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Assignment

Dev 504

Comparing Between the Efficiency of Transfer in kind and Transfer in


Cash Safety Net Programs in Bangladesh

Prepared for
Professor Arfina Osman, PhD
Course Instructor- Dev 504

Prepared by
Ashfaqul Haq Chowdhury
ID: 12262008

Table of Contents

Introduction .............................................................................................................................................. 3
Safety Net Programs in Bangladesh .......................................................................................................... 3
Transfers in Cash vs. Transfers in Kind ...................................................................................................... 4
Problems of Bangladesh ........................................................................................................................... 8
Can Social Safety Net Reduce Chronic Poverty? ....................................................................................... 9
Recommendations & Conclusion ............................................................................................................ 10

Introduction

Social safety nets are programs run to transfer income to the poor to help them cope with shocks or
provide them long term assistance in maintaining their living standard or improving it. It is a widely used
tool in the developing world where governments run safety net programs through internal or external
funding.
Safety net programs are vital to the development of economies. It has a double purpose. The first is
obviously to help the population cope with shocks which include both seasonal and unexpected shocks.
The second objective, which is forgotten quite often, is to promote economic the status of poor people
by providing an alternate source of income.
The focus for this discussion is going to be on how the income is transferred to the poor. There may be
transfer in kind where the program participants get goods like food crops or there may be transfer in
cash where the program participants get direct cash transfers. Here we will try to shed light on issues
like when to use which kind of program and which one is better to be used as a long term promotive
instrument for poor population.

Safety Net Programs in Bangladesh

Bangladesh Government has a host of safety net programs available. Most of these programs are run on
a need basis- whenever there is an unexpected natural calamity Bangladesh government intervenes
with a safety net program to help the extreme poor and poor in the locality. However, it is not only
about these short term interventions as Bangladesh government has few long term safety net programs
as well which aim to promote the living standard of the participants. The list below provides a highlight
on the safety net programs of Bangladesh.
Name of the Program

Cash or kind

Longevity

100 day employment guarantee scheme

Cash

Short term (100 days)

Food for Work

Food grains

Short term (100 days)

Vulnerable Group Development (VGD)

Food grains

18-24 months

Rural Employment Opportunities for Public

Cash

Short term

Assets (REOPA)

Test Relief

Food grains

Short term

Allowances for the Widowed, Deserted and

Cash

Long term

Disability Allowance

Cash

Short term

Gratuitous Relief

Food grains

Short term

Char Livelihood Program (CLP)

Livestock

18 months

Destitute Women

Figure: Various Social Safety Net Programs in Bangladesh

Transfers in Cash vs. Transfers in Kind


Let us think about the Food for Work program as an example. Under this program a participant is paid 8
kg rice for his whole days work. We all know that rice s vital but is not it unlikely that one family will
consume 8 kg rice per day? Is not it even more unlikely that the family will survive entirely on rice? They
will need different things- other food items, clothes and shelter. How are they supposed to meet those
demands? The opulence of rice and poverty in everything else surely mean they will try to sell this rice
to the local market. But this creates another dilemma. When the local market will be flooded with the
rice sellers from Food for Work program the price of rice will automatically come down. This means not
only the poor have to go through an extra process of selling the rice but they also have to accept a
reduced price for their labor.
Different situations require different kind of intervention. When safety net program is operating in a
disaster-ravaged area where there is no supply of food and no functioning market it is indeed prudent
that food grains are provided to the affected people. Or if we think about the Char Livelihood Program
then we should not be thinking about transfers in cash because chars usually have no established
transport route to have a market there. Without the presence of a market it will be only wasting
resources by providing direct cash to the extreme poor.
But what about those places where there is a usable transport system? What about those places which
have an active market? Why do we provide food to the participants instead of cash? These are the vital
questions for which there must be answers.
The debate on "transfers in kind vs. transfers in cash" is not a new one. The debate revolves around a
simple question: How can we identify which instrument (cash or food) is the most suitable to support

vulnerable households in times of need? (The issue of project recipients' involvement in this process is
also an important concern -- but I won't get into here).
Nevertheless, the idea that "it makes more sense to give people vouchers" seems to be an increasingly
common one among donors, international and non-governmental organizations and development
experts. In September 2008, IRIN reported the use of cash-based interventions in West Africa in
response to the global food price crisis. And late last year, Eric Werker called on donors to provide relief
vouchers to "needy recipients in response to the food crisis". There are many reasons for this increased
interest in cash-based interventions, including shifting donor priorities, logistical ease, freedom of
product choice and concerns over market disruptions associated with food distributions.

