Conditional Cash Transfer Programs for Development

In recent years, conditional cash transfer (CCT) programs have been introduced for various purposes. For instance, in the education and health sectors in poor countries, the CCT programs consist of giving cash to poor parents under the condition that they send their children to school and health visits. These programs have been hailed as being among the most significant innovations in promoting social development in recent years. Their success has also led to the re-election of Presidential candidates – for example, in Brazil, the success of the CCT program called Bolsa Familia helped alleviate poverty for millions of people, and led to the re-election of President Luiz Inacio Lula da Silva in 2006.

CCT programs seek to create incentives for individuals to adjust their behavior toward matching the social optimum. Subsidies are provided in exchange for specific actions.

An example of a CCT program: Progresa – it was introduced in Mexico in 1997 to offer cash transfers to poor mothers in marginal rural communities, conditional on their children using health facilities on a regular basis and attending school between third grade of primary and third grade of secondary. Children cannot miss more than three days of school per month without losing the transfer, and will not receive the transfer if they have not visited a health center. The Program was later renamed Oportunidades, and expanded to sixth grade of secondary and to peri-urban areas.

CCT Programs have features that depart from the traditional social assistance programs:

– First, they provide grants directly to poor households, thereby changing accountability relationships among the national government, service providers, and the poor. CCT grants also allow national governments to forge a direct relationship with poor families; also fostering responsible practices by requiring families to assume responsibility for schooling, health care, and the appropriate use of the cash grants.

– Second, they seek to assist in various elements of human capital development through their inclusion of health, nutrition, and education components.

– Third, the use of cash is promoted as efficient and flexible. It gives households spending discretion and avoids the price distortions and creation of secondary markets.

CCTs have both Education and Health Components:

The education component consists of a cash grant conditioned on school enrollment and regular school attendance (usually 80–85 percent of schooldays). The size of the grants varies considerably across countries. In Honduras, Mexico, and Turkey, the education grant covers both direct costs (school fees, school supplies, transportation costs) and opportunity costs in lost income from sending children to school rather than work. In the other countries the grant generally covers only part of the opportunity cost. In Colombia and Mexico education grants are higher for secondary school than for primary school, to reflect the increasing opportunity cost of work as children grow older. In Mexico grants at the secondary level are higher for girls, to provide an added incentive for reversing a pattern of unequal gender participation in secondary education.

Health and nutrition grants are targeted to children up to the ages of 2 or 3 years and in some cases up to the time they enroll in primary school. In Honduras, Jamaica, and Mexico, pregnant and lactating women are designated as program beneficiaries, and their inclusion is being discussed in Turkey. This component consists of a cash transfer aimed at food consumption, as well as health care and nutrition education for mothers. In Mexico and Nicaragua this component explicitly stipulates the provision of a basic health care package for the target household members. Receipt of the cash transfer is conditional on compliance with a predetermined number of health center visits and health and nutrition workshops.

Role of CCT Programs in Poverty Alleviation:

CCT programs are playing an increasingly important role in poverty reduction strategies. Mexico’s Progresa went from covering 300,000 households when it began operations in 1997 to reaching more than 4 million families in 2002, some 20 percent of the population. In Brazil, Bolsa Familia was introduced as an overarching welfare program to consolidate numerous smaller programs; but it later became the mainstay of Brazil’s poverty reduction approach. Turkey’s SSF was introduced as part of a handful of crisis-response mechanisms to ease the impact of the 2001 economic crisis on poor households. Colombia’s FA is the flagship program of the three safety net programs introduced in 2001 to provide relief from the effects of an economic recession.

