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

CASH FOR RECOVERY
4.1.3. Amount of monthly transfers
As seen in Table 3, the gap between average target group incomes and the poverty line of
Rs1,650 per person per month varies considerably from household to household. For
practical reasons it is not possible to tailor the volume of transfers to the individual needs of
each beneficiary household. A transfer of Rs800 per person per month would mean most
target group households reach the poverty line or slightly exceed it. For those remaining
below the poverty line, the transfer can still be considered as a significant contribution to
their livelihood. It rises them from extreme poverty to moderate poverty.
Taking into account that there are certain economics of scale, the monthly transfers should
vary with the household size, as follows:
Single-person households Rs1,000 ($10)
Two-person households Rs1,800 ($18)
Three-person households Rs2,500 ($25)
Four-person households Rs3,000 ($30)
Five-person households Rs3,500 ($35)
Six and more person households Rs4,000 ($40)
4.1.4. Financing and delivery mechanism
The monthly transfers will be generated from a one-off capital investment that is made for
each beneficiary household. The equation used to calculate the amount of capital required is:
monthly transfer required x 12 x 100
interest rate
Assuming an interest rate of ten per cent:
• The capital required to generate an interest of Rs1,000 per month to finance the
transfers for a single-person household is Rs120,000 ($1,200).
• The capital required for transferring monthly Rs4,000 to a six-person household is
Rs480,000 (S$4,800).
• Assuming that, on the average, a capital of Rs300,000 per household is required, the
total capital costs for 2,700 households are Rs810 million ($8m).
Once the capital has been deposited in the name of the recipient, the interest will
automatically flow, for an infinite number of years, to the personal bank account of the head
of the beneficiary household. The household head will become the owner of the capital.
He/she will be free to draw the interest accrued from this account at his/her convenience,
but should not be able to withdraw the capital during the first ten years. In the event of the
death of a head of household, his/her contract with the bank has to include a paragraph
stating who will inherit the capital.
All tsunami-affected households have bank accounts because the government transfers are
delivered through bank accounts. Using these accounts has been rated as convenient by most
households interviewed.
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