Myth vs Reality: a look behind the scenes of cash transfers

Are they more than just hand-outs?

31 March 2021

Cash transfer programmes – regular money payments to poor households - aim to reduce poverty, promote sustainable livelihoods, and increase production in the developing world. 

Although local economies and numerous households have benefited from this social protection measure, critics remain doubtful. Let’s take a closer look at 5 common myths about cash transfers to see how they play an important role in improving food and nutrition security and reducing rural poverty. *


Myth : Cash will be wasted on alcohol and tobacco.

Reality : Alcohol and tobacco represent only 1 to 2 percent of food expenditures in poor households. Across six countries in Africa where FAO and partners carried out evaluation of cash transfer initatives, no evidence of increased expenditures was found. In Lesotho, for example, alcohol expenditures have actually decreased after the introduction of cash transfer programmes.

Myth:  Transfers are just ‘hand-outs’ and do not contribute to development.

Reality: In Zambia, cash transfers increased farmland by 36 percent, and with that the use of seeds, fertilizers and hired labour,which resulted in stronger market engagement, and prompted the use of more agricultural inputs. The country recorded an overall production increase of 36 percent. Furthermore, the majority of programmes show a significant increase in secondary school enrolment and in spending on school uniforms and shoes.

Myth:  Cash causes dependency and laziness.

Reality:  In several countries, including Malawi and Zambia, research shows a reduction in casual wage labour and a shift to more productive and on-farm activities. In fact, in sub-Saharan Africa cash transfers lead to positive multiplier effects in local economies and significantly boost growth and development in rural areas. Thus, cash does not create dependency, but rather spurs beneficiaries to invest more in agriculture and to work more.  

MythTransfers lead to price inflation and disrupt local economies.

Reality:  Ethiopia, Ghana, Kenya, Lesotho, Malawi, Zambia and Zimbabwe were all part of the Protection to Production (PtoP) project, which, among other things, analysed the productive and economic impacts of cash transfer programmes in sub-Saharan Africa. None of the seven case study countries experienced inflation. Beneficiaries represent only a small share of the community (15 to 20 percent), and because they come from the poorest households and have a low purchasing power, they do not buy enough to affect market prices, thus enabling local economies to meet the increased demand. In Ethiopia, for every dollar transferred by the programme, about US$1.5 are generated for the local economy.

Myth:  Child-focused grants increase fertility rate.

Reality: In Zambia, cash transfers showed no impact on fertility. In Kenya, adolescent pregnancy even decreased by 34 percent and in South Africa by over 10 percent.

Findings have shown that the implementation of such programmes leads to increased food consumption, better nutrition, improved school enrolment, reduced child labour, economic development, agricultural investment and many other benefits.

Cash transfer programmes have become an increasingly important tool in finding the path out of poverty and have contributed to making a long-term impact on the lives of many families.