Cash transfers are increasingly being used, instead of in-kind transfers such as food aid, in response to droughts and other emergencies. As well as allowing poor people to make their own choices about how to improve their situation, cash transfers can bring widespread benefits to the regional economy.

Research from the University of Bath, in the UK, and Concern Worldwide, in Malawi, examines the impact of an emergency cash transfers programme following a severe drought in Dowa, Malawi. The research uses a multiplier approach to estimate the contribution of the programme to the regional economy.

The Dowa Emergency Cash Transfer (DECT) programme was developed by Concern Worldwide to deliver cash rather than food aid to people in Traditional Authority (TA) Chakhaza in northern Dowa District to help them cope with the consequences of the drought.

The programme targeted over 10,000 households (two-thirds of the households in the district) with cash transfers for five months during 2006 and 2007. The average transfer was US$12.26 per household per month. Early indications showed that the programme was successful in meeting the humanitarian need of the beneficiaries.

The programme also had wider economic consequences for the region. The research uses a social accounting matrix to analyse how the income entering the economy in the form of cash transfers then circulated within it. This method allows the researchers to calculate the multiplied impact on the economy, classify market actors and analyse financial flows between them.

The research finds a positive impact on the region as programme beneficiaries spent their money on a range of locally produced goods and services. The extra money circulating in the local economy meant that local businesses and service providers also benefited from the cash transfers.

The research finds that the programme:

• produced a multiplier of between 2.02 and 2.45 (for every dollar transferred by the programme, extra income of over two dollars was generated)
• may have encouraged employment and self-employment, as local businesses responded to increased demand for goods and services
• helped to support businesses (especially small farmers and small businesses) during a particularly difficult time of year (January)
• enabled beneficiaries to spend money on health and education
• produced long-term benefits, including higher spending on education and better food, which increased children’s ability to learn at school.

The results of the research are particularly encouraging given the growing use of cash transfers as aid in response to emergencies such as droughts, floods and earthquakes. Cash transfers are also beginning to be used as a form of social protection, particularly in sub-Saharan African countries including in Malawi.

The researchers conclude that:

• Cash transfers should be considered as an alternative to in-kind aid (such as food aid) where the local market is able to respond to increased demand.
• Not only do cash transfers enable the primary beneficiaries to meet their needs, but the whole community can benefit from the way the cash circulates through the local economy.

Source(s):
‘A Regional Multiplier Approach to Estimating the Impact of Cash Transfers on the Market: The Case of Cash Transfers in Rural Malawi’, Development Policy Review 26 (1), pages 91 to 111, by Simon Davies and James Davey, 2008

id21 Research Highlight: 6 October 2008

Further Information:
Simon Davies
Department of Economics and International Development
University of Bath
Bath BA2 7AY, UK

Tel: + 44 (0) 1225 383447
Fax: + 44 (0) 1225 383423
Contact the contributor: simondavies@easy.com

Department of Economics and International Development, University of Bath, UK

James Davey
Concern Worldwide
Dar es Salaam
Tanzania

Contact the contributor: james.davey@concern.net

Concern Worldwide, Dar es Salaam, Tanzania

Other related links:
‘Sharing experiences of cash transfers in southern Africa’

‘Can payment for work schemes replace food aid in Ethiopia?’

‘Is cash the best way to assist poor and vulnerable people?’

Eldis resources on social protection

More on cash transfers on Wikipedia