New study shows benefits, limits of cash transfers

A study released Thursday has helped build evidence around the idea of cash benchmarking. Photo by: Brooke Patterson / USAID / CC BY-ND

WASHINGTON — Cash transfers to young people in Rwanda were more effective than a job training program in helping them build assets, increase savings, and improve productivity, according to a new study released Thursday. This latest research adds to the small but growing body of knowledge about cash benchmarking, or using the impact of cash as a baseline for program evaluation.

This latest research compared the U.S. Agency for International Development’s Huguka Dukore/Akazi Kanoze program, which aims to provide vulnerable youths in Rwanda with employability skills, with cash transfers of various sizes. The study, commissioned by USAID and carried out by independent researchers, is the midpoint evaluation of the impact, conducted 18 months after the baseline study. Final results will be released after another evaluation at the 36-month mark.

Livelihood programs have a mixed track record and attract large amounts of funding globally, which made it “ripe for thinking about if it is done cost-effectively or not,” said Andrew Zeitlin, an assistant professor at Georgetown University’s McCourt School of Public Policy and one of the lead researchers. A 2015 paper cited in the study estimated that the World Bank alone spends nearly $1 billion per year on skills-training programs.

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The randomized controlled trial in this case included a number of groups: a control group receiving no intervention, a group participating in the Huguka Dukore program, a group receiving a cash transfer equivalent to the expected cost of that program, a group receiving a cash transfer and participating in the program, and a group receiving a larger cash transfer equivalent to the funding spent on the cash transfer and program participants.

The Huguka Dukore program has three 10-week learning components, after which participants may get apprenticeships.

While those participating in the Huguka Dukore program typically had more productive assets at the end of 18 months, an increase in productive hours, and doubled savings, the group receiving cash transfers outperformed the program participants on all those metrics. The only metric on which program participants outperformed cash recipients was an increase in their business knowledge.

Youths who received the larger cash transfer amount, however, had an insignificant improvement in productive hours, which the study states “is the first evidence to suggesting that once transfers become sufficiently large they may reduce the incentive to work.”

While the researchers in a previous benchmarking study found that larger investments were needed, it does not seem to be the case here that you need to pour in a large volume of cash. “The highest benefits per dollar spent were on the middle amount of cash transfer,” Zeitlin said.

This project was part of an alliance between USAID, GiveDirectly, and designed to help USAID do more nuanced cost-effectiveness research, said Craig McIntosh, the other lead researcher and co-director of the Policy Design and Evaluation Lab at the University of California, San Diego’s School of Global Policy and Strategy.

“Cash benchmarking is the next revolution in how we get more rigorous about doing more good than handing over budgets and letting people spend it.”

— Joe Huston, managing director, GiveDirectly

USAID is supporting five cash benchmarking studies to build a body of evidence, an agency spokesperson told Devex in an email.

“Cash benchmarking is a new approach that USAID is testing that could potentially help USAID improve cost-efficiency in our programming,” the spokesperson wrote. “We will continue to assess if — and how best — to use cash benchmarking as one of several tools for measuring program effectiveness.”

The study also tested the common assumption that combining cash transfers with training would be more effective than the programs themselves. In this study, the group that received both interventions saw results equivalent to participating in both individually, but there was not complementarity when added together, McIntosh said.

This “undercuts” the theory that “interlocking constraints” all need to be addressed to achieve results, he said.

To GiveDirectly Managing Director Joe Huston, the most interesting part of the research is that it is happening in the first place, he told Devex.

“Cash benchmarking is the next revolution in how we get more rigorous about doing more good than handing over budgets and letting people spend it,” Huston said.

As the body of research grows, it will help “cement the value and policy impact” and “more funders will consider a cash benchmark,” he said.

For USAID, it is “too soon to say if or how this approach will be used in the future” because all of the research underway will take years to complete, the spokesperson said.

One key issue that still needs more evidence is the long term outcomes of cash transfers and whether the impacts fade over time. This is part of the reason that the plan is to do another round of research at 36 months. The length of impact “should be part of the calculus” in determining whether cash or a program has better benefits, Zeitlin said.

McIntosh is working on other research in Malawi looking at the longer-term impact of cash transfers, and “it does look like impact is pretty transient,” he said. Standard evaluations conducted 12-18 months after implementation are “beneficial for making cash look good,” but more evidence about the long-term impacts is needed “before we think about it as a real development tool,” McIntosh said.

It may be that cash transfers are best suited for more palliative, short-term poverty relief but that donors or implementers may still prefer to invest in programs for longer-term development challenges if the evidence shows that the impacts are more long-lasting.

The longer-term results will help “flesh out” different trade-offs before grappling with whether funders want the impacts earlier or later and then asking recipients what they value more, Huston said.

About the author

  • Adva Saldinger

    Adva Saldinger is a Senior Reporter at Devex, where she covers the intersection of business and international development, as well as U.S. foreign aid policy. From partnerships to trade and social entrepreneurship to impact investing, Adva explores the role the private sector and private capital play in development. A journalist with more than 10 years of experience, she has worked at several newspapers in the U.S. and lived in both Ghana and South Africa.