33355 World Bank Social Safety Nets Primer Notes 2003 No. 5 Assisting the Poor with Cash: Design and Implementation of Social Transfer Programs Cash transfers can be defined as the provision of Average Public Spending on Social Security and assistance in the form of cash to the poor or Welfare (1972­1997) those who face a probable risk, in the absence of 13.6 14 the transfer, of falling into poverty. Cash trans- 12 10.3 fers, broadly defined, can be given in the form of 10 social assistance, insurance, near-cash tax bene- Percent of 8 fits, and private transfers. This note focuses on GDP 6 4.7 government programs, recognizing that private 4 2.9 1.5 2.4 transfers and public programs serve multiple 1.4 2 objectives, of which social safety net protection 0 Africa South East America Middle Europe Asia Latin East Europe Western EC is just one. Asia The Prevalence of Cash Transfers as Source:Adapted from Besley, Timothy, Robin Burgess and Imran Rasul. 2003. "Benchmarking Government Provision of Social Safety Nets." Social Protection Social Programs Discussion Paper No. 0315. World Bank Cash transfers are the main type of social safety net protection in the developed world, covering lect information on income and wealth or to more than 80 per cent of the population of the enforce statutory schemes that rely on manda- industrialized nations according to the tory contributions. Moreover, the combination International Labour Organisation (ILO). There of dispersed populations and limited public- are far fewer cash transfer programs in develop- service infrastructure in rural areas increases the ing countries, and those that do exist tend to costs of administering cash-assistance schemes. grant only small benefits. They cover less than Despite these constraints, there is a growing 10 per cent of the workforce in Africa and Asia, demand in developing countries for social safety 15 to 60 per cent of the workforce in Latin nets that incorporate some form of cash transfer. America, and 20 to 25 per cent of the workforce Decreased job security, heightened macroeco- in the middle-income nations of North Africa. In nomic risk, rising inequity, and the global trans- terms of public expenditures, most developing mission of currency volatility have all con- countries typically allocate less than five per cent tributed to a growing middle-class demand for of GDP to public cash transfers, while Western social protection. European countries have spent an average of more than 10 per cent of GDP on such programs What are the Advantages of Cash Transfers? in recent years (see accompanying chart). The main economic advantage to cash transfers There are a number of reasons why so few social- is that they do not directly distort prices. A sec- protection programs are based on cash transfers ond advantage is that cash transfer payments in developing countries. First, government can help to stabilize the macro economy to the resources are limited and governments typically extent that targeted transfers increase during give priority to measures that relieve structural economic downturns and decline with improve- constraints to growth. Second, the informal sec- ment. Moreover, once the administrative infra- tor tends to be large, making it difficult to col- structure is in place, the cost of operating cash Fiona Mackintosh and John Blomquist prepared this note based on Tabor, Steven R. 2002. "Assisting the Poor with Cash: Design and Implementation of Social Transfer Programs." Social Protection Discussion Paper No. 0223. World Bank. Washington, D.C. 33355 transfer programs is often far less than the cost already derive some of their earnings from of providing assistance in kind. Also, unlike in- informal sector activities or private transfers, kind subsidy programs, cash transfer programs than a cash transfer can be used to partly are not normally affected by changes in product close the poverty gap rather than to provide prices or the cost of living, insulating the budg- full replacement income. Further, limiting the ets of cash transfer programs from unexpected value of transfers reduces adverse labor supply surges in inflation or product prices. effects that high benefits may foster. From the recipients' point of view, cash subsidies · Promoting gender equality. Overcoming provide them with greater freedom of choice in gender bias in social protection programs can terms of how to use the benefit to enhance their have an important impact on household wel- welfare and give them a higher level of satisfac- fare. Evidence shows that giving transfers to tion at any given level of income than in-kind women often has a greater poverty-mitigation transfers. Also, program beneficiaries feel that effect than when given to men. Three ways in less stigma is attached to the receipt and use of which gender equality can be promoted are to cash than of in-kind benefits. provide family assistance to female household care givers, particularly low-income single- Designing a Cash Transfer Program in a parent households, to make transfers condi- Developing Country Context tional on schooling attendance by girls and While a well-designed cash transfer program can offering social pensions to the elderly. significantly alleviate poverty, a badly designed · Securing and sustaining political support. program can do more harm than good. Ensuring that the aims of the programs are International experience suggests several general widely understood and generally felt to be features of good cash transfer programs: sound and effective is central to maintaining voter confidence and fostering political sup- · Matching program types to need. No single port. Programs that frequently stop and start set of cash transfer programs is suitable for all will undermine voter confidence. To build a poor households in all countries. Programs broad-based constituency in favor of a cash should be carefully tailored to meet the prior- transfer program, benefits may need to be ity needs of different categories of poor house- provided to some non-poor households as well holds for income assistance and contingency as to poor households. management. Programs that are simple in · Building administrative capacity. The design are often the easiest to establish and approaches that have been adopted in recent implement. years to improve the administration of cash · Beneficiary selection. Targeting programs to transfer programs include automation, the use those who cannot work more than they of modern cash dispenser technology, better already do (temporarily or permanently) can record keeping, consolidating program man- contain the cost of transfers and maximize agement responsibilities, and contracting out impacts. Beneficiary selection is often a bot- functions that can be done better by the pri- tleneck in circumstances in which formal vate sector. In industrialized nations, govern- income and means tests are impractical. Low- ments have built their institutional capacity information approaches can be effective alter- to implement cash transfer programs by sepa- natives, such as categorical, geographic, and rating policymaking from program adminis- community-based screening. tration, introducing program performance · Program generosity. Cash transfer programs charters, improving program monitoring, con- in developing countries need not be as gener- sulting with stakeholders, taking active meas- ous as those in middle-income or industrial- ures to combat program fraud, and using ized economies. If low-income households research to guide the reform of the program. The World Bank Social Safety Nets Primer series is intended to provide a practical resource for those engaged in the design and implementation of safety net programs around the world. Readers will find information on good practices for a variety of types of interventions, country con- texts, themes and target groups, as well as current thinking on the role of social safety nets in the broader development agenda. World Bank, Human Development Network Social Protection, Social Safety Nets http://www.worldbank.org/safetynets Printed on 100% post-consumer recycled paper