Impacts of CCT Programs on Education, Health and Consumption:

In education, conditional cash transfer programs have demonstrated a positive effect on enrollment rates for both boys and girls.10 In Mexico primary school enrollment rates before Progresa were 90–94 percent. But at the secondary level, baseline enrollment rates were 67 percent for girls and 73 percent for boys. The CCT program impact show an increase ranging from 3.5 to 5.8 percentage points for boys to 7.2 to 9.3 for girls. In Nicaragua, the CCT program impacts are even more impressive. From a low starting point of 68.5 percent, average enrollment rates in treatment areas increased nearly 22 percentage points. Colombia’s FA program seems to have boosted secondary school enrollment rates (for14–17 years old) 5.5 percentage points in rural areas and 14 percentage points in urban areas.

The evidence of impacts on attendance is mixed. The evaluation of Nicaragua’s program indicates a larger impact on attendance than on enrollment rates. Where as the evaluation of Progresa in Mexico showed more pronounced effects on enrollment than attendance.

Evaluations have also found improvements in child health and nutrition. The Progresa evaluation shows a significant increase in nutrition monitoring and immunization rates, and a significant impact on child growth, lowering the probability of child stunting for children ages 12–36 months. In Colombia’s FA the proportion of children under age 6 enrolled in growth monitoring rose 37 percentage points. The incidence of acute diarrhea in children under age 6 was reduced by 10 percentage points in urban areas, but there was no significant change in rural areas. Studies applied to measure the malnutrition of children found a positive impact on weight-for-height and weight-for-age in rural areas though not in urban areas. Nicaragua’s RPS program generated similar improvements.

CCT programs have also resulted in higher consumption levels. In Mexico after just over a year of program operation the average consumption level was 13% higher, and the value of food consumption for the median beneficiary household was 11% higher in Progresa households than in non-Progresa households. Higher expenditures on fruits, vegetables, and animal products accounted for much of the increase in household consumption.

Effective Methods for Aid Delivery:

One of the main reasons children do not go to school or drop out early is that parents cannot afford to send them or to lose their children’s earnings. Under those circumstances, supply-side initiatives, such as improving schools, paying teachers more money, or reforming the ministry of education, are not likely to have much effect. But CCT programs for education will be effective, because they pay directly for the program objective—higher school enrolments. Similarly, if the problem is school quality, introducing competition by the use of vouchers will create a market for higher-quality schools.

A CTE program is more direct. The central government planner does not have to know what prevents children from attending school. Instead, the government, through the program, creates  a demand for school attendance, and families respond to the new incentive. At worst, there is no response. But then no money is spent on the program except for the cost of setting it up. At best, not only is there a response, but also the parents of the additional students will exert pressure for complementary inputs such as better teaching and more school books. An added advantage is that the success or failure of the program can be measured easily by observing changes in school attendance.

To improve the educational outcomes of a CCT programs, governments could build new schools or expand existing ones where a large influx of students are expected. Second, to provide an incentive for schools to improve the quality of education, the government could make its payment to schools a function of the number of students enrolled. That simple change would open up competition among schools for students where alternative schools are within the reach of poor families. In low-population rural areas that have only one school, this innovation would, at the very least, induce the school to attract dropouts and keep those already enrolled in the school.

Some Issues in “CCT for Education” Programs:

– Development programs often have unplanned direct and indirect effects, both positive and negative. For example, the distribution of cash grants directly to mothers (as done by some CCT programs) may have an effect on resource allocations within households and on power relations. Cash transfers may affect household work incentives. Household-level targeting may also affect community relations when not all members of a community receive program benefits.

– CCT programs approach to increasing enrollments is based on the assumption that low enrollment rates are a demand-side problem. But in many cases there is a supply-side issue – there are not enough schools, classrooms, or teachers to educate adequately those who want it or who need it. In such cases, putting a lot of money into a CCT program would be a mistake, at least in light of the education objective.

