loan outstanding at the time of interview, trade, compared with 34 percent of the control group. They also generally around $5.50 and mainly from friends and family. When spent 22 hours more per month on market activities than those asked about their ability to borrow, about 37 percent believed they in the control group, and 19 hours more per month on all eco- could get a loan of up to $55 and 11 percent of applicants thought nomic activities—an increase in employment levels of a third. they could get a loan of up to $555, with 18 percent saying it would Perhaps unsurprisingly, those who received grants—and come from family and 82 percent from institutions. thus were more likely to be working—spent less time on In addition to the economic gains, there were modest with family, neighbors, leaders and police. Men who received grants gains in community cohesion had a 31 percent—self-reported—decline in aggressive behavior relative to the control group, while women reported a 42 percent Those who received grants were 4.4 percent more likely to attend increase. Although these remain rare events, the proportional impact community meetings and 8.9 percent more likely to be a (junior) on changed behavior is large. Also, among both men and women, community mobilizer. They also reported 4.7 percent more social the “hostile behaviors� are driven by some of the most serious forms support from family and community. These improvements are gen- of aggression we measure: physical fights, threatening others, and erally small and on the margins of statistical significance, and often disputes with leaders and police. most robust among males. But they consistently point to small im- What can we make of these findings? The decline in male ag- provements in social cohesion across the board, for both genders. gression is consistent with theories that tie aggression to stress levels, low social standing, and perceived injustice. Higher employment In a post-conflict environment, peace and stability and incomes could reduce exposure to and minimize the effect of are crucial objectives of the program. Men who such potential risk factors. received the program significantly reduce interpersonal The increase in female aggression is more puzzling, and is a sub- aggression. But women’s aggression is higher. ject of ongoing study. One hypothesis is that women increase their participation in the market and thus are exposed to more oppor- More interesting and puzzling is the contrasting impact on aggres- tunities for conflict than women in the control group, especially if sion by gender. Men and women were asked about hostile behaviors participants’ market activities lead to increased sexual harassment. (such as threatening others, or engaging in fights) and also disputes Conclusion Making policy from evidence Helping young adults find jobs is a key goal of policymakers in As this impact evaluation shows, giving young people cash emerging economies, where high rates of unemployment are a grants can, at least in some cases, help spur economic activity. potential social and economic problem. Many countries are work- These young adults, who were motivated enough to meet the re- ing with vouchers, training programs and microfinance to raise quirements for grant application, showed more self-discipline and employment opportunities. Uganda, which over the past decade focus then might have been expected. Given the focus by many emerged from a brutal armed conflict in the north, has been work- development experts on microfinance, which generally carries ing to alleviate poverty and raise jobs options in this hard-hit re- tight controls and high interest rates, this impact evaluation shows gion. In a new approach, the government funded a program that that young adults can have high returns on investment when they gave unsupervised cash grants to young adults who drew up busi- are given access to capital. ness plans explaining what they would do with the money. The Human Development Network, part of the World Bank Group, supports and disseminates research evaluating the impact of development projects to help alleviate poverty. The goal is to collect and build empirical evidence that can help governments and development organizations design and implement the most appropriate and effective policies for better educational, health and job opportunities for people in developing countries. For more informa- tion about who we are and what we do, go to: http://www.worldbank.org/hdchiefeconomist This Evidence to Policy note series is produced with the generous support of the Spanish Impact Evaluation Fund (SIEF) THE WORLD BANK, HUMAN DEVELOPMENT NETWORK 1818 H STREET, NW WASHINGTON, DC 20433 Produced by Office of the Chief Economist, Human Development Network, Communications/Aliza Marcus