Transfer
in Kind

Transfer in
Cash

Short term intervention


Disaster ravaged area
No markets
No transportation system
No supply of food

Long term intervention


Chronically poor region
Has an active market
Has a transportation system
Food is available if demand is created

Figure: When to use which kind of intervention


Let's be clear: Cash-based interventions (including vouchers) can certainly be an effective and efficient
intervention in some contexts and under some conditions. But this doesn't mean that cash is the "cureall" for food aid's (perceived) ills. If donors and international organizations want to continue down the
cash road, they should proceed with caution (I made a similar plea when considering the merits of
imported food aid versus local purchases). This means two things. First, the appropriateness of cash
(versus food) needs to be carefully considered during the project design phase of any program. And

second, once the program is implemented, such interventions need to be carefully evaluated -- ideally
by comparing food and cash in the same context.
It is fairly straightforward to show the superiority of cash transfers over in-kind transfers on the basis of
recipients utility. There have however been various attempts to characterize situations in which an inkind transfer pareto dominates a cash transfer. Some of these situations are: (a) when in-kind transfers
cause externalities; (b)interdependent utilities wherein recipients utility enters donors utility function;
(c) when there is an agency problem between recipient (say head of a household) and in-tended
beneficiaries (children); this may be important if childs nutrition is a policy goal (d) when there is a preexisting distortion (say due to taxes) and in-kind transfers reduce these distortion; (e) when cash aid
cannot be, or is not indexed to an appropriate cost of living. Other justifications for in-kind transfers are
paternalism of the welfare agency, or using a stigma effect of in-kind tranfer to discourage adverse selection, or using the pecuniary effects of in-kind transfers if income taxation is not feasible, and so on.
Is food or cash appropriate? Let's consider the case of Burkina Faso, where the cash voucher program is
now under way. One of the world's poorest countries, Burkina Faso is a landlocked country located in
the Sahelian region of West Africa. Like several of its Sahelian neighbors, the country has experienced
significant food price inflation since July 2007, especially for imported commodities (maize and rice).
Between July 2007 and late 2008, for example, prices increased by 79 percent for maize and 42 percent
for rice, which are particularly important food items for urban populations. The WFP voucher program -which will provide $3 USD to each household, with a maximum of $108 over six months -- can be spent
on a limited number of food (maize, sugar, cooking oil) and non-food items This will effectively increase
recipient households' incomes, and (probably) increase demand for maize. If total maize supply in
Burkina Faso stays the same (i.e., Burkina cannot or does not import more maize from its neighbors),
then this will increase maize prices. This will not only lower the purchasing power of those who received
the voucher, but will make poor urban consumers who didn't get the voucher worse-off as they will
face higher prices and no additional income. While this scenario might be unlikely with many cash-based
programs, it is more than a hypothetical concern in Burkina Faso - since the voucher program covers
10% of the city's population and provides 10% of per capita income.
In this case, cash vouchers alone might not solve the food price crisis for vulnerable urban populations in
Burkina Faso, and could actually exacerbate the situation. A better course may be a combination of food
aid (maize and rice) with cash vouchers, which would increase the purchasing power of the poor while
reducing inflationary pressure.

How do we know whether food or cash is appropriate? Although the food versus cash debate has been
going on for some time, there are relatively few empirical studies assessing whether cash or food is
more suitable in a given context. Yes, there are studies of the impact of food distribution programs, as
well as the impact of conditional cash transfer programs. But there arent that many studies comparing
the two. And this is what we need to determine whether food or cash is more effective, efficient and
culturally appropriate in meeting the needs of vulnerable populations in a given context.
How should we go about evaluating such programs? At a minimum, it would require having a program
that provides food and cash to two different groups and comparing their well-being before and after the
program. But if these groups are different in some fundamental way, then we dont know whether the
difference in outcomes is due to the type of intervention (food or cash) or differences between the two
groups.
An even better solution, then, would be to ensure more rigorous impact evaluations of such
interventions. This would require randomly assigning vulnerable participants to either food or cash and
conducting pre- and post-evaluations. While random assignment needs to be done carefully, this
approach could provide some important insights into determining whether food or cash is more
appropriate for future food price crises. WFP used such an evaluation approach in Sri Lanka in 20052006. More studies like this one are needed, with the results widely shared among all actors -- donors,
interventional organizations, host country governments, and, most importantly, the recipient
communities themselves.
According to IRIN, WFP is planning on rolling out a similar food voucher program for 60,000 people in
Bobo-Dioulasso, the second largest-city in Burkina Faso. If WFP hasn't already planned to do so, I hope
that they will consider an evaluation framework similar to the one outlined above. With increased
interest among donors in cash-based approaches, this might be a unique opportunity for international
and non-governmental organizations to do these types of evaluations.
Transfer in kind has an extra burden of transporting the food grains to the region. While it is the
adequate thing to do in a region where food is not available this should not be done in situations where
active markets can supply food (and other things which people need). We should try to create peoples
ability to make demands in the market. If they have that then we can depend on the open market
system to provide them what they need.