– There are also some issues while design the features of a CCT program. They are: what targeting mechanism to use, what benefit level and coverage to choose, and how to monitor and evaluate. As for the issue of monitoring, there is both the school and family level monitoring. At the school level, the system needs a mechanism to verify that beneficiaries are actually attending school. It would be even better if the system included a way of verifying that students are progressing though school or are receiving the education that is the main purpose of the program. A more difficult problem is at the family-level….the removal of families whose beneficiaries have either graduated or dropped out of school or who are no longer poor. But in order to maintain the distinctive characteristic and advantage of a CCT program, it is crucial that as students drop out or get beyond the eligible grades they be dropped from the program and replaced with younger students, even if the families of those exiting students remain poor.

– In any CCT for education program there is a trade-off between the education and the poverty reduction goals. Policymakers have to define eligibility rules keeping this trade-off in mind. For example, if a particular region has high primary enrollment rates and low secondary enrollment rates, the policy-makers face a dilemma – whether to give the conditional cash to families with kids secondary schools, or give distribute the money uniformly based on the poverty level of a family. The more inclusive the program, the greater will be its impact on poverty and the smaller will be its impact on enrollments, and the inclusion of households with higher human capital to start with.

Conclusions and Recommendations:

By itself, the CCT Program does nothing to improve education once the student enters school; it is a pure demand-side stimulus. But the combination of the CCT and some kind of mechanism to empower the community (for example – per-student payment to the school, either in the form of a voucher paid by the student) or a credit by the government, could have quite a powerful effect. It would increase the demand by all poor families for education and at the same time empower those families to demand and to receive better education. An alternative way of delivering this student-related payment to the school would be to make the voucher a component of the benefit paid to the family, which would be redeemable by the school. Each of these alternatives gives the student and the family increased bargaining power to demand and receive better education, hence in the process assisting in improving the quality of education. Also, the risks of such a joint program being gamed by both poor families and schools could be minimized by regular inspections and licensing schools, or by requiring some sort of national exam at different grade levels and by eliminating students from the program if they are not promoted within a maximum number of years.

As good as the CCT programs are, one has to realize that they are NOT magic bullets for solving all the developmental issues. Also they are expensive and not sustainable long-term . For example, Mexico’s Progresa Program’s 2002 annual budget was around Mex$18 billion(US$1.8 billion). Also, its worth mentioning that it is very difficult to stop these programs once they are implemented due to obvious reason of social backlash.

Most CCT Programs have been implemented in Latin America and Asia. The fact that these programs have to been implemented in Africa is because these programs need very good measurement mechanisms and administration, apart from favorable social structures and behavioral issues. Also, most of the CCT programs have been implemented in rural areas…as is most developmental work. The poor living in the urban areas have been neglected.

The CCT programs can be interpreted as a response to the failures of traditional supply-side interventions (such as schools and health clinics), which have been underutilized by the poor because of the expenses, high opportunity costs, difficult access, and a lack of incentives for investing in children’s human capital. They are not a substitute for the provision of high-quality supply-side investments. Rather, they complement such investments by directly addressing the problem of insufficient demand for health and education services from the poor. Hence, these programs’ ultimate success is dependent on access to high-quality health and education services.


About pritamkabe

Originally from Bombay, India. Relocated to the United States in 1997 for attending graduate school at The University of Texas. Completed my Masters in Electrical Engineering in 1999 and then worked in the Hi-Tech industry for the next 11 years in Austin, Texas. I have a passion for travelling, meeting new people, and experiencing new cultures...and i've been very fortunate to have gotten the opportunity to travel quite a bit. Sports and food are my other big passions in life. Some life-changing experiences in my life a years ago changed my perspective of life, after which, just have an engineering job was not meaningful to me anymore. Hence i quit my engineering career, and I'm now motivated to give back to society and make a positive impact in some way. To get started on that journey, i went back in graduate school, and recently graduated as a "Mid-Career Fellow in Foreign Service", from the Edmund A. Walsh School of Foreign Service, at Georgetown University, Washington DC. Currently in New Delhi, India, on a research fellowship, to learn about the educational issues in India, and brainstorm my ideas about technological interventions for resolving those issues.
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