Money for Something

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Once a month 33-year-old Celia Orboc, a pregnant mother of five, leaves her impoverished village and travels 14 kilometers to the nearest bank to make a cash withdrawal. She is receiving government money, but it’s not a traditional welfare check. It comes with conditions.

For Celia, who lives in the southern Philippine village of Esperanza, it is something of a paycheck. She is being paid to keep her children in school at least 85% of the time, to take her toddlers for regular preventative medical checkups and vaccinations, and to participate in pre- and post-natal care.

Celia and thousands of other mothers are part of the World Bank–supported Pantawid Pamilyang Pilipino Program, which started in January 2008 as a pilot project for a social assistance concept called conditional cash transfer (CCT).

CCTs provide families with an instant social safety net to free kids from child labor, keep them healthy, and provide them with an education in order to break the vicious cycle of extreme poverty being passed from one generation to the next. That way, development professionals say, they can hopefully take their first step up the socioeconomic ladder. But it’s a “tough love” program: violate any of the conditions, and you are cut off.

Celia, her husband, and children had been living on the equivalent of about $1 a day, peddling vegetables and corn cakes. That is now supplemented with $30 a month as part of the CCT program. Celia can spend the money as she sees fit to benefit her family, as long as she meets the requirements, which are monitored by school principals and municipal health workers during her 5-year participation.

Administered by the Philippine Department of Social Welfare and Development, the program seems to be working: elementary school enrollment has grown by 15% and the number of visits to health care centers significantly increased.

Deceptively simple, CCTs have been adopted by more than 30 countries and are being actively promoted by the World Bank and the Inter-American Development Bank.

The first CCT was launched in Mexico in 1996 when then-President Ernesto Zedillo approved a bold new plan called Progresa. The poorest of the poor were sought out nationwide, and mothers were given monthly handouts of cash with certain health and educational “strings” attached, similar to those now being used in the Philippines. Females are usually the cash recipients since they are considered more likely to invest in children’s welfare.

Renamed Oportunidades, the scheme quickly brought change. World Bank figures show that in 1996, two years after the crash of the Mexican peso, 37% of Mexicans lived in extreme poverty. By 2006, the figure dropped to 13.8% despite a decade of undramatic 3% economic growth. Oportunidades’s extensive statistic banks reveal that malnutrition and anemia declined and kids grew taller with better nutrition. In some areas, middle school attendance went up as much as 42%, high school enrollment skyrocketed by 85%, and the high school dropout rate fell by 23%. Today, Oportunidades serves 25 million of the country’s poorest people, nearly one-fifth of all Mexican households.

Another goal of Oportunidades was to increase human capital by reducing gender inequality, which is encouraged by offering more money to educate girls than boys. It also helped to empower women by handing them the purse strings. That often created cultural clashes, particularly in societies where educating females was viewed as a waste of money because it was felt that the girls would marry and leave.

But the benefits of the program opened minds along the way. One of the CCT’s mandates was to change the attitudes and behaviors—among them machismo, alcoholism, marginalization, and a disdain for education that drive the cycle of poverty.

Oportunidades inspired CCTs to sprout around the globe, the greatest concentration being in Latin America where almost every country participates. They have become the biggest social assistance program in Ecuador (40% of the population) as well as in Brazil and Mexico (both at 20%) according to the World Bank. CCTs are helping poor people make good decisions in Jamaica and the Dominican Republic. In Sub-Saharan Africa, they are helping children orphaned by HIV/AIDS.

Perhaps the most surprising location for a CCT program is New York City. Mayor Michael Bloomberg inaugurated Opportunity NYC in 2008 after a visit to Mexico. The pilot project will test if an Oportunidades style rewards program is productive in poor American urban neighborhoods.

“If we are serious about tackling poverty,” says Mayor Bloomberg, “we must get serious about trying new things.” Even the Bill and Melinda Gates Foundation is investigating the feasibility of paying cash incentives to get kids to stay in school in several southern US states.

CCTs have been so successful they are changing the way many people look at delivering aid to the poor. “I think these programs are as close as you can come to a magic bullet in development,” Nancy Birdsall of the Center for Global Development told the New York Times in January 2004.

In Asia, specifically targeted CCTs have started in Pakistan, India, Bangladesh, and Cambodia, while Indonesia and the Philippines are currently serving as Southeast Asia’s petri dishes for nationwide CCTs. Indonesia started its program to keep students from dropping out of school after the East Asian financial crisis.

Many Asian programs focus on educating girls. Bangladesh has had a CCT-type program cosponsored by the World Bank since 1994 to combat a female literacy rate that was half that of males. The Female Secondary School Assistance Program offers cash incentives and tuition wavers with the conditions that the girls attend secondary school regularly, achieve passing grades, and remain unmarried. As of 2005, over 720,000 girls in grades 6 through 10 had funds deposited directly into their bank accounts twice a year.

According to an October 2007 focus brief on CCTs by Washington’s International Food Policy Research Institute, Cambodia started a similar program in 2005, handing out cash to mothers at a school ceremony three times a year. This resulted in a 30% increase in Cambodia’s secondary school enrollment for girls, and a 43% increase in attendance.

But not everyone thinks CCTs are a silver bullet. Significant shortcomings were pointed out in the February 2009 World Bank policy research report Conditional Cash Transfers: Reducing Present and Future Poverty. The report showed that increased school enrollment did not necessarily lead to higher academic performance and that the results on health care studies are mixed.

Just because attendance is increased is no guarantee that clinics and schools are doing a good job. CCT programs cannot work in isolation and, the World Bank points out, even the best-designed and managed CCT cannot take the place of a comprehensive social protection system.

Other critics argue CCTs are too expensive to operate. It’s true that start-up costs are high. During Progresa’s first year, the Government of Mexico paid $1.34 in administrative costs for every dollar spent on transfers. But, checking in 3 years later with the infrastructure in place, running costs had dropped to $0.05 for every dollar spent on transfers, according to the International Food Policy Research Institute.

Putting CCT costs into perspective, the institute looked at Brazil’s Bolsa Familia program, which helps the country’s poorest 20%. The program consumed roughly 0.4% of gross domestic product in 2007, just one tenth of the country’s federal pension programs.

Despite the problems, authors of the World Bank’s policy report show that CCTs have improved the lives of poor people and have been an effective way of redistributing income to the poor.

“While there is no guarantee that the success of CCT programs in some countries can be replicated in others, they can yield an array of good practices from which other countries can learn,” says Asian Development Bank economist Hyun Son, author ofADB’s Conditional Cash Transfer Programs, a July 2008 policy brief.

In response to the food and financial crisis, the World Bank expects to lend about $2.4 billion this year to start or expand CCT operations in Bangladesh, Colombia, Kenya, Macedonia, Pakistan, and Philippines. Total World Bank support for CCT operations now covers 13 countries.

Putting money into the hands of local people is encouraging them to creatively help themselves. The International Food Policy Research Institute’s focus brief points out that even 2 years after households stopped receiving benefits in Nicaragua and school enrollment had dropped, enrollment was still 8% higher than before the program began. Many women involved in the program had invested parts of their transfer in small businesses that were sustainable and adding to family income.

And in the Philippines, after paying for her children’s basic needs like school supplies, food, and clothing, Celia Orboc has managed to put aside enough cash to purchase construction materials and build a shelter for her family. No one has to convince her that the program is working. •