Do cash transfers mitigate risks and crowd out informal insurance? Evidence from a randomized experiment in the Philippines

This study evaluates the impact of a Conditional Cash Transfer (CCT) program on risk mitigation and informal insurance systems among poor Filipino households during exposure to negative income shocks. CCTs can reduce dependence on informal arrangements by increasing beneficiaries' income, making them more resilient to shocks and less reliant on informal networks. Conversely, it can reinforce informal arrangements by enhancing the financial capacity of eligible households, enabling them to lend money to others during shocks. Theoretical outcomes can thus be ambiguous. Using a sample of 1,415 households from 130 village clusters randomly assigned to treatment and control groups, intention-to-treat (ITT) estimates suggest that CCT has unintended consequences on risk mitigation and positive spillover effects on the informal system. Beneficiaries’ medical expenses and borrowings from the informal system increased during shocks. Additionally, increased lending support was observed among ineligible households in treatment areas, along with a decrease in their borrowings from the informal system.