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Cash transfers: hand-outs or a hand up?

There's an old Chinese proverb that says, “Give a man a fish and you feed him for today. Teach a man to fish and you feed him for a lifetime.” While that may be smart advice, doing both things together can be even more effective when it comes to reducing poverty.

An independent evaluation by a team of researchers from the International Food Policy Research Institute (IFPRI) of an IDB-financed project in Nicaragua proves the point. In a presentation at IDB headquarters, IFPRI researchers Michelle Adato and John A. Maluccio noted that the Mi Familia Social Protection Network, which provided beneficiary families with both the “fish”—cash transfers—and the “fishing lesson”—social services and educational workshops, made a “significant contribution to poverty reduction in Nicaragua.” 

In other words, immediate help, when given for a short period and combined with services designed to educate and empower, can have a positive impact on poverty alleviation, even after the program ends.

Nicaragua implemented its Mi Familia Social Protection Network program in six poor rural municipalities in the country's central region, beginning in 2000. Among the benefits received by families participating in the program were cash subsidies, or transfers, that varied from 13-21 percent of pre-program household expenditures.

The temporary cash transfers were only offered to participating families for three years, but the program also boasted other benefits. It also included supply side health services, delivered by private providers and offered for five years, as well as health services and workshops for teens and women of childbearing age. 

Like most things in life, the cash transfers weren't entirely free. Families that didn't comply with program requirements in one period saw their transfer evaporate in the next one. Also, the program was carried out in two phases; and the second phase provided 30 percent fewer benefits than the first.

Children were perhaps the biggest beneficiaries of the program, particularly in the areas of health, nutritional status and education. For example, children whose families participated in the program were significantly more likely to have access to health services than those whose families didn't participate. Among beneficiary families, over 93 percent of children under age five participated in preventive growth monitoring in 2002, compared with just 70 percent in 2000.

Even after the subsidy portion of the program had concluded in 2004, the positive effect continued, with almost 92 percent of children receiving preventive growth monitoring. For non-beneficiary families, the increase during those same five years was minimal—less than 3 percent.

Education was another area where the program proved beneficial to participants. Among families receiving subsidies, the percentage of children between the ages of 7-13 who were registered in school jumped from just over 73 percent to almost 94 percent between 2000 and 2002.

There is evidence that the positive effects endured even after the families stopped receiving subsidies. In 2004, after the subsidies had been terminated, over 81 percent of the children of families participating in the program were registered in school, compared with only 70 percent of children in the control group. 

But kids weren't the only winners; the adults also benefited, particularly in the poorest families. Such families were able to increase their household expenditures by up to 40 percent, while on average, participating families increased their expenditures by 13-22 percent. The study showed that most of the increased expenditures were for food, reflecting the goals of the program.

Plus, the program served as a social safety net during Nicaragua's economic downtown in 2000-2. While average per capita food expenditures declined for families that didn't receive subsidies by over 15 percent, families receiving the subsidies increased their food expenditures by over 10 percent during that time period.

Interestingly, families participating in the program neither stopped working nor significantly changed their working habits. Hours worked per week held steady, though male program beneficiaries indicated that participating in the program enabled them to work closer to home and reduced the need to travel long distances in search of wage labor.

Perhaps the most noteworthy conclusion in the evaluation was that both phases of the program were effective in the areas of household economy, education, health and nutrition, even though the cash transfers were reduced by thirty percent in the second phase (though health services were increased and workshops were added in that component). This suggests that programs providing relatively small transfers can significantly reduce poverty levels, when coupled with social support services.

Given the successes of the Mi Familia program, Adato and Maluccio say, “the evidence suggests [the program] would be effective if implemented in other rural areas of Nicaragua with similar characteristics.”