2010: a Breakout Year for CCTs. What’s Next?

NAF’s Global Assets Team has closely followed the success and global expansion of Conditional Cash Transfers Programs (CCTs) over the last few years. So it is with great interest that we close an eventful 2010 for CCTs and begin looking to what the future holds for these programs.

CCTs are designed to reduce extreme poverty in the short term, by providing families with regular supplemental income, while also investing in human capital: better educated and healthier people. Most programs are designed so that the female head of a household receives regular cash or electronic money benefits (noting that women are more likely to invest in a family’s food, clothing, or education needs, than men), only when certain conditions are met, like regular medical immunizations or 95% school attendance for their children. While most agree that they are successfully reducing extreme poverty, some CCT skeptics are hesitant to fully endorse them and question the cost of successfully targeting beneficiaries and their effectiveness on the urban poor.

Most news surrounding this type of social protection has been positive. Two recent articles on CCTs are Tina Rosenberg’s informative NYT piece examining the Bolsa program and Marc Margolis’ Newsweek article, “Welcome to welfare 2.0 for the World’s Poor”. Both note the recent expansion of CCT programs, initially confined to Latin America, to 40 developing world countries and New York City. 

While CCTs have gained a lot of steam recently, they actually aren’t a new phenomenon. Mexico’s Oportunidades is nearly 14 years old. Along with Brazil’s Bolsa Familia program, covering nearly 50 million people, these two programs serve as successful models for countries looking to reform their social protection policies. What is news, however, is just how rapidly these programs are expanding throughout the developing world and also the positive long-term effects that CCT studies have shown on health, education, reducing economic inequality and bolstering economic growth.  

Beyond the continued geographic spread of these programs, there are several exciting ways to strengthen and build upon CCTs in 2011.

1) Link CCTs to formal savings – As NAF explored in November’s Global Colloquium on Savings-Linked CCTs at the Ford Foundation in New York, there seems to be a genuine desire and need amongst the bottom of the pyramid (BOP) for formal savings products. Linking savings to electronically delivered CCT benefits is a logical step to offering additional financial services to the poor using existing infrastructure. You can watch video and read more about the Savings-Linked CCT Colloquium here.

2) Use technology to disburse CCT benefits more efficiently – While insufficient technology infrastructure may prohibit this in certain areas, more CCT programs should distribute benefits electronically, either to basic transaction accounts linked to smart cards that can be used at stores and kiosks or to Mobile-phone linked accounts. My colleague, Jamie Zimmerman, recently discussed the many benefits of using e-money, rather than cash, for the BOP. It drastically reduces the cost of distribution for the government, reduces graft, and the increased transparency helps build a more responsive civil society that will demand government accountability, already a trend in India.

3) Donor Governments should shift portions of Official Direct Aid directly to the poor through CCT accounts - Investing in certain infrastructure projects is necessary, but many believe that traditional Official Direct Aid (ODA) only benefits corrupt technocrats and rarely reaches the intended recipients, the world’s poor. Directing ODA through existing CCT channels would be a wise use of Aid dollars that are sure to come under increased scrutiny by constituents and politicians in donor countries. This type of aid program would be effective, transparent, less expensive, bring more good will to donor countries, and directly benefit those living in extreme poverty.