Prime Minister Anwar Ibrahim recently announced that 200,000 hardcore poor recipients will be able to purchase RM100 worth of basic necessities every month until December, just by using their MyKad. Under the Sumbangan Asas Rahmah scheme, recipients are only allowed to spend their monthly allocation from an approved list of ten product categories — this will be ensured using a barcode-scanning mechanism at the point-of-sale. Recipients are also asked to keep receipts as proof of purchase and to keep track of their available balances which can be carried forward.

Any initiative to expand social protection for the poor in this country should be rightfully lauded. However, the process described under the Sumbangan Asas Rahmah scheme sounds unnecessarily complicated and restrictive.

This begs the question — why not just give cash?

The question is especially pertinent when we consider that Sabah and Sarawak recipients under the same scheme would receive a one-off payment of RM600 through bank credit or cash, instead of the modality that Peninsular recipients are subject to. Why the disparity?

This particular approach makes even less sense when we consider the large body of economic and policy literature on this subject: there is a strong consensus among experts that cash transfers are more effective at helping the poor than in-kind schemes such as card and voucher programmes which impose restrictions on recipients.

The main reason that cash transfers are more effective is that cash is fungible: meaning that it is inherently flexible, unlike vouchers and in-kind assistance. In contrast to programmes that limit the use of funds to specific goods like the Sumbangan Asas Rahmah scheme, cash transfers would allow recipients the freedom to spend the money according to their specific needs and priorities. These needs and priorities would change every month and can go beyond merely affording basic household items, especially for hardcore poor households who are more vulnerable to sudden financial shocks. Giving cash would empower recipients to make informed decisions about how to allocate the funds, not only enabling them to address their unique circumstances but also to pursue opportunities for self-improvement. By affording greater autonomy, direct cash transfers promote dignity and respect, recognising that individuals are best equipped to make choices about their own wellbeing — yes, even the poor.

Cash transfers also more efficient as they offer a streamlined and cost-effective approach to distributing aid. Unlike card- or voucher-based systems that require administrative infrastructure such as custom point-of-sale systems, direct cash transfers eliminate the need for any intermediary, thus reducing cost, bureaucracy, and the potential for corruption. To illustrate, the hardware and software system for Malaysia’s targeted petrol subsidy alone cost the previous government RM25.03 million in 2019. By disbursing cash directly to recipients, a higher proportion of government resources can be channelled directly towards the needy instead. This efficiency translates into tangible benefits for both the government and the recipients, as it maximises the impact of the government’s welfare assistance.

Direct cash transfers also have a market-stimulating effect that can generate positive economic outcomes. When individuals receive cash, their consumption inject the funds into their local economy. This increased demand can boost local businesses, thus leading to job creation and economic growth. Cash transfers therefore have a multiplier effect: stimulating economic activity and contributing to poverty reduction in the long run.

In contrast, card and voucher systems that limit spending options can result in funds going unused or being underutilised. To make matters worse, these restrictions on spending can lead to unintended abuse. One does not have to look far for examples. Numerous news outlets reported earlier this month that recipients of the recent RM200 eBeliaRahmah aid tried to convert the e-wallet credit to cash, even paying unscrupulous scammers to do so as they needed the cash to purchase necessities. Going further back to 2016, 1Malaysia Book Voucher (BB1M) recipients were found selling their vouchers to bookstores to obtain cash as the vouchers stipulated that recipients were only allowed to purchase books and stationery. Giving cash directly would avoid these instances of recipients trying to circumvent spending limitations in order to obtain cash.

There is also a long list of research studies which dispel the myth that giving cash would promote higher spending on “undesirable” items like alcohol and tobacco. In fact, cash transfers were found to decrease expenditure on these items in some countries. Evidence shows that there is no need for the limitations imposed under the Sumbangan Asas Rahmah scheme.

To quote prominent Harvard economist Edward Glaeser, “despite the conventional economic logic that cash transfers are more effective at helping the poor”, the choice of not giving cash seems to be “based on politics rather than economics”.

We must ensure that this is not the case for Malaysia. Evidence from around the world tells us that for the poor, cash is better than “cashless”. We should heed this, and let similar evidence serve as the guiding compass for this new administration to craft effective, efficient, and equitable solutions — lest our policies for the poor end up as poor policies.

Derek Kok Qi Ren
Jeffrey Cheah Institute on Southeast Asia
Email: @email

This article was first published in Malay Mail, 19 July 2023.