What’s the Most Cost-Effective Way to Reduce Extreme Poverty?

Over the past year, CGAP and Innovations for Poverty Action have compared the cost-effectiveness of three strands of anti-poverty interventions. Our central question is one that could greatly inform policy makers: Which program type generates the greatest and most sustainable impact for the extreme poor, given a limited budget?

We honed in on livelihood development programs, Graduation into Sustainable Livelihoods programs, and lump-sum unconditional cash transfers – i.e., the transfer of a large sum of cash with no restrictions on use. In our attempt to address this question, we reviewed 48 carefully selected programs: seven Graduation, 11 cash transfers, and 30 livelihood programs.

Methodology and limitations

Initially we reviewed over 200 programs, but selected 48 of them based on whether (1) the programs were designed to help the poor improve their economic well-being, (2) impacts on consumption or income had been measured and (3) information was available to measure project cost by household.

We relied on a simple measure of cost-effectiveness for comparison. By household, we looked at the impacts on consumption (or income, if impact estimates for consumption were not available), and the cost of the intervention. This is a limited measure of benefit, but it allows programs to be compared.

We faced some limitations. While all the cash transfer and Graduation cases are randomized control trials (RCTs), only nine of the livelihood cases are RCTs. Also, cost information was not always provided in the published studies, in which case we compiled information from various sources such as project completion reports.

Notably, although the intended goal was to compare interventions with a primary focus on the poorest, we found that only Graduation programs focus solely on the poorest with systematic, multi-stage targeting methods. There are few other programs that target only the poorest.

Impacts

Graduation programs have statistically significant impacts on participants most consistently across the evaluations: positive effects on consumption or income is observed in six out of the seven sites. Moreover, productive assets increased by 14% on average, while savings rose by 96%. All these impact findings are “long term,” lasting over a year after the program intervention ended (which is at least three years after the assets are transferred and training is conducted), and are in line with the positive findings of other qualitative evaluations conducted at BRAC and 10 Graduation sites.

The design of livelihood development programs are widely different, including in their duration, whether and to what extent they focus on the extreme poor and emphasis on measuring sustainability of impacts. Our review shows that the impacts of livelihood programs tend to be higher when targeted toward the less poor; only 10 of the 30 cases in the study have assessed impacts more than a year after the end of the intervention.

Lump-sum cash transfers in the study are typically short-term research projects with a relatively large transfer of cash delivered in a single payment or in several installments within a year. Only three of the eight cases target the extreme poor. Six out of the 11 cases found significant positive effect on consumption or income. These transfer programs have been evaluated with randomized impact assessments but did not measure long-term effects.

Cost

Programs targeting the extreme poor are more expensive than non-targeted interventions. With different income groups targeted, a comparison among these programs is limited, but some conclusions could be drawn:

• Lump-sum cash transfer programs had an average cost of US$232, with the size of cash grants ranging between US$84 and US$480. The one-off nature of the intervention combined with the possibility of using mobile money for the transfer explains the low cost.
• Livelihood programs had a large range in cost per participant household, starting as low as US$2.36 and going as high as over US$3,700. The average cost was US$796. The average cost for the 10 livelihood programs targeting extreme poor was even higher at US$1,147.
• Graduation programs also have an even higher cost, average US$1,148 with a wide range across sites, but their interventions were very similar across the pilots. The difference in costs across sites is likely driven by the variances in staff salaries, cost of inputs and population density.

Cost-benefit comparison

The overall cost-benefit ratio is the highest for lump-sum cash transfers (0.29) followed by livelihood programs (0.20) and the Graduation programs (0.11). This comparison includes programs with broad targeting (i.e. not focusing on the extreme poor) and lacking long-term impact assessments.

There are very few cases of lump sum cash transfer programs serving the extreme poor or measuring long-term impacts. Livelihood programs that targeted extreme poor or measured long-term impacts had much lower impact-cost ratios. When considering only the cases that target the extreme poor and impacts measured at least one year after the end of intervention, livelihood cases come out as having a lower cost-benefit ratio (0.09) compared to Graduation programs (0.11).

Graduation Approach: An important way forward

There is additional evidence from Graduation programs showing sustained impacts on economic indicators. For instance, in Bangladesh, the estimated impact of the Graduation program on consumption significantly increased between the end of the intervention and five years after. Furthermore, at least one year after the Graduation program ended, households had more productive assets (mostly livestock), more cash savings, and increased labor supply. In some countries, they even acquired livestock other than what was provided by the program.

The few livelihood and cash transfer cases with impacts measured at multiple points of time show a reverse trend: declining impacts. However, more evidence on long-term impacts of lump-sum cash transfer is needed to compare such transfers with the Graduation Approach in sustainable poverty reduction among the extreme poor. Based on current evidence, the Graduation Approach is the clearest path forward to reduce extreme poverty. 

Read the full paper on the FinDev Gateway: Making Sustainable Reductions in Extreme Poverty: A Comparative Meta-Analysis of Livelihood, Cash Transfer and Graduation Approaches.