By VINCENT OWINO

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With a limited budget for social spending, a lump sum payment to the poor is more effective in pulling them out of poverty than short-term monthly payments over time as is the norm across Africa currently, a new study done in Kenya suggests. 

Initial results from the study conducted in Western Kenya, commissioned by cash transfer charity GiveDirectly and designed by Nobel laureate Abhijit Barnejee, reveal that after two years, the financial standing of people initially living in extreme poverty improved more from a lump sum payment than from monthly universal basic income payments.

The research, which started in 2018, aims to establish the best way of using cash transfers to help those living in absolute poverty in Africa by identifying the method that delivers the most financial gains after 12 years. 

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About 15,000 households, which live on less than $33 (Sh5,000) a month, across 200 villages, were subjected to three different types of cash transfers. 

Amount vs frequency

One group received a lump sum payment of $500 at the beginning of the period; another received a short-term income of $22.5 monthly for two years with no more to follow; while the third group received the same amount of monthly income, with a guarantee to continue getting the income for 10 more years.

The first set of results show that after two years, a monthly basic income encourages savings and investments, but only if the recipients are guaranteed to continue receiving it for the next 10 years.

But if the income is given over a short-term period, it was shown to reduce depression and improve food variety, but did not improve savings, investment, individual self-employment, or the number of hours worked in wage-labour employment.

According to the preliminary results, the lump sum payment is even more effective than the long-term monthly income, as it was shown to improve several aspects of the recipients’ lives.

While both improve household savings and investments, total number of businesses in the village, and household annual incomes, lump sum payments were observed to also reduce domestic violence and improve children’s performance in school examinations.

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Tyler Hall, director of communications at GiveDirectly, said these findings are evidence that “families in poverty make high-return investments in themselves if they have access to a relatively large chunk of money”.

“Most social protection schemes in Africa give out cash in small amounts over one or two years, making saving up for big purchases difficult,” Mr Hall told The EastAfrican.

“If a government or NGO wants to encourage wealth creation and help accelerate the end of extreme poverty, giving a single large transfer may be their best option with limited funds,” he added.

Preferences

Not only are lump sum payments more effective at ending poverty, but they are also preferred by the recipients. An earlier study done in Kenya, Malawi, and Liberia by GiveDirectly showed that majority of recipients prefer lump sum payments to monthly income.

Mr Hall said such lumpy payments also help curb theft of funds meant for charity, which is one of the common challenges associated with cash transfers in Africa. 

GiveDirectly, for instance, last year lost close to $1 million in the Democratic Republic of Congo after funds meant for vulnerable households were diverted into private pockets. 

The findings of this study could have far-reaching implications on how aid is delivered in Africa, if governments and other institutions such as the World Bank and the International Monetary Fund (IMF) were to adopt its findings.

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IMF Managing Director Kristalina Georgieva last year said at the annual meetings of the World Bank and IMF that in addition to providing social safety nets, countries need to also prove “safety ropes” to help people pull themselves off poverty.

Based on this study, the way cash aid is delivered could just be what converts the “safety nets” into “safety ropes”.