Cash transfers- conditional versus unconditional

A recent issue of the Economist has an excellent analysis of cash transfers, based on a range of research on the subject. The bottomline is compelling: unconditional cash transfers (UCTs) - simply handing out cash to the poor without strings attached- seems best suited to alleviating poverty.

When do UCTs work best?

They work when lack of money is the main problem. The people who do best are those with the least to start with (in Uganda, that especially means poor women). In such conditions, the schemes provide better returns than job-training programmes that mainstream aid agencies favour. Remarkably, they even do better than secondary education, which pushes up wages in poor countries by 10-15% for each extra year of schooling. This may be because recipients know what they need better than donors do—a core advantage of no-strings schemes. They also outscore conditional transfers, because some families eligible for these fail to meet the conditions through no fault of their own (if they live too far from a school, for instance).

And what about conditional cash transfers (CCTs)? They are less expensive than UCTs because they typically hand out less cash than UCTs. They have other virtues:

Moreover, CCTs can focus on something which UCTs leave to chance: helping the next generation. Healthier, better educated children earn more throughout their lifetimes, so the requirement to attend school or clinics should cut future poverty. UCTs aim to reduce poverty now. So conditional and unconditional schemes are not always comparable. That said, a lot of effort has gone into making comparisons, and the results are now emerging. CCTs have their drawbacks but—at least where governments are concerned, and if you take a broad definition of poverty reduction to include health and education—they usually do a better job.

The broad conclusion?

In short, UCTs work better than almost anyone would have expected. They dent the stereotype of poor people as inherently feckless and ignorant. But CCTs are usually better still, especially when dealing with the root causes of poverty and, rather than just alleviating it, helping families escape it altogether.

The article does not, however, address the key issue of how the poor are best identified and the related issue of leakages in reaching the cash to the poor. How does one ensure that money reaches the intended beneficiaries? Do the countries surveyed have the equivalent of UID? Or is it done through some other means such as mobile accounts? Simply handing out cash does not seem a sensible thing to in a place like India where the problem of leakages is a real one.