The Takaful program: Where does Egypt’s conditional social safety net go right or wrong?

Egypt’s Takaful assessment is based on proxies, such as the household’s number of rooms and light bulbs, and whether assets include a fridge, television or a vehicle (Photo courtesy of Ministry of Social Solidarity)

As Egypt continues to implement its economic reform program, the country attempts to mitigate the program’s severe effects on society’s poorest segments by providing a social safety net.

Egypt seems to be heading towards an income distribution system in which conditional cash transfers play a significant role, along with other middle-income countries across the globe, according to Philippe van Parijs, lecturer at Hoover Chair of Economics and Social Ethics of the Université Catholique de Louvain.

What are conditional cash transfers?
In short, conditional cash transfers aim to alleviate poverty by making sure that only households with a certain set of met criteria receive monthly cash transfers from the government. Such criteria include number of children, school attendance and health monitoring. In Egypt, the program that falls under this umbrella is best known as Takaful (Solidarity), aimed at households with children aged 0-18.

The program has been instituted by the government and a World Bank loan, receiving the lion’s share of the government’s social safety net funds. Along with its sister program Karama (Dignity), which targets the elderly, people with disabilities and orphaned children through unconditional cash transfers, the programs covered over 2.2 million families with LE1.1 billion in conditional cash transfers during May 2018 alone.

In a brief prepared for the American University in Cairo’s (AUC) Alternative Policy Solutions (APS) research project, van Parijs explained that conditional cash transfer schemes exist in over 60 countries; the most significant ones being “Bolsa Familia” in Brazil and the Takaful scheme currently being implemented and expanded in Egypt.

The conditional cash transfer system can significantly contribute to alleviate poverty levels, particularly in the case of extreme poverty, and has positive effects on health and education, according to van Parijs.

Could conditional cash transfers suffer shortcomings?
As is the case with most poverty-alleviation schemes, conditional cash transfers can suffer problems.

It is usually suggested that in-kind transfers are better than cash to ensure that the resources are spent on necessities, van Parijs pointed out. While in-kind transfers are characterized by heavier administrative burdens, higher risks of mismanagement, clientelism and corruption, they make sure that on the beneficiaries’ end, necessities are provided. Regardless, there is often a strong argument in favor of cash transfers and that poor households must be trusted with the cash they are given.

Policymakers also coin the question of whether it is rational to impose conditions of health monitoring and school attendance, van Parijs stated. It signals that the government eyes investing in its human capital, like in the case of Brazil. However, these criteria are not necessarily held back by a lack of financial resources, but may be the result of domestic conflict, family dislocation and geographical distance.

What van Parijs considers the most crucial challenge, however, is that conditional cash transfers are restricted only to the population qualifying as poor, also known as means-tested.

In countries where informal economies play a significant role, it is hard to identify the income of each household

Difficulties that face the means-tested nature of conditional transfers
There are two main difficulties in qualifying households as poor. Firstly, in countries where informal economies play a significant role, it is rather hard to identify the precise income of each household. Checking the informal annual income of each household is beyond the capacity of even the best administrations, he suggested.

Secondly, Egypt’s Takaful assessment is based on proxies, such as the household’s number of rooms and light bulbs, and whether assets include a fridge, television or a vehicle. Keeping track of such criteria is extremely complicated and requires a massive amount of human and administrative resources.

These difficulties lead to questioning the proportion of the poor who will actually receive the transfer.

Even in countries that have a relatively efficient welfare state, so-called “eligible” poor households either receive the cash transfers too late or not at all.

This happens due to lack of information, given the difficulty of providing and assessing correct information in a timely manner, and the stigma attached to poverty. Even with the “most humane staff” in local welfare offices, some poor households prefer not to claim benefits they are entitled to because they consider it “a blow to one’s self-esteem,” van Parijs highlighted.

Taking it a step further: once the situation improves for a household, this leads to a loss of the benefit, which may reduce the incentive for those households to improve their income status.

The universal scheme of an unconditional basic income has gained unprecedented popularity in recent years

Can unconditional basic income be a hopeful horizon?
Van Parijs believes that the universal scheme of an unconditional basic income has gained unprecedented popularity in recent years, especially since 2016.

The unconditional basic income is a scheme that does not only target poor households, but is distributed to the rich and the poor alike. This income is strictly individual, universal and obligation-free. This scheme, however, does not face the unsolvable problem of an income test in informal economies, according to van Parijs.

Still, in circumstances where everyone has access to bank accounts, “it can easily attain a very high rate of take-up among the poor because it demands little information and involves no stigmatization,” according to the lecturer.

Implementing an unconditional basic income could be an innovation in the domain of social protection and basic economic security. It is obvious that the funding of a conditional basic income is more achievable when the fiscal system is monitored, but this is not the case in Egypt where the informal economy represents a large sector, he stated.

Van Parijs concluded that the idea of an unconditional basic income in countries like Egypt does make sense – not as something that can be introduced tomorrow, but as an essential horizon of what can be done.

 

    Knowledge Partners

    CONTACT US

    School of Business
    American University in Cairo
    AUC Avenue – P.O. Box 74
    New Cairo 11835
    Egypt
    Email: BusinessForward@aucegypt.edu

    Copyrights © 2017 The American University in Cairo School of Business • All Rights Reserved

    Copyrights © 2017 The American University in Cairo School of Business • All Rights Reserved