Proxy means testing

Proxy means tests use indicators based on household characteristics (often assets and household members) other than income. Observers make assessments of each household’s level of prosperity or want through visible indicators such as: type, size and quality of the house, family composition, water supply, households assets such as radios and bicycles, number of children, number of adults capable of working, and number and type of livestock owned by the household (Clunies-Ross & Huq 2014:58; Hanlon et al. 2010:108). Proxy means test targeting methods originated in middle-income Latin American countries. Several researchers (Samson et al. 2006:

56; Coady et al. 2002:32) show that Chile was the first country to use proxy means testing when it introduced its Ficha CAS program in 1980.

In their study of targeting methods used by a large number of conditional cash transfers, both established and nascent in Africa, Latin America and the Caribbean, Middle East and North Africa and South Asia, Fiszbein and Schady (2009:70) found that about two thirds of the countries use household targeting via proxy means testing. Garcia and Moore (2012:86) make a similar observation by noting that: “Proxy means tests are much more common in CCTs [Conditional Cash Transfers], a practice similar to CCTs outside of Sub-Saharan Africa….”

128 Fiszbein and Schady (2009:70) observe that proxy means tests across regions and countries implementing conditional cash transfers vary in their details: “For example, in all cases, the formula for the proxy means test was derived from statistical analysis of a household survey data set; but, of course, there are differences in the statistical methods used and in the sophistication and rigor thereof.” There are also significant variations in how the actual implementation of the proxy means test targeting method is carried out in different countries: Several examples are provided in the cash transfer targeting literature. Adato cited in Hanlon et al. (2010:108-109) provide two examples that illustrate differences. In Mexico, Oportunidades the successor programme to Progresa use a complex proxy means test. Communities are first selected using geographical targeting followed by a household census.

The census collects household data on family composition; literacy; education of members; economic activities; diverse sources of income; presence of disabled people; accommodation characteristics; availability of basic services;

and possession of productive household assets such as land and drought power. A statistical technique is then used separately for each geographic region to identify characteristics that best distinguishes between poor and non-poor households, and an index is developed. Households are then categorised along values of the established index, and those falling below a predetermined threshold are chosen as programme beneficiaries. Community verification exercises are then carried out to validate the final lists of programme beneficiaries. The argument is that community validation is an essential part of the process because community members know each other well.

Watkins cited in Hanlon et al. (2010:108-109) notes that the proxy means test used in Zambia assesses six variables: household size, number of orphans in the household, number of disable people, age of head of the household, education level of the head of household, and gender of the head of household. The model came up with 61 percent of households falling below the poverty line.

129 Other variations in how proxy means tests are implemented include: whether households are visited; whether some variables are verified as art of the application process for all or a sample of applications; the type of institution of agency conducting the proxy means tests. The usual practice is that the proxy means test system is led and managed by a central agency.

Several advantages of proxy means tests are noted in literature. They provide

“an operationally feasible alternative to the near impossible precise measurements of household income or expenditures by using proxy indicators which are ideally selected so they are easy to ask, respond to, and verify.

“Proxy means test require simple and shorter questionnaires while still achieving acceptable levels of accuracy, provided they are well designed and periodically updated” (Johannsen, Tejerina & Glassman 2010:157). Proxy means tests have the potential to select the poorest households as demonstrated by numerous examples in literature. Begum and Sen (as cited in Hanlon et al. 2010:109) note that studies in Bangladesh showed proxy means test yielding a 95 percent accuracy rate of targeting the income-poor.

Fiszbein and Schady (2009:76-77) find that in Ecuador proxy means test correctly identified 95 percent of households in the poorest quintile. In Brazil family grants are considered to be well targeted on the poorest with 100 percent coverage of those in the bottom quintile.

Another important advantage of the proxy means test method is that “[t]he household targeting systems used in some of the best-known CCT programmes constitute major ‘institutional capital’ for the country. The same system often is used to target many programmes, sometimes with different thresholds or ancillary criteria.” In Chile the system is used in the Chile Solidario programme and for the child allowance, social pensions, water and housing subsidies programmes. In Colombia and Jamaica, proxy means tests are also used in multiple programmes for example health insurance, hospital fee waivers, secondary education book textbook rentals and school lunches (Fiszbein and Schady 2009:70-71).

Despite the advantages associated with proxy means tests, there are a range of challenges or problems with the method. In theory, proxy means test or

130 household targeting strive for greater accuracy in identifying and selecting the poorest. In practice, the method can have some flaws. A study of the effects of Progresa on community social relationships – important forms of social capital – found that proxy means targeting had adverse effects on social relations undermining social cohesion and solidarity (Adato 2000:11).

Perceptions of unfairness, lack of transparency and build-up of tensions were not only experienced in Mexico’s Progresa programme. Nicaragua and Mongolia provide other useful examples. In the former, geographic targeting was completed first followed by proxy means test to select beneficiaries. The proxy means test was abandoned because it was not widely understood by communities (Hanlon et al. 2010:110). Hodges et al. (as cited in Neubourg 2009:70) highlights the inaccuracy of the proxy means test in Mongolia noting that more than one third of the target group were excluded while two thirds of the non-targeted group were included (inclusion error) and received programme benefits. Hanlon et al. (2010:111) make the point that as a result of the targeting inaccuracies in Mongolia’s programme, the proxy means test was abandoned and replaced by a universal child benefit scheme. Fiszbein and Schady (2009:77) note that a possible cause of exclusion errors associated with proxy means tests is that the method “…contains an element of statistical error in making their predictions of household welfare.” However, the authors also note that exclusion errors may result from inadequate outreach to potential beneficiaries. Outreach exercises are carried out to create awareness about the programmes and how benefits are accessed.

Another disadvantage beyond social costs associated with proxy means tests is that if households know the proxy indicators in use, they can manipulate their family and assets information. For example, they may hide household objects like bicycles, radios, television sets and this may yield incorrect information about the true status of a household (Hanlon et al. 2010:110).

Proxy means tests require a competent civil service that can be trusted to administer complex systems involved in household targeting methods. The civil servants ought to be trusted to act honestly and objectively in working through the entire process. Political interference may affect bureaucratic

131 processes and in some cases political affiliation may be a factor in deciding who benefits and who does not. The issue of trust is an important dimension of vertical or linking social capital which is concerned with vertical ties connecting people to formal institutions or authority structures. Where countries are subject to government corruption, it means public officials may not be trusted and this usually results in poor people failing to access the necessary information from institutions of power and subsequently programme benefits.

It is noted in the targeting literature that because of the complexity of proxy means tests many countries implementing cash transfers and relying on this method continue to refine and improve the implementation of proxy means tests. Fiszbein and Schady (2009:80) make the point that many programmes have carried out “rectification processes to remove from the list of beneficiaries those who have prospered in the interim.”