82633 from EVIDENCE to POLICY Learning what works, from the Human Development Network November, 2013 If You Give People Cash, Does it Help? Policymakers throughout the world struggle to boost em- tervention, the Ugandan cash transfers achieved nearly all ployment. In poorer countries, development organizations its goals. Beneficiaries invested most of the cash in build- and governments have traditionally relied on solutions like ing business opportunities. While they still did agricultural training vouchers or microfinance tools. These programs work, they spent more time working in skilled industry often involve extensive organization and monitoring to and services and their incomes rose. run effectively, all of which require additional money, re- The results have broad implications for development sources and time. policies and underscore the importance of financing when An alternative is putting cash directly in the hands of it comes to employment creation, training and incomes. the poor themselves, leaving them to decide how best to In the constrained credit markets of many developing coun- SKILLS and JOBS spend the money. While simpler to implement, develop- tries, where available financing is often short-term and car- ment groups and governments are concerned that the ries an annual interest rate up to 200 percent, the poor have programs won’t work. Will recipients use cash grants as few viable options for getting the start-up money they need promised? On their own, can they generate successful for skills training or small business development. At the same businesses? And, assuming they do, can this sort of growth time, it may not be feasible for governments to set up grant- be sustained over time? We have almost no evidence on the making or voucher programs that require extensive oversight. effectiveness of unconditional cash transfers to the poor Long-term solutions should address the root prob- and unemployed to judge. lem—inadequate access to cheap finance for small The World Bank is committed to ending poverty and business development. In the interim, however, this building shared prosperity. To find out what works best impact evaluation shows there are viable options for when it comes to creating employment opportunities and boosting non-agricultural employment and reducing boosting incomes, the World Bank worked with academic poverty. In certain circumstances, unsupervised cash researchers and Innovations for Poverty Action to evaluate grants can be used successfully with poor entrepre- a Government of Uganda program, one that gave young neurs, something policymakers will want to consid- men and women cash grants to start skilled trades outside er when looking to boost employment and income of agriculture. Based on final results four years after the in- among young adults. Background The gradual end of civil war in Uganda over the last decade adults for income-generating projects in an attempt to help and the weakening of armed conflicts in neighboring coun- them find work outside of the informal farming sector. tries allowed the Ugandan government to increase its reach This program sought to offset difficulties young adults faced and work to develop the regional economy in the north. The finding credit in northern Uganda. Many of the poor have Northern Uganda Social Action Fund (NUSAF), created in good business and investment opportunities, but need capital 2003 with World Bank funding, distributed grants for infra- to start. Loans from non-profit microfinance associations and structure construction, income support and livestock. moneylenders can carry an annual interest rate of 100 to 200 NUSAF was expanded in 2006 through a new Youth percent, however, and rarely extend beyond three months. As a Opportunities Program, which offered cash grants to young result, many good business opportunities are missed. Case Study Uganda Researchers partnered with the Ugandan government The average grant was $7,275 per group, or about $371 to evaluate the effectiveness of the Youth Opportunities for each group member (in 2008 dollars), with the money Program, targeting young adults aged 16 to 35 in the deposited in a joint bank account. On a per-person basis, country’s northern region. To qualify for the cash grants, grants generally ranged from $200 to $600, or about one young adults had to organize in small groups and sub- year’s income for a young adult. mit a proposal for a grant to cover training programs and Prior to the evaluation, the Government disbursed what tools and materials they needed to run a business, hundreds of grants in a first phase. Researchers studied the either together or on their own. While facilitators were second and last phase of grant-making, when an additional available to help youth organize into groups, build bud- 265 grants were available for 535 eligible groups. Those not gets and apply, these facilitators played no role after the picked were tracked as a control group. Researchers followed application phase, and there was no formal mechanism of a random sample of five individuals in each group, or 2,675 follow-up or accountability for the funds after the grants individuals, conducting a baseline survey in early 2008, a were distributed. second survey between mid-2010 and mid-2011, about 12 Groups were responsible for creating a five-person man- to 18 months after most groups had finished their training SKILLS and JOBS agement committee and doing their own budgeting and al- programs, and the four-year end line survey in mid-2012. locating. The money was given to the group, and the man- Taking into account group disbanding or members moving agement committee distributed the money according to the away, researchers were able to track 85 percent of members group’s plan. after two years and 82 percent after four years. Findings Four years later, most grant recipients were Incomes for young women who received the grants were practicing skilled trades and earning more money 76 percent higher than women in the control group. In than the control group. contrast, incomes for men who received the grants were 29 percent higher than incomes of those in the control group. Young adults who had received the grants were earning 37 One reason is that, in the absence of the grant, young men percent more than peers who didn’t receive the grants. One were able to increase their employment and incomes over reason may have been that those who received the money time, in part because they had the earnings and access to were 26 percentage points more likely to be working in a credit that allowed them to self-employ (albeit with delays skilled trade such as carpentry, tailoring, metalworking and and into unskilled jobs). Women, however, tended to stag- hairstyling. Those who received the grants were also six per- nate in the absence of a grant, in part because their lower centage points more likely to register a business, 9 percentage earnings, assets and credit access meant they had more dif- points more likely to pay business taxes and 12 percentage ficulty getting the start-up capital they need. points more likely to keep business-related records. Overall, the evaluation shows that given the re- sources and opportunity, women in Uganda chose to use In particular, the cash grants gave women a real the money to create economic opportunities for them- boost, underscoring that access for finance is selves—and succeed. critical to helping women escape poverty. This brief summarizes the results of a final report by Christopher Blattman, Nathan Fiala, and Sebastian Martinez, “Credit Constraints, Occupational