Cash Aid Could Solve Poverty — But There's A Catch

You don't have to convince Likezo Nasilele that giving people a small but steady stream of cash with no strings attached may be the smartest way to fix poverty.

Just a few years ago Nasilele and her husband, Chipopa Lyoni, couldn't even afford to feed their four children properly. Then Nasilele, who lives in a rural village in Western Zambia, lucked into an experimental government program that has provided her with up to $18 every other month. In the 2 1/2 years since, she and her husband have more than doubled the money by using it to start several businesses.

"We've crossed from poverty to a better life," marvels Nasilele. "We're set up now!" Hundreds of other families in the experimental program tell a similar story.

So you'd think Zambian officials would be eager to scale up the program. And to a large extent they are. The government is now expanding cash aid to cover the entire country.

But there's a catch. Nasilele's family would not be eligible for the nationwide version of the program.

Instead, the government is reserving the money for people who really can't work — the elderly, the sick, single moms with lots of kids. They're not going to give it to the kinds of families that made up the vast majority of the 1,250 households in the pilot program: families where there's both a mom and a dad, who are able-bodied.

That option was considered too controversial, explains Esther Ngambi, the official in charge of the new cash program.

"Everybody would be saying that you're trying to give money to lazy people — that you're encouraging laziness," Ngambi says.

For years, evidence has been mounting about the effectiveness of cash aid over traditional aid to the poor such as food or seeds or job training. But Zambia's experience suggests that when it comes to persuading governments to adopt the approach, evidence might not be enough. Zambia's study — which spanned five years, analyzed data from 5,500 households and cost about $5 million — is one of the most significant to date. And the country's commitment to pouring its own resources into cash aid has established it as a leader of one of the most intriguing trends in the fight to conquer poverty. Yet this is also a tale of how gut feelings about which poor people deserve our help, and which do not, can be so entrenched they led a government to ignore the most powerful lesson of its own experiment.

"I've never seen impacts so large in my life"

When the possibility of cash aid was first floated in Zambia, it seemed totally implausible. The year was 2009. Cash aid had already emerged as a hot idea among social scientists who research anti-poverty efforts. Nongovernmental groups had launched some small-scale efforts to do it in Zambia. And some of the donors involved, including UNICEF and the German and British governments, were pushing Zambia's leaders to try cash aid in a bigger way.

But Zambian officials were wary of giving people money with no strings attached. "People would say, you're just putting money into a bottomless pit," recalls Ngambi. There was concern that people would squander the money on vices, she says. For instance, "that men will be using the money for beer." And even if people used the money for legitimate needs like food, the assumption was that as soon as they spent it they'd be right back where they started and would need more help — making cash aid an unsustainable drain on Zambia's budget.

Still, officials in Ngambi's ministry, which administers social welfare programs, were intrigued enough to set up two pilot programs. The first gave the money to any mother of a young child. This was the program Likezo Nasilele signed up for. The second targeted people who were somehow incapacitated, meaning that working was more difficult for them, if not impossible — such as the disabled or elderly people caring for orphaned relatives.

Then officials commissioned a study of these pilots from one of the premier researchers on the subject, Ashu Handa, an economist and professor at the University of North Carolina. Handa runs a center called the Transfer Project that specializes in studying cash aid programs using the gold-standard of social science research — a randomized controlled trial in which you compare what happens to people who get the cash to an otherwise identical group of people who don't. He's done studies like this across Africa. But Handa says the experiment that Zambian officials asked him to design broke new ground.

That's because previous research had primarily focused on whether people spend the money responsibly: Do they tend to buy more alcohol and tobacco? (As a rule, they don't.) Do they tend to eat better and keep their children in school? (Generally, they do.)

But Zambian officials also insisted on checking "that in fact the money is used not just responsibly but actually productively." In other words, are people able to invest it in ways that make them more money — maybe even grow the wider economy?

To answer that question, Handa collected a wealth of data on recipients' economic activities: How much more did they invest in their farms? Did they buy more livestock? Did they hire others to help with the farm work? How much did they produce? And did they open other businesses not related to farming?

A few years later, in 2014, those results started coming in. "Holy smoke!" says Handa. "They were incredible." In both versions of the program, the recipients managed to boost their spending, which is effectively a measure of their income, by more than 50 percent over what the government had given them. In other words, if they got $100 over the course of a year in handouts, they spent an extra $200 above what they had been spending before — proof that they were using the free money to make more money.

And the benefits spilled over into the local economy. The beneficiaries spent their extra income at local shops. A related study by the United Nations' Food and Agriculture Organization estimated that, as a result, shopkeepers and business owners saw their profits go up by 50 percent.

These kinds of returns are head and shoulders above what you generally get from traditional aid, says Handa. "I mean, I've never seen impacts so large in my life."

