Financing and Cost-effectiveness of Cash Transfer Schemes

Question

What does the evidence base on the costing, financing and cost effectiveness of cash transfer schemes tell us?

Summary

There is widespread agreement in the literature that cash transfers are effective in achieving a range of development objectives and that fears of creating dependency or enabling misuse of funds by recipients are groundless. While there are many impact evaluations of cash transfer programmes, there is very little hard data on cost-effectiveness, particularly compared with other types of interventions. There are wide variations in what costs are included in calculations, uncertainty in valuing benefits, and differences in programme objectives and methods, making like-for-like comparisons difficult. Key lessons emerging from the literature are:

  • Cost-effectiveness estimates suffer from insufficient data on costs as well as on values of direct and indirect benefits.
  • Evidence is inconclusive as to whether cash transfers are more or less cost-effective than other types of interventions, but they generally have lower administration/overhead costs.
  • Cash benefits are more flexible for recipients than other forms of aid such as food transfers.
  • Cash transfers produce a wider range of indirect benefits than other forms of aid.
  • Cash transfers depend on the existence of local markets that can meet the demands of cash recipients.
  • Conditionality affects outcomes, but monitoring compliance with the conditions increases costs considerably.
  • Strict targeting of transfers limits the total cost of a cash transfer programme but it greatly increases the administration cost component.

There is also widespread agreement that cash transfer programmes are no more expensive than other types of development interventions, but that in most low-income countries it is unlikely that large-scale programmes can be funded purely from domestic resources.