Choice and the Process of Development: Long Run Evidence from Cash Transfers in Uganda.” The authors organized and implemented the study with the non-profit research organization Innovations for Poverty Action. The evaluation was funded in part by the World Bank’s Spanish Impact Evaluation Fund (SIEF), Gender Action Plan (GAP), the Bank Netherlands Partnership Program (BNPP), a Vanguard Charitable Trust, and Yale University. Recipients used the money well. For every dollar Applicant profile: “invested” over a year, these young adults Applicants were self-selected, so they may have been more motivat- earned about $1.40. ed to work and more likely to have the skills and aptitude to benefit from such a program. Nonetheless, many came from Uganda’s very Giving cash grants not only provided young adults with poor and undereducated: One fourth hadn’t finished primary school access to capital that they would otherwise have trouble and incomes at baseline averaged about a dollar a day—or 20 percent below the international poverty line of $1.25 a day. getting, but it made for good business. If we compare these 30 to 50 percent returns to the 10 to 20 percent real interest rates that medium-size firms pay Fears that the money would be mismanaged or for loans, this suggests these new Ugandan enterprises are misappropriated were unfounded. Overall, young generating competitive returns on capital and should be self- adults who received the unsupervised grants starting and sustaining in economies with accessible finance. stuck to their stated plans, using the majority of the money for vocational training and to acquire materials to run a business. Among those who received the money, 68 percent enrolled in vocational training, with levels similar for men and women, compared with 15 percent of the control group. In both cases, the most popular training programs were, in descending order of popularity, tailoring, carpen- try, metalworking and hairdressing. In the absence of a grant, youth interested in skilled trades are unable to afford training. Members of the control group were just as interested in skilled trades, but only pursued training 15 percent of the time. In the majority of these cases, moreover, they received this training (usually a shorter and less formal one) free from a church, NGO or government office. In the absence of a grant, only seven percent of the Fears that money would be grabbed up by the control group self-financed any business or vocational leaders of each group were unfounded. Groups training. functioned well, with 90 percent of recipients saying they felt the money was equally shared. Not only did grant recipients enroll in training programs at a higher rate and earn more money An important concern when giving cash grants is that some than their peers, but they also accumulated more people will capture the money for themselves, or at least take business assets. an unfair share. In this program, 90 percent of group mem- bers said the grant was equally shared, and 92 percent said Grant recipients spent 4 to 5 times more than control leaders didn’t receive more than their share. Cases of misap- group members on new acquisitions of business materi- propriation appeared very small. als—such as tools and goods—in the first two years after the grants were distributed. Four years later, the value of In a post-conflict environment, reinforcing peace business materials was 54 percent higher among youth in and stability is crucial and economic stability is the treatment group. seen as a route for strengthening social stability. Two years after the grant was given, the average grant The evaluation didn’t find any link between recipient valued their stock of business assets at $421— individual economic prosperity and increased an increase of $252 over the control group’s $169. social unity and stability. Many governments invest in youth employment programs life, disputes with neighbors and others, the evaluation out of concerns that poor, unemployed youth are more didn’t find any impact on behavior four years after the likely to engage in violence, crime and social unrest. We program was launched. There wasn’t an increase among find no evidence that this income and employment boost participants in support for the government or political affected these social behaviors on an individual level. participation in general. Nor were recipients less likely to Using various measurements, including household participate in anti-government rallies, even though their in-fighting, family support, participation in community incomes had improved thanks to a government program. Conclusion Helping young adults find jobs is a goal of policymakers a more industry and service-oriented local economy. These in emerging economies, where high rates of unemployment young adults, who were motivated enough to meet the re- keep families in poverty. Many countries are working with quirements to apply for a grant, showed more self-discipline vouchers, training programs and microfinance to raise em- and focus than many observers would have predicted. Per- ployment opportunities. haps poor youth deserve more credit. As this impact evaluation shows, it is important to re- The study also illustrates the important weaknesses of visit the bias that many in the development community microfinance. This impact evaluation and a host of other have against unconditional cash transfers. More studies studies show that many young adults have high returns on on unconditional cash transfer programs to the poor and investment when they have access to capital. Microloans, unemployed are needed. But, combined with the growing as they are currently structured, are poor vehicles for small evidence that unconditional cash transfers boost the profits business growth and the development of cottage industry. of small businesses, and the widespread evidence that con- They generally have tight controls, short horizons, low toler- ditional cash transfers promote education and health, cash ance for risk and default, and high interest rates. In the long transfers to the poor seem to be one of the most promising run, the young, poor and unemployed need cheap finance, strategies for large-scale, cost-effective poverty alleviation over long horizons, with the understanding and allowance and employment generation. for the fact that some businesses will fail. As governments Indeed, the findings show that the best solutions are and the private sector work to develop this financial sophis- sometimes the simplest: giving poor people money gives tication, cash transfers are likely to be important drivers of them tools to invest in their job prospects, their future, and poverty alleviation and development for youth. The Human Development Network, part of the World Bank Group, supports and disseminates research evaluating the impact of development projects to help alleviate poverty. The goal is to collect and build empirical evidence that can help governments and development organizations design and implement the most appropriate and effective policies for better educational, health and job opportunities for people in developing countries. For more information about who we are and what we do, go to: http://www.worldbank.org/sief. The Evidence to Policy note series is produced by SIEF with generous support from the British government’s Department for International Development. THE WORLD BANK, HUMAN DEVELOPMENT NETWORK 1818 H STREET, NW WASHINGTON, DC 20433 Produced by Office of the Chief Economist, Human Development Network, Communications/Aliza Marcus amarcus@worldbank.org