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Escaping the poverty trap requires more than a cash lump sum

In a recent TV series, three families were given £26,000 – the maximum amount a person is entitled to receive in benefits in a year – as a lump sum in exchange for giving up welfare. The experiment on Channel 5’s The Great British Benefits Handout was modelled on the “graduation programmes” that have become increasingly popular in low-income countries such as Bangladesh, Rwanda and Haiti, and which aim to give people a big and sustainable push out of poverty.

While regular benefits reduce poverty, improve living conditions and can help families to make a head start, for many this is not enough to escape the poverty trap. Instead, a large cash amount or provision of assets – such as oxen for farmers or sewing machines for tailors – can support the start-up of a business to provide a regular future flow of income.

Evaluations indicate that graduation programmes show promise, but that success hinges on more than just handing out cash and assets. For programme participants to move and stay out of poverty, they need a comprehensive package of support that also includes training, coaching and financial services.

The experience of the participants in The Great British Benefits Handout illustrated the importance of receiving advice alongside the cash. While two families started their own businesses with success, smarter and money-saving choices could have been made with the provision of more solid support on business planning.

Coaching and support

Lessons from further afield from Concern Worldwide’s graduation programme in Burundi show how thinking through the most viable options in consultation with a case manager and establishing a business plan can help people to set up feasible income-generating activities. The production and sale of banana juice and cassava flour were identified as two of the most feasible and lucrative opportunities, and the programme provided participants with training and support for setting up their activities.

The positive approach in many of these programmes – building on people’s strengths and opportunities through regular interaction with case managers and participation in community groups – provides people with a sounding board and helps them through tough times. Lessons from the charity Fonkoze’s Chemin Lavi Mio (pathway to a better life) programme in Haiti, show how this approach builds confidence and respect. This in turn compounds entrepreneurial spirit and activities and reinforces an upwards virtuous cycle.

Chemen Lavi Miyò or ‘Pathway to a Better Life’

Children and the investment trap

But even with skills and confidence, the model might not work for everyone. Families with children face a dilemma when participating in graduation programmes. The establishment and maintenance of a new livelihood and business activities require time and resources, both of which are also crucial for children’s well-being and development.

Programmes may also place participating families in an investment trap, having to balance their children’s needs against the requirements of the programme. For example, caregivers in a pilot project implemented by local NGO REST as part of government-administered safety net programme in Northern Ethiopia in 2010-11 found it hard to provide adequate care for their children with the additional demands placed on their time and family resources.

Graduation model programmes have their limitations. While they may be successful in breaking down individual barriers such as lack of skills or seed capital, for the entrepreneurial model to work, people need access to roads, markets and financial institutions for future investments.

And while some recipients will flourish as business men or women, others will prefer a regular job. Secondary school students in Ghana, for example, find formal, salaried and professional jobs preferable to being self-employed. For programmes to be successful, they require more engagement with labour markets and how they can support participants in finding sustainable employment.

Nevertheless, the positive experiences with graduation programmes around the world are a welcome antidote to the scepticism surrounding cash “hand-outs” from welfare systems in countries such as Britain.

Benefits don’t make people lazy and dependent – neither in developing countries nor in the UK – but are a powerful tool for improving lives. But ways out of poverty are about more than just cash. A positive approach including having people as active agents of change while acknowledging their individual needs, challenges and aspirations form an important part of any success.

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