There were two ways that the recipients used the cash to get ahead. In families led by people who were unable to work, they mainly used the money to hire others to help them farm their land more productively. But the young families — because they were able-bodied — did something that Handa argues is remarkable, and even more promising when it comes to growing Zambia's economy long term: They became entrepreneurial.

"We're on another level now"

Take Nasilele and her husband. They live in a tiny village called Yuka, in a round hut made of sticks and mud. Before the cash program, the couple mostly worked day jobs in construction, pulling in about $30 a month. Not even enough to cover basics like soap or shoes or food, says Nasilele.

"We would have one meal a day and maybe in between we would just have mangoes from our tree," she recalls. "The thing that saved us were our mangoes."

Lyoni, Nasilele's husband, says he was all the more frustrated because he actually had an idea for how to make more money — "a business to sell reed mats."

He pulls out a mat to show me.

It's about 6 feet by 10, woven from the reeds that grow in the marshes around their village. People sit on them or use them as fences and walls for their homes.

Making a mat takes hours. And in the village and its surroundings the mats sell for only 30 cents or so. But Lyoni thought if he could buy up a whole collection of mats from other people, rent a canoe and paddle across the marshes to a big town several hours away, he could probably sell the mats for 10 times as much.

To put together enough mats to make the trip worthwhile, "I figured we would need about $120," says Lyoni. So when the couple found out Nasilele was going to get the government payments, they decided to save every penny for a mat business. They were so determined not to dip into their savings until they had reached the full amount that they gave the money to a local businessman to hold for them. It took more than a year.

Lyoni says he still remembers the afternoon his wife came home from getting the last payment. "I said to her, 'Now everything's going to be well with us.' "

And he was right. Their first trip selling mats in the big town, they turned a profit of $340. Soon they were buying land on which to grow cassava and millet for food and even some luxuries — like cute outfits for their children. And they're setting aside money to replace their thatch roof with a metal sheet.

Now, this isn't easy money. Mats are actually a scarce commodity since they take so long to make. It takes weeks to purchase enough. On their last trip their canoe capsized in choppy waters and they lost every single one. Lyoni has also developed pain and stiffness in one of his hands that's been making it ever more difficult to row.

But they've been able to ride out the bad breaks by pouring their earnings from the mats into even more businesses. They're buying milk from local cow owners to resell in the market. They're breeding chickens. And they've already started laying the plans for a new business that won't require as much rowing: They want to buy nets to catch fish with, then travel inland to trade the fish for maize that they'll bring back to their village to sell at a higher price.

And when I ask Lyoni, now that the cash program is being phased out for families like yours will you be OK? He shrugs it off.

"No," he says. "We're not worried that we'll ever go back to the life we used to live. We're on another level now."

"You're trying to give money to lazy people"

The researcher, Ashu Handa, says the implications of this dynamic — poor people using just a little bit of money to permanently lift themselves up — were huge.

Forty percent of Zambia's population is extremely poor. The government had conceived of the cash aid as a safety net to keep them from starving. But here was a way to offer more than just a better safety net. Here was a way to help them graduate out of poverty — and simultaneously grow the whole economy — for pennies on the dollar.

"That seems to be in some sense the magic bullet," says Handa. "Like, this is it."

Best of all, Zambia can afford it. The country has vast reserves of resources like copper.

So why aren't they going for it?

It turns out our preconceptions about the poor can trump the evidence.

Ngambi, the social welfare official, says there had been gripes from the public. To a lot of people the program meant young women were collecting a government check just for having a kid. People in the community and even in the media were accusing the women of having babies just to stay on the program. They were calling the women by the English word "divas" — in Zambia it connotes a woman who spends her time buying fancy clothes and fixing her hair. "Yeah," says Ngambi, "we are turning them into these divas."

As for the dads, she adds, "People would complain. The husband or the man in the house has the capacity to work so why should he be on the program?"

But most important, Ngambi says, Zambia's top leaders shared that queasiness.

So Ngambi's agency, which administers social welfare, has scaled back the pool of potential recipients. It's giving cash aid only to people everyone in Zambia agrees is deserving — people who are "vulnerable" because they're not able to work. "We had to strike a balance," explains Esther Ngambi. "What was going to be socially acceptable."

Reassured by the study, Zambia's leaders have ramped up annual spending on cash aid to those groups to $50 million for the current fiscal year, covering about 30 percent of Zambia's population.

"We came into power as a government that is pro-poor," says Emerine Kabanshi, the minister of parliament who heads the social welfare agency.

Both she and Ngambi note that attitudes about cash aid are slowly changing. At first the cash aid program wasn't even going to include single moms. This year leaders agreed that if a woman has no husband and more than three kids she can qualify, too.

So who knows, says Ngambi. Someday the definition of "the vulnerable" could be expanded to include all able-bodied people.

Then she gives a rueful laugh.

"Yeah," she adds. "And by that time if I'll be alive, I don't know."

Your turn

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