Should Graduation Programs Replace the More Conventional Cash Transfers?

The past decade has seen an exponential rise in social protection initiatives – mostly in the form of unconditional cash transfer programs. In Latin America, Africa and South Asia, these emerge as promising interventions to reduce poverty. There is also a rising global trend of using conditionalities linked to such transfers to increase school enrolment, and access to improved health and nutrition.

The discourse on social protection to alleviate poverty is still recent. An emerging debate surrounding social protection is regarding what comes next? The inclusion of some form of ‘graduation’ (i.e. programs that help people to exit poverty) is being seen as a more sustainable solution to poverty compared to simple cash transfers. This blog explores what this means for the future of social protection in Pakistan and whether cash transfer programs should continue to exist and expand.

Social protection and poverty

Social protection can be effective in smoothing consumption and sustaining an existing standard of living, but it does not lead to exiting poverty in the long-run – it only helps the poor deal with it. Most social protection programs are developed on a rights-based approach, with the aim of distributing wealth and ensuring a dignified living for the most vulnerable. Hence, social protection is often an inclusive and universal tool for social equity. Within social protection, cash transfers are a growing component.

Pakistan’s Benazir Income Support Program (BISP) was launched in October 2008 as a major component of the then National Social Protection Strategy (NSPS) amidst a difficult economic and financial situation. Today BISP has emerged as Pakistan’s flagship social protection initiative, and one of South Asia’s largest safety net programs. Its scientific means of targeting makes BISP’s performance among the top five social safety net initiatives in the world. It is a federal-level program with certain administrative processes being managed at the provincial and district levels.

BISP transfers are made solely to women. These compose of an unconditional cash transfer program as the backbone of BISP, a conditional cash transfer component to incentivize primary school enrolment of beneficiary families’ children, and a series of complementary initiatives including pilot graduation schemes to provide income support to beneficiaries. As of January 2018, BISP had disbursed over Rs 563 billion as unconditional cash transfer to over 5.6 million families (approximately 17 percent of the country’s population).

BISP’s external evaluation confirms poverty in Pakistan fell by 20 percentage points between 2008 and 2016. As the country’s largest cash transfer program, BISP claims credit for a third (seven percentage points) of this reduction in absolute poverty.

A longer term solution?

In search of more sustainable solutions to chronic poverty, it may not be sufficient to simply retain unconditional cash transfer programs without exploring conditionalities and some variants of graduation. Conditional transfer programs can achieve multiple policy goals and address vulnerabilities (such as lack of access to education, healthcare and nutrition) faced by the poor. Interventions that increase incomes and assets to a point where participants are ready to graduate from their reliance on safety nets are also considered long-term solutions to poverty. While support for conditional cash transfers is easier to find, experience with graduation programs is more mixed.

One of the most successful graduation approaches in South Asia that have assisted the ultra-poor to sustainably escape poverty is the Targeting the Ultra-poor Program (TUP), pioneered by BRAC in Bangladesh. Evidence suggests that TUP has been effective and portable across diverse low-income settings.

Under the BRAC model, a long-term graduation approach is structured around careful sequencing of five core building blocks – targeting, consumption support, savings, skills training and asset transfer – with ‘graduation’ out of extreme poverty and into sustainable livelihoods as the end goal. Under this program, women receive livestock and two years of training (two-week intensive classroom training followed by weekly visits) to help them work with the livestock. With the right mix of interventions, the poorest are shown to graduate out of extreme poverty in a time-bound period.

How well can graduation be replicated in Pakistan?

Increasing support for graduation in Pakistan is a reflection of the fear that
social assistance may create dependency and laziness amongst beneficiaries. However, graduation programs may not work as well in other countries, especially when scaled up.

Firstly, for graduation to offer a sustainable solution it has to focus on the long-run. True success of graduation should be gauged in how well it addresses inter-generational poverty. Diverting income towards asset accumulation in the short run can impact longer-term development (such as through investment in children’s welfare). In Pakistan, with limited space for social spending and low human development indicators, this choice between cash transfers and graduation becomes even more critical.

Secondly asset provision alone is not enough – complementary training and savings are just as crucial for the success of the graduation programs. Life skills coaching for multiple years as part of a graduation program like TUP by BRAC was a huge investment incurred by the implementing organization and required a mix of social and technical skills that may not be as readily available in Pakistan.

Thirdly, sustainable graduation is not a credible promise in the absence of conducive market conditions. Without any major public or private sector intervention to help create new markets, household-level enterprises are severely constrained. Cash transfers may relax some liquidity and credit constraints, but cannot replace an overarching economic development strategy.

Fourthly, targeting is key to the success of graduation. It is important to know more about intended beneficiaries and expand the information base beyond knowing the extent of poverty to knowledge about skills, capacities and interest. Graduation works best when it incorporates individual beneficiary profiling through household visits to ensure appropriate life choices are made for each household. Pakistan’s current poverty database, the National Socio-Economic Registry, is a static measure of the condition of poor and does not capture any of these dynamics.

Future of cash transfers in Pakistan

Till the time the state is unsuccessful in generating requisite growth and jobs, the need for programs like BISP will remain. When fiscal space for development expenditure shrinks, poor are hit the hardest. BISP was designed to cushion the impact of economic downturns on the poor. The need to support and retain BISP as a nutritional safety net has become even more pressing as the country continues to grapple with macroeconomic crisis and cuts in social sector spending. This situation coupled with low tax-to-GDP ratio hovering around 12 percent means fiscal space for social spending will remain restricted in the near future.

Researchers also find the poorest remain unable – rather than unwilling – to take advantage of the graduation approach as they lack capacity to do productive work. Graduation works best for those slightly higher up on the poverty scorecard. The increasing focus on graduation should certainly not drive resources away from households most in need of long-term protection (ultra-poor, children, elderly and disabled).

Graduation programs in isolation may not even warrant as social protection. These programs do not cushion beneficiaries against risks or shocks – except in the short term when people can sell off their assets nor do they provide any regular or predictable transfers apart from the first few initial months. A more strategic approach for those engaged in graduation could be to advocate for a comprehensive social security system accompanied by active labour market support to beneficiaries.

Moreover, BISP’s role as an ‘automatic stabiliser’ in the face of macroeconomic shocks to stimulate economic growth has so far received little attention. Social protection provides continuous income to the poor irrespective of the actual macroeconomic situation, preventing sudden dips in consumption. Cash transfer programs helped several countries in Europe (with advanced social protection systems) to get out of the 2008 crisis relatively unscathed.

Hina Shaikh is the Country Economist at the International Growth Center (IGC).