Problems of Bangladesh
Bangladesh has been able to create somewhat effective and far reaching transportation system within
the country. There are not many regions where market forces cannot reach due to the unavailability of
transports. So it is ripe for cash based interventions which empower the people to choose what they
want from the market.
A particularly vexing problem for the government is to manage the transportation of food for these
safety net programs. Transporting such huge amount of food grains create space for system loss and
corruption. Moreover it is easier for the program officials to deprive people by providing them with less
food than they are supposed to. It is difficult for program participants to weigh their allocation and ask
for their fair share. But any corruption in case of transfer in cash program is easier to catch as providing
them with less money than they are supposed to get is easily catchable.

Transfers in Kind Transfers in Cash


Transporting food grains

Improper use of money

Corruption in distribution

Depending entirley on market forces

Inadequate impact

More lucrative scheme-more corruption

Figure: Problems in using different methods of social safety nets

Several important lessons have been learned while implementing various SSNPs in Bangladesh. These
include the need for: (i) high-level political commitment; (ii) effective program management and
delivery: developing strong partnerships at all levels of government, ensuring role for everyone
(policymakers, service providers, community, NGOs and the beneficiaries), better coordination among
different implementing agencies, following proper process of selection of the types of work to be
undertaken, improving the food grain delivery system, improving access to quality services, and giving
adequate consideration to patient safety concerns and improvement in quality of care and services; (iii)

better targeting of the beneficiaries; (iv) minimizing leakages; (v) sound financial management and
payment system: ensuring timely transfer of funds at the field level, considering different rates rather
than flat rate based on coverage and needs at the field level, including larger cash transfers or credit as
part of the medium-term relief to the flood-affected households, and reviewing appropriate fee
structure for greater involvement of the private sector; and (vi) strengthening monitoring and
supervision at different levels.

Can Social Safety Net Reduce Chronic Poverty?


In his famous paper titled Can Social Safety Net Reduce Chronic Poverty Professor Stephen Devereux
argues that the role of safety net is not limited to catching those who are falling into destitution but
also to throw a rope to those to climb up the ladder of development. While transfers in kind may work
very well in some of the situations, it is highly improbable for transfer in kind to transform peoples lives.
But cash transfers have an entirely different utility. As Professor Devereux points out in his critique on
Amartya Sens Poverty and Famines that people are highly unlikely to use all their assets to ensure food
security. When this assertion is true we can fairly assume that people may go on to save some of their
income from safety net program. And Professor Devereux has worked in this issue as well. In his paper
titled Can Social Safety Nets reduce Chronic Poverty he compared two transfers in kind programs run in
Mozambique and Namibia and a transfer in cash program in Zambia. Many of Zambias poorest and
most isolated communities live and farm around the floodplains in Western Province. Recurrent
droughts and a lack of off-farm employment opportunities have entenched poverty and encouraged
steadyoutmigration. Cash-for-work labour-intensive public works programs were introduced to three
districts of Western Province as a response to drought in 1994/5. Two objectives were pursued
simultaneously: to transfer income to vulnerable households and protect their access to food; and to
upgrade roads that would link isolated districts with other provinces, reducing transport costs,
facilitating market integration and enhancing provincial food security.
It was seen that the transfer in cash program has given birth to a trend of entrepreneurship amongst
the program participants and contributed to the economic well being of the region. Numerous people
have graduated out of poverty using the extra cash available to them. The situation of the western
province of Zambia is somewhat similar to the situation in Rangpur district in Bangladesh where Monga
is a common phenomenon. Use of cash for work programs to build infrastructures and create effective
demand may be useful for the region.

Recommendations & Conclusion


i) Continuation of use of in kind transfers in short term interventions
ii) Continuation of in kind transfers in regions where there is no active market or transportation system;
for example- char areas.
iii) Implementing cash transfers program in regions with better transportation system and an active
market system.
iv) Strengthen the beneficiary selection mechanism.
v) Capacity building in field level to implement programs smoothly.
vi) Revise the pay structure of concerned official.
vii) Take harsher steps against corruption.
viii) Try to develop a working market mechanism all throughout the country.
It is never to be denied that both kind of safety net programs- in kind and in cash transfers are necessary
for the well being of the people. However, it is not entirely prudent to use in kind transfers for long term
projects like food for work. It limits the option for the beneficiary and as a result the program becomes a
seasonal relief for the beneficiaries. With an open market system cash transfers may open a window
for the beneficiary through which he can permanently graduate out of poverty.

This discussion has been inspired by the following works:


Poverty and Famines by Amartya Sen
Sens Entitlement Approach: Critiques and Counter Critiques by Stephen Devereux; Oxford Development
Studies, Volume 29, Number 3, 2001.
Social Safety Nets for Poverty Alleviation in Southern Africa by Stephen Devereux; ESCOR Report R7017
Food Insecurity in Ethiopia by Stephen Devereux; Discussion paper for DFID; IDS Sussex, October 2000