Discussion Paper No. 158 of 2013 on The Role of Cash Transfers in Poverty Reduction: Evidence from Kenya.

Abstract

Cash transfers are important in relieving both the direct and opportunity costs of utilizing public social services such as health and education. Cash transfers have a direct effect on the welfare of poor households and provide general livelihood support. Although the level of the transfer may not be sufficient in itself to lift households out of poverty, the benefit of a cash transfer immediately relieves the economic hardships that poor households may be facing. However, there are very few studies conducted on the effect of cash transfers especially for Kenya. This study uses a micro-simulation method to evaluate non-conditional cash transfer programmes and the ex-ante programme effect on poverty and inequality by simulating selected targeting criteria. The study established that targeting is useful in maximizing the program’s effect and effectiveness. Nevertheless, targeting and monitoring can increase the cost per beneficiary, which reduces the programme’s efficiency. On the other hand, designing a programme with a weak or non-existent targeting strategy not only reduces the cost per beneficiary but also leads to leakages to the non-poor. These have negative consequences on the programme’s effect and effectiveness. The study also indicates the importance of political support for in cash transfer programme implementation and the need for effective coordination across different sectors in government, among them education, health, finance and social welfare.