Types and Importance of Welfare Systems

25 min

One illness, two families

Two illustrative farming families each have a child who falls seriously ill and needs a week in hospital. The first family has no health insurance; to pay the bill it sells its cow and takes the eldest daughter out of school to work. The second family is a member of community-based health insurance (Mutuelle de santé); it pays a small share of the cost, keeps its cow and keeps its daughter in school.

A year later the first family is poorer than before the illness, and its daughter's future is narrower. The second family has recovered. The difference was not luck or hard work. It was a welfare system, and this lesson asks what kinds exist and why they matter for a country's economic development.

Definition

Welfare: people's well-being: health, income security, a decent standard of living.

Welfare system (social protection): in the words of Rwanda's National Social Protection Policy (2020), "all public and private income transfers schemes, Social Care Services, livelihood support and insurance schemes that, together, ensure that all extremely poor and vulnerable people have income security, a dignified standard of living and are protected against life-cycle and livelihood risks".

Social insurance: schemes in which members pay regular contributions and receive benefits when a risk occurs (illness, injury, old age). Social assistance: support paid from public funds to people in need, without previous contributions.

Safety net: a programme that stops people falling into, or deeper into, poverty after a shock, such as cash transfers or public works.

Graduation: when a poor household becomes productive and resilient enough that its consumption stays permanently above the poverty line.

Types of welfare system in Rwanda

Type	How it works	Rwandan examples
Social insurance (contributory)	Workers and employers pay contributions; members draw benefits when a risk occurs	Rwanda Social Security Board (RSSB) schemes: pension; occupational hazards; maternity leave; medical insurance (RAMA); community-based health insurance (CBHI)
Voluntary long-term savings	People save regularly for old age, often with government incentives	EjoHeza, created by Law N° 29 of 2017 and run by RSSB, open to salaried and unsalaried workers
Social assistance (non-contributory)	Cash or goods given to those in need, paid from public funds	Vision Umurenge Programme (VUP, launched in 2008): direct support (unconditional monthly cash transfers), nutrition-sensitive direct support for poor pregnant women and children under two; Girinka; support for needy genocide survivors (Constitution, Article 50)
Public works	Poor households earn wages building community infrastructure	VUP classic public works (short-term) and expanded public works (part-time, year-round)
Universal public services	Services free or cheap for everyone	Free, compulsory primary education in public schools (Constitution, Article 20)
Informal and community welfare	Families, neighbours, savings groups and faith communities support members	Help at weddings and funerals; savings groups; Umuganda for a vulnerable neighbour

CBHI shows how insurance and assistance combine. According to RSSB, members of the poorer categories pay 3,000 Frw per person, with those in Category I supported by the Government and donors, while Category IV members pay 7,000 Frw; treatment at health posts and health centres then costs from 200 Frw.

Figure 4: welfare systems follow the risks people face from birth to old age. The responses named are examples from Rwanda (RSSB; LODA's VUP programme document, 2022; Constitution, Article 20). Drawn by Ganzaa.

Why welfare matters for economic development

Rwanda's social protection policy describes three functions, quoted in the VUP programme document: protection ("essential support to those living in poverty"), prevention ("insurance mechanisms and safety nets ... to catch people in danger of falling into poverty") and promotion (supporting "poor people's investment so that they can pull themselves out of poverty"). Each has an economic effect:

It protects human capital. Children who are fed and kept in school become productive adults (Lesson 2).
It prevents a shock from becoming permanent poverty. The VUP document defines resilience as the ability to withstand shocks without harmful steps such as "withdrawing children from school or selling productive assets", exactly what the first family did.
It encourages investment and risk-taking. A farmer who knows that illness will not ruin the family is more willing to try a new crop or start a business.
It supports demand. Cash transfers are spent in local markets, supporting traders and producers.
It builds infrastructure. Public works build terraces, roads and water channels.
It supports social cohesion and stability (Unit 1): people who feel protected trust institutions more.

Comparing welfare systems

The sociologist Gøsta Esping-Andersen (1990) grouped rich countries' welfare states into three types: liberal (modest, means-tested support; the market provides most; for example the United States), conservative (benefits linked to employment and contributions; for example Germany) and social democratic (generous, universal benefits paid for by high taxes; for example Sweden). Rwanda's system mixes contributory insurance, targeted assistance for the poorest and community-based schemes. It faces a particular challenge: in 2025, 91.8% of employment was informal (NISR, Labour Force Survey), so most workers are outside the formal pension system. Voluntary schemes such as EjoHeza aim to reach them.

Warning

"Welfare makes people lazy." This common claim needs evidence, not assumption. Well-designed programmes such as public works and graduation support link help to work and to building assets, and children who are fed and schooled become workers. Real risks to discuss instead: the cost to the budget, mistakes in choosing who receives help (some poor people left out, some non-poor included), fraud, and dependence when programmes offer no path to graduation.

Tip

Who pays, who benefits, what risk? To classify any scheme, ask three questions. Who pays (members' contributions, or taxes and donors)? Who benefits (everyone, members only, or only the poor)? Which risk does it cover (illness, old age, unemployment, poverty)? The answers tell you whether it is social insurance, social assistance or a universal service.

Important

Discuss. With 91.8% of jobs informal, should Rwanda make pension saving compulsory for informal workers, keep it voluntary with incentives, or rely on tax-funded old age grants? Weigh the cost, fairness and effect on development of each option.

International Labour Organization (ILO): "What is social protection?", about 1.5 minutes, released for the World Day