Fighting Poverty with Cash

By Haroon Shahwani

Published in Daily Balochistan Express, Quetta

Do you want to help people get out of poverty? Here is the solution, give them money, and let them spend it the way they want to. No, this will not create dependency, as conventional wisdom may suggest, instead ground observations and empirical data prove direct monetary help, the cash transfers, as the most promising poverty alleviation intervention so far. Cash transfers are simple, direct and low-cost with immediate effects on the lives of the poor.

Poverty in its simplest manifestation is the deprivation of basic needs such as healthy food, clean water, proper shelter and clothing. The minimum means required to fulfill such basic needs set the poverty line. Internationally this line is set by the World Bank at $1.90 per day. The new International Poverty Line (IPL) was an upgrade of the old estimate of $1 a day. The new poverty line is agreed by economists as more realistic and relevant to price levels in developing countries. The official data in Pakistan, however still use the outdated measure of $1 a day which results in deliberate exclusion of half of the poor population.

As per the new IPL of $1.90 per person a day, an average household of six to seven members having a monthly income of less than Rs.40,000 is living in absolute poverty. The Household Integrated Economic Survey 2015-16 shows that the income of an average household in Pakistan is below the poverty line. As per the survey report average monthly household income at country level is around Rs.35,000. Balochistan on the other hand is the poorest province with two third of its population living in absolute poverty. The provincial average monthly household income is estimated to be Rs.30,000, while in rural areas it stands as low as Rs.25,000.

Apart from these figures, ground observations also suggest the average income of a typical household in Pakistan to be far below the amount required to fulfill the basic needs. In such a situation, a help through cash transfer can even the odds in the fight against poverty.

The cash transfers have emerged over the past decade as an effective poverty alleviation intervention to challenge and transform the traditional anti-poverty regime. Traditionally poverty alleviation programs have been focused on a number of limited strategies like delivering food and other goods, providing training, building structure, and giving financial assistance. Cash transfers with their cost-effectiveness and direct impact now serve as compression tools for such strategies devised against poverty.

Cash transfer measure is a viable option both through institutionalized means, and through help in person. Many governments worldwide already have a variety of cash transfer programs in operation. However, the official programs are not just hampered by institutional and resource constraints, but are also detracted by corruption, and the notorious welfare bureaucracy.

The resurgence of cash transfers is owed to the non-profit sector, particularly the US-based non-profit entity, GiveDirectly. Being the major vehicle of poverty reduction the non-profit entities don't have to deal with many of the key obstacles faced by the public sector. Various non-profit projects and the ensuing empirical data have proved cash transfers as the new silver bullet against poverty.

The findings of various studies have shifted the approach towards cash transfers, breaking social stigmas and conventional wisdom regarding help for the poor and needy. It was learned that instead of blowing up money on vices, poor families spend on food, health, housing and pay for loans. According to an MIT study on cash transfer programs, published in August this year, the poor do not stop working when they receive money. Another joint study by economists at the World Bank and Stanford University found that the recipients of cash transfer spend less on alcohol and tobacco and more on food, health, and business.

Studies show a considerable increase in consumption, assets, investment and revenue of the recipients of cash transfers. According to a working paper on the GiveDirectly projects, the earnings of the poor families increased by 34% over a year after receiving the money. Due to cost-effectiveness and transparency cash transfers are also a better way to help people in humanitarian crises as compared with food aid. It has been learned that in many cases affectees tend to resale their food aid in order to fulfil other more urgent needs.

Besides all positive data about the effectiveness of cash transfers, there are a number of reasons why it should be adopted as a standard mean to help the poor. Unlike the traditional charity approach of helping the poor in-kind, cash transfers avoid the problem of doing things which don't fit the real needs of the poor. Instead of food aid, public works and other forms of assistance, poor individuals and families prefer to receive cash as it gives them the freedom to spend money on the things they need the most.

The immediate utility of cash in constructing permanent shelters, having proper meals a day, and paying health costs gives the poor a sense of improvement in their quality of life. This gives the beneficiaries the feeling of being able to meet the basic needs of their families. The positive impacts are not just limited to greater economic freedom, but also enhance psychological well-being, and improve the condition of woman empowerment in the target population.

The freedom from poverty is in the hands of the poor themselves. The data over the years show that they can make it happen if were facilitated well, and given the opportunity to bring a change in their lives. Although, poverty is not just about not having money. The process of breaking the cycle of poverty may also need efforts to boost aspiration of the poor, give them hope for change, and information about the market. But all these lie ahead of the one basic problem, the ‘I do not have money’ problem. Not having money is the worst problem one can have in today's world, and also the cause of many other problems.