INTERNATIONALBANK FOR WORLD BANK R E T C N O E N STRUCTION PM AND DEVELO December 2003 No. 36 A regular series of notes highlighting recent lessons emerging from the operational and analytical program of the World Bank`s Latin America and Caribbean Region CONDITIONAL CASH TRANSFER PROGRAMS AN EFFECTIVE TOOL FOR REACHING THE POOREST AND MOST VULNERABLE Andrea Vermehren Helping the poorest of the poor has never been easy. Although governments to introduce a conditional cash transfer pro- governments and nongovernmental organizations have taken gram. PROGRESA, the Programa de Educación, Salud y significant steps to make basic social services available in poor Alimentación (Education, Health and Nutrition Program) was regions, they fail to reach many needy families. Demand side launched in 1997 and recently renamed Oportunidades. It of- factors--including high out-of-pocket expenditures on school fers health and education grants to families on condition that uniforms, materials, transportation, etc; families' need for chil- their children under age six visit health facilities regularly and dren to contribute to their income; those 6­17 remain in school, attend- and various behavioral and historic ing regularly. The program replaced barriers--keep many poor people general food subsidies, and is fully fi- from using services even when they nanced by the national government. are available. A new type of social Combining geographical and house- assistance program seeks to boost hold targeting, it has become the larg- demand. Conditional cash transfer est conditional cash transfer program (CCT) programs give families cash to in LatinAmerica, serving more than pay for basic health and school ex- 3.5 million families, and is now being penses--if children attend school expanded to urban areas and older and regularly visit health clinics. children. Brazil followed in the late CCTs have two main objectives: to 1990s with the Programa Nacional de increase income and alleviate poverty Bolsa Escola and Programa de in the short term, and to break the Erradicacao do Trabalho Infantil inter-generational cycle of poverty by increasing human capi- (PETI) which seek to reduce poverty, increase educational at- tal. Various situations have led to their creation in different tainment, and decrease the incidence of child labor. The Bolsa countries. Escola Program is financed at the municipal level and oper- ates in metropolitan areas of Brazil. PETI covers children aged The World Bank (WB) supports CCTs in LatinAmerica, East- 7­14 in rural areas, and in 2003 plans to expand to urban areas ern Europe, the Middle-East and Far East. In 2002, the Bank's and target children involved in prostitution, drugs, and other LatinAmerican and Caribbean Region and the Mexican gov- harmful activities. The new government under President Lula ernment sponsored the first regional workshop on experi- is now in the process of integrating several CCT programs ences with CCTs.1 This article summarizes the lessons of ex- into a single, improved conditional cash transfer program perience in designing and operating CCTs shared by officials, called "Bolsa Familia". donors and academics at the workshop. Conditional Cash Transfers and Social Safety The Pioneers: Mexico and Brazil Net Reform Following the experience of Honduras' Programa de Jamaica introduced a conditional cash transfer program in Asignación Familiar (PRAF), Mexico was one of the first 2001 as the centerpiece of a broader effort to reform a social 1 safety net characterized by duplication of programs, defi- ˇ Proxy means testing and geographical targeting achieve cient targeting, and poor coordination among social minis- better results than general subsidies, household target- tries and agencies. Three parallel transfer programs, each ing allows programs to reach the poorest of the poor. with different rules and selection criteria, were consolidated into a CCT program called "Program forAdvancement ˇ CCTs can be made transparent (who receives which pay- Through Health and Education (PATH )". PATH provides ment). benefits to children, pregnant mothers, and disabled, elderly and indigent poor, conditioned on school attendance by children ages 6­17 and regular health clinic visits by others. ˇ They can be quick crisis response mechnisms because With PATH, the Jamaican government introduced a universal governments can vary benefit levels and beneficiary Beneficiary Identification System, a proxy household means numbers as conditions change. test and it is envisioned that other safety net programs--in- cluding school feeding, school fee assistance, health pro- ˇ Cash benefits have much lower transaction costs than grams-- also will use the system in the short and medium in-kind benefits. run. The WB helped facilitate a consensus on the reforms, supported design of the CCT program including its targeting ˇ They empower families, especially women, allowing them mechanism, and helps finance benefits and technical assis- to choose how and when to use the benefit. tance. ˇ They have achieved significant, measurable impacts on beneficiaries' welfare, notably in health, education and Conditional Cash Transfers as Emergency nutrition. Response However, questions regarding the effects and effectiveness of conditional cash transfers remain: Colombia and Turkey introduced CCT programs in 2000 to respond quickly to emergencies. Short-term poverty allevia- ˇ How can targeting be designed to be sufficiently flexible tion was as important as long-term human capital develop- and resistant to outside influence? ment. Turkey made one-time cash payments to victims of the 2001 earthquake, and is setting up a long-term CCT program ˇ Should all transfers be conditional--for instance, by ear- building on the earthquake experience. Colombia's program marking them for disabled people? is part of a package of safety net investments that, with a workfare as well as a youth training program, constitute Colombia's main social sector response to the economic cri- ˇ Should demand side interventions wait until the supply sis. The package is supported primarily through WB and In- is fully adequate? Do transfers have undesirable effects ter-American