Can developing nations employ universal cash transfer programs?

School children in Mongolia. The country has taken steps to introduce a universal child money program. Photo by: N. Munkhbaatar / International Labor Organization / CC BY-NC-ND

Cash transfer programs — giving money to eligible people, including the poor in low-income countries — continue to be a popular poverty alleviation initiative in the developing world today, reaching almost 1 billion people in the past 15 years.

Some 24 countries in Latin America, Africa and Asia remain wedded to the idea of empowering the poor through capital infusion as a viable way to achieve sustainable and inclusive growth.

However, cash transfer programs in developing nations largely remain means tested — while citizens from some developed countries, particularly those in Scandinavia and other European member states, enjoy a more universal form of capital dole out. But “cradle to grave” welfare systems cost huge amounts of money and necessitate a large amount of available cash to hand out — liquidity that is very often beyond the reach of many low- to middle-income nations.

So is it possible for a developing nation to employ a universal cash transfer program?

Looking at the evolution of Mongolia’s child money program from a targeted to a universal one in just a decade suggests that it is possible. The landlocked North Asian nation has become the first developing country to implement a universal child grant program, following years of difficulties during the implementation phase, due to political, economic and social conditions.

What a $25M grant will mean for cash transfers to the poor

Last week, Good Ventures — Facebook co-founder Dustin Moskovitz's foundation — gave $25 million to GiveDirectly, which transfers cash directly to the poor in Kenya and Uganda. Devex interviewed GiveDirectly co-founder Paul Niehaus about how this money will be spent and how it will enable the nonprofit to build support for direct cash transfers as a new form of global development.

“The cash program was implemented by the government to push population growth and it is counted as an investment to the child,” Munkhzul Lkhagvasuren, director of Mongolia’s population development and social protection ministry, said during a webinar attended by Devex. “It followed some complaints from the households and created some problems.”

Some of the challenges faced included the design of the program, where the money will come from, eligibility requirements and whether the people in need of the most help actually receive it, and the kind of social welfare that the cash handout should focus on, among others.

Lkhagvasuren shared that during the transition from a targeted to a universal system, the coverage of the country’s child grant program increased from 35 percent in 2005 to 95 percent currently, while the disbursed amount rose from $2.60 to almost $15 a month for each child.

While the targeted program — applied to households with three or more children, and living below the poverty line — revealed an increase in children’s social welfare score since its introduction in 2005, issues of leakage to ineligible households represented some 55.9 percent of handouts, while exclusion of poor households was as high as 10.4 percent of all recipients.

The Mongolian official shared that while the introduction of a universal cash transfer system had almost eliminated the exclusion issue that the targeted program had, it also increased the leakage issue — with estimates suggesting this has risen to 80.2 percent.

So the question now reads: should all countries — developed or developing — follow a universal cash transfer program, particularly for children?

Opinions remain polarized on the issue. Some multilateral institutions, including the World Bank and the Asian Development Bank, argue for the need to target the poorest of the poor in an increasingly cash-strapped development finance landscape. Other intergovernmental groups like UNICEF, meanwhile, reason that a universal approach to child money programs “should be adopted” because it effectively resolves the exclusion issue to “reduce the child poverty headcount.”

“Universal programs are in fact much more effective in reaching vulnerable children in poverty than targeted programs,” said Bjorn Gelders, senior social policy specialist of United Kingdom-based consultancy firm Development Pathways, adding that the program could work in principle if every component including policy, fiscal space, economic growth, and strong implementation are in place.

The specialist explained that in the case of Mongolia, there is strong political will on the part of the government. It was this, he said, that enabled the child money program to transition from a targeted to a universal initiative and continue sustainably.

The number of inhabitants in the country also played a role in the rollout. As compared with 100 million people in the Philippines or 1 billion in India, Mongolia’s population is relatively very small at around 3 million people, with the youth representing 35.1 percent of the total population.

Also to be taken into account was the fact that the country’s economy is growing rapidly, with growth peaking in 2004 at 10 percent on the back of revenues rolling in from its booming extractives industry valued at over $1 trillion. These revenues were tapped by the government to finance the program, according Luca Beard in a Leadership Academy for Development report.

All these elements will have to be borne in mind if other developing countries follow Mongolia’s pioneering step towards a universal child support grant.

What can developing nations do to introduce a more universal cash transfer system to promote development? What can be done to avoid the issue of leakage and exclusion to make these types of programs more efficient?

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About the author

  • Lean Alfred Santos

    Lean Alfred Santos is a former Devex development reporter focusing on the development community in Asia-Pacific, including major players such as the Asian Development Bank and the Asian Infrastructure Investment Bank. He previously covered Philippine and international business and economic news, sports and politics.