Feasibility study on a capital-based income generation scheme for ...

OPTIONS FOR SUPPLEMENTING LIVELIHOOD RECOVERY EFFORTS WITH CASH/CAPITAL TRANSFERS
coping strategy will be begging and reducing consumption to an extremely low level.
Children living in these households will be deprived of their most basic needs.
Such households require regular transfers that fill the gap between their small income and
the income required to meet minimum basic needs. According to our calculation (see Section
2.3) the gap is, on the average, Rs800 per person per month. This is lower than the present
GoSL and WFP transfers (totalling about Rs1,500 per person per month), but much higher
than the present Samurdhi transfers of Rs100 per person per month. Due to ineffective
targeting, the latter is received by only some of these poorest households.
Taking the nature of this category of households into account, transfers are required for a
long time until the household structure changes for the better. For instance, for a household
with small children it may take over ten years before the children have grown up and can be
considered breadwinners. This poses the question: how can a two-year project provide longterm
regular social transfers? It cannot.
However, instead of paying regular monthly transfers directly to beneficiary households, the
project could transfer a one-off capital grant to each household, which is invested in such a
way that it generates a long-term return (interest). This return would provide the required
monthly contributions to the livelihood of the households. The investment would have to be
made in such a way that interest rates are fixed for a long period and risks are minimised.
Beneficiaries would receive regular payments into their private accounts, but would not be
able to withdraw the capital. Due to inflation the value of the monthly cash transfer will
decrease steadily over time. This can be seen as an incentive for the household to build up
alternative sources of income over a longer period wherever possible.
The advantage of this option is that, once the capital has been transferred and invested, the
task of delivering the monthly transfers is completely left to a reliable financial institution
(like a government bank). Also no follow-up in terms of administration and logistics is
required. Except for the targeting (which will be difficult, requires utmost care, and will have
high administrative costs) and monitoring and evaluation, other administrative and logistical
costs are low. Assuming effective targeting, risks of corruption and leakage will be minimal.
The only major and unpredictable risk is inflation.
For these reasons, capital-based transfer incomes for extremely poor and labour-scarce
households seem to be the most promising option for supplementing ongoing and planned
livelihood recovery efforts with a cash/capital transfer project. The following chapter will
assess the feasibility of this option in detail.
31