Development Bank (IDB) financing, and adds on people's decisions to seek work, or provide incen- 0.3 percent of GDP (approximately $250­300 million a year) to tives to have more children? current public social expenditures through 2004. This is a first step in developing a counter-cyclical social protection Some issues need more research and others need to be ad- program that can be implemented in times of crisis. dressed in specific country contexts. In Nicaragua and Honduras, CCT programs were designed Lessons Learned: CCTs can be complex to primarily to address long-term human capital development. design and operate. In parts of each country, as many as 50 percent of children never enroll in school or drop out during early years of pri- mary school. The Nicaraguan program "Red de Proteccion All CCT programs target beneficiaries using geographic and/ Social" not only provides conditional cash benefits to fami- or household criteria. Household targeting requires a proxy lies but, because of supply constraints, also contracts pri- means test based on a scoring formula to identify eligible fami- vate health providers to offer health care services in remote lies. Achieving consensus among decision makers on the indi- areas. The WB co-finances part of this program, developing cators to be included in the scoring formula can be a technical a quick response mechanism for short term economic crises. and political challenge. Countries with large differences be- tween rich and poor are better served by proxy means testing, Some Pros and Cons of CCTs while geographic targeting may be more efficient for largely homogenous populations. Conditional cash transfers improve efficiency and effective- The benefit amount depends on several factors: the out-of- ness of safety nets in several ways: pocket cost of children's schooling and regular health visits; the opportunity cost of sending children to school rather than ˇ A single instrument achieves multiple objectives relat- having them work and of parents' time to take their children to ing to health, nutrition, and education. health facilities; a country's ability or willingness to finance a 2 program; and the overall cost of living. Benefits should not need training in community organization and client-relation be less than one third of the poverty line. If the benefit is too skills. Mothers or primary caregivers need to be aware of their low, the program is likely to fail to keep children in school and responsibilities (CCT programs often require mothers to at- healthy. If it is too high, an opportunity is lost to reach out to tend courses on nutrition, hygiene and reproductive health more families. as part of the conditions for receiving benefits). Mothers also need to know how to collect benefits and what to do if prob- Once people are identified as eligible, they must register for lems arise. Staff from health and education ministries and fa- the program. This is usually done through the local offices of cilities need information on the program's basic features and the agencies that run the program. Beneficiaries must present their obligations to provide beneficiaries and implementing identification, and receive information and training about the agencies with information about school attendance and programs, including the conditions for participating. Once health clinic visits. they have successfully registered, they can start receiving payments. Their compliance with conditions must be moni- The public needs accurate information about program goals, tored regularly. Beneficiaries who do not comply need to be target groups, and functioning. It is important to develop ad- suspended or dropped from the programs. There should be equate instruments to attract the targeted beneficiaries and an appeals mechanism; normally, operating through local or reinforce participants' understanding of the program and their municipal level committees with some civil society obligations. Awell-designed information campaign also can representatation. help generate political support for the program or for other enhancements to the country's social safety net. Payments are made to the head of the household, usually the mother, every two months, through the banking or postal A reliable and updated management information system is es- system or through other arrangements. A reliable and timely sential since data on beneficiaries, payments, and compliance flow of funds is crucial to provide payments as soon as the must be processed each month. Program managers must be conditions have been met. It is not always easy to find an able to respond quickly to inconsistencies and flaws in a pro- efficient, quick, transparent, gram. New technologies, easily accessible pay like electronic fingerprints agency that charges a rea- and digital photos to regis- sonable price for its ser- ter beneficiaries, can fill vices. Many CCT programs gaps in national record have decided to test pro- systems. spective pay agencies be- fore making long-term com- Monitoring and evaluation mitments. systems should be in- cluded in CCT program de- Paying benefits directly to sign. These should enable mothers or assigned care- timely operational adjust- givers has proven highly ef- ments and program im- fective in ensuring that ben- provements to be made. eficiaries comply with pro- An advantage of CCTs has gram conditions. Some countries also recruit mothers to help been that they are highly transparent since data on the exact other beneficiaries, follow-up families that are not complying, number of beneficiaries, regional distribution, and compliance and provide feedback to program managers on program bottle- records are always readily available. Most programs have necks and difficulties. This has had the very positive side been able to establish baseline surveys before becoming fully effect of empowering people and building social capital. operational so that they can measure outcomes and impacts.2 Cross-sector collaboration is crucial, especially between the The combination of conceptual simplicity and operational implementing agency and health and education ministries. In complexity suggest two other important points. First, the po- most cases, these ministries provide the necessary services, litical will to establish a CCT program is fundamental. Prior to and their role in certifying compliance with conditions is a implementation, a consensus should be reached among key element of any CCT program. Communication among stakeholders on three key issues: the target group and target- them has been a challenge in some countries. Health and edu- ing mechanism, the benefit amount, and the extent of cross- cation ministries should be actively brought into the pro- sector collaboration. Second, governments and donors must grams from the start. Mexico decided to provide some of the recognize that CCTs are not just another program to be added resources for PROGRESA and Oportunidades through the to existing social safety net programs. Because of their line ministries to ensure their sense of ownership and partici- multisectoral approach, they should be part of a broader so- pation. cial safety net reform that rationalizes and links programs in a coherent way. Headquarters staff need to know their new tasks. Field staff members need to know the entire program cycle, and usually These lessons suggest that countries adopting CCTs should 3 start with a pilot phase to experiment with key features like of uninsured risks and unmitigated inequalities. Recognizing targeting formulas and benefit amounts, to practice cross- that the policy implications depend crucially on whether sector collaboration, and to adjust the program cycle to spe- there is good empirical evidence to support the theoretical cific country needs. Sponsors need to recognize the need for arguments, the paper begins with a discussion of the careful planning.All major program elements should be in- evidence. The paper then takes up a key question for policy: cluded from the start, from the pilot phase to monitoring and Can the potential for efficient redistribution be realized in evaluation systems. Considering the proven value of CCTs practice using targeted transfers, given the constraints faced that are well planned and executed, careful investments in the in poor countries? initial planning and pilot stages will pay off later. Conditional Cash Tranfers, Schooling and Child Labor : ******* Micro-Simulating Bolsa Escola About the Author Francois Bourguignon, Francisco H.G. Ferreira and Phillippe G. Leite (May 2003) Andrea Vermehren is a Senior Social Protection Specialist within the Human Development Department of the Latin Cash transfers targeted to poor people, but conditional on America and Caribbean Region, based in Washington D.C. some behavior on their part, such as school attendance or regular visits to health care facilities, are being adopted in a Notes growing number of developing countries. Even where ex- 1Ayala Consulting Co. 2003. "Workshop on Conditional Cash post impact evaluations have been conducted, a number of Transfer Programs: Operational Experience. World Bank, Hu- policy-relevant counterfactual questions have remained man Development Department, LatinAmerica and the Carib- unanswered. These are questions about the potential impact bean Region. of changes in program design, such as benefit levels or the choice of the means-test, on both the current welfare and the 2Rawlings, L and G Rubio, 2003. "Ensuring results on the behavioral response of household members. This paper Ground: Evaluating the Impact of Conditional Cash Transfer proposes a method to simulate the effects of those programs" Spectrum, Fall. Social Protection, Human Develop- alternative program designs on welfare and behavior, based ment Network, World Bank. on microeconometrically estimated models of household behavior. In an application to Brazil's recently introduced federal Bolsa Escola program, we find a surprisingly strong Recent World Bank Publications on CCTS effect of the conditionality on school attendance, but a muted impact of the transfers on the reduction of current Evaluating the Impact of CCT Programs: Lessons from Latin poverty and inequality levels. America Limiting Child Labor Through Behavior-Based Income Laura B. Rawlings and Gloria M. Rubio. (June 2003) Transfers :An Experimental Evaluation of the PETI Program in Rural Brazil The conference proceedings from the May 2002 Puebla workshop "Conditional Cash Transfer Programs (CCTs): Yoon-Tien Yapa, Guilherme Sedlacekb, and Peter F. Operational Experiences," covers implementation issues. The Orazemc objective of the workshop, the first to focus exclusively on operational and implementation issues related to CCTs, was This paper analyzes the effects of the program known as the to provide a forum so that executing agencies or units of Programa de Erradicacao do Trabalho Infantil (PETI) which was different CCT's could share their experiences--both implemented in poor rural states of Northeast Brazil. The PETI successes and challenges--so that they could learn from provided income transfers to poor households in exchange for one other with the final goal of improving the operation of an agreement that the child would attend school at least 80% of their programs. The workshop participants included program the time. In addition, the child had to attend an afterschool officials from eight countries in which CCTs, financed by program that effectively doubled the length of the school day. local governments and/or the World Bank and the IDB, are Using data on children in PETI municipalities and children in a currently operating--these include Mexico, Brazil, Colombia, matched set of control municipalities, this study derives Costa Rica, Honduras, Jamaica, Nicaragua, and Turkey. estimates of the program's impact on child schooling, labor supply, academic performance and hazardous work. The Targeted Transfers in Poor Countries : Revisiting The Trade- program increased time in school, reduced labor force Offs And Policy Options participation and hazardous work, and increased academic success for children in the program. Martin Ravallion (June 2003) Access these and more at: This paper revisits the role of targeted transfers in poor http://www1.worldbank.org/sp/safetynets/publications/cct.asp countries in the light of the new theories on the social costs 4