Wednesday, August 15, 2018

Nigerian government hands out cash to battle extreme poverty

The Nigerian government has just launched a collateral-free loan scheme which will see two million petty traders receive $28 repayable in six months.

It’s the latest social intervention program under Nigeria’s president Muhammadu Buhari. The government also offers free meals in public primary schools and plans to distribute $300 million in looted funds recovered from Swiss authorities to its poorest people. Around 300,000 households in 19 of Nigeria’s 36 states are expected to receive $14 per month.

There’s one simple reason Nigeria is doubling down on cash transfers to its poorest people: 86.9 million Nigerians—nearly 50% of its estimated 180 million population—live in extreme poverty.

So, does handing out cash to poor people actually work?

Yes, according to data.

A 2016 study by Overseas Development Institute (ODI) showed links between cash transfers and an improvement in school attendance, use of health services and dietary diversity in households that receive them. As Quartz has reported, when given to women, cash transfers have a positive impact on reducing domestic and sexual violence in poor households as well as reducing the spread of sexually transmitted diseases.

Research has also dispelled the notion that poor people could abuse cash transfers with non-essential purchases. Several countries are wise to the potential of cash transfers as a development policy. Around a billion people currently receive cash transfers across 130 countries, according to the World Bank (pdf) with most of the transfers coming from governments.

But there’s a catch.

Studies also show that while giving money to poor people outright can have a positive impact on reducing poverty, the effects don’t last after the cash transfers stop. For many recipients, the cash transfers are essentially a means to better living on a day-to-day basis rather than a permanent transformative fix. The short-lived effects clearly give governments a hint: cash transfers are not substitutes for good governance or delivering a better life to citizens in the long-term.

Ephemeral effects aside, local nuance means cash transfers in Nigeria will unlikely be straightforward business. For starters, Africa’s largest economy notoriously lacks national records through which it will properly identify its poorest people. More so, with the poorest people likely unbanked, it’s unclear how the cash will reach them in a manner that’s transparent. In a country where corruption is rampant, that’s a red flag.

And then there’s the question of timing. With general elections due early next year, some will regard the interventions as a play for votes. There is already ample reason to be cynical. Recent state level elections have been marred by brazen vote-buying by agents of major political parties.

Cheta Nwanze, researcher with SBM Intelligence, a Lagos-based intelligence consulting firm, says the loan scheme “will likely end up as a largesse which will not make a dent” and for which “return rates will be very poor.” Recent history backs up some of that sentiment. After launching a $126 million loan scheme for farmers in 2015, the government has struggled to recover the loans. As of December 2017, less than 50 of the 5,540 rice and wheat farmers who received loans had repaid them.

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