Malawi's Social Cash Transfer Experiment

Malawi is a small country with big problems — around half of its residents live below the national poverty line and 11 percent of the adult population are HIV-positive. Malawians are often linked to the grim statistic that most of them are subsisting on less than a dollar a day.

Reagan Kaluluma thinks of these same poor Malawians as economists. "I've been impressed to see how poor people make decisions which most of us who go to school fail to do," he said.

Kaluluma has worked for many years with Malawi's national social cash transfer program Mtukula Pakhomo. Through the program, designated households receive small monthly grants to spend as they wish — no strings attached. "There is potential in poor people who not long ago could not do anything. But now they can survive on their own," he said.

This strategy of cutting out the middleman and giving directly is attractive to many who want to see leaner forms of aid. But people like Kaluluma who work with cash transfers are faced with one recurring question: "Are they going to use the money the right way?"

Kaluluma remembers that even in 2006 when the program was in its pilot stage the concept of paying the poor was met with skepticism. "We always try to push the blame on them: they are poor because they don't think well, they are poor because they don't plan well," he said.

While there have been plenty of attempts at creating programs to assist the poor in Malawi, few are tailored to the needs of the country's poorest. Micro-loans, for example, might give a moderately poor family a shot at upward mobility. But for households who don't have access to basics like shelter and clothing, micro-lending may not have this desired effect.

"The general problem that I usually find is that the focus is on people paying back the money," said Kaluluma.

For Kaluluma it is a simple question, "Are we interested in significant changes or improvements in the vulnerability of the people or in the recovery of the loan?"

According to Kaluluma, a cash transfer's success or a failure is dictated by the design and implementation of the program rather than what the beneficiaries do with the money: "They are not careless spenders of money. They are always careful to say, 'Government gave me $10. Do I have enough food? Do I have enough clothes?'"

So far the social cash transfer program in Malawi has had good results. The data show gains in food security and reductions in child labor. Parents report being able to send their children to school and in some places you now even see households developing assets, like livestock.

These successes, however, also make Kaluluma nervous that cash transfers might turn into a development fad. "There should be some kind of mechanism [in place] instead of every donor talking to a minister of his or her choice and starting a cash transfer. Otherwise we might overspread our wings. Eventually the system might collapse," he said.

Kaluluma believes that failing to ensure that there is appropriate human capacity to implement and coordinate the transfers could result in disjointed programs with diluted outcome. The resulting chaos could hurt even well thought-out cash transfer programs that might become tarnished by association. "It's very easy because money going into the hands of the poor people always raises questions," he said.

Zione Themba was also part of the team that measured the success of the social cash transfer. She hopes that some people will eventually graduate out of the cash transfer program and move on to receive assistance from other programs. However, this will likely be a challenge because of the recent devaluation of Malawi's currency. "Six hundred kwacha a month is nothing nowadays and not something that could change somebody's life," she said. Like many cash transfer recipients she hopes that the program can grow to include more people who are truly in need.

Themba recognizes that the social cash transfer has a limited scope, especially given the level of need. The program is only targeted at the poorest 10 percent of Malawians; the differences that separate these households from their neighbors are often miniscule. As part of the program's impact evaluation effort Themba encountered some communities where the cash transfer was too effective and people became jealous of the poorest who were now better off than those who had not been selected for the program.

"It means that now there are some other poor people who need to be helped," she said.

Despite clear weaknesses there is evidence that the program may indirectly strengthen the local economic fabric. "There were some other people who were doing casual work in the fields of the people who were receiving the cash transfer. Some could even borrow the money during paydays and then return it later," she said. Before the cash transfer took effect, salt or a box of matches were unattainable luxuries for some families. "To set fire they had to go to another house and get fire from there."

Blessings Nkhoma is pensive as he stands outside his office in downtown Salima. "Malawians are poor but they are happy. I don't know why, but they are," he said.

Salima is surrounded by small villages and blooming mango trees. There are few employment opportunities here and many of the local cash transfer recipients and their neighbors subsist on small-scale agriculture, which leaves them vulnerable to the volatility of the climate and the markets.

In the face of great need, Nkhoma argues that the key to designing a good cash transfer is to look at what is on the ground. He compares Malawi to Liberia where he spent some time working on another cash transfer program. There, he says, people were conditioned by years of political instability to spend money only on what they could carry with them. In Salima he sees families are putting new roofs on their houses and investing in their children's education.

Nkhoma is especially excited about what sounds like a particularly mundane bureaucratic detail—the recent incorporation of the social cash transfer into the national budget. He believes that it is important for the government to have a stake in the program and that people see this as a Malawian initiative.

Nkhoma hopes that government support will lend the program stability and accountability. He remembers one particular time when an international donor failed to make good on a grant and the cash transfers did not go out on time. Many cash transfer recipients needed loans to tide them over. When the money eventually came in almost everything went to the local creditors. According to Nkhoma, regular setbacks like this could derail the successes of Malawi's cash transfers.

Kaluluma agrees that government buy-in for the program is key. "It is important that the government starts thinking that somebody who is poor today, somebody who is vulnerable today needs our attention. Or else the government will pay a higher cost because these people eventually need something and it causes more problems in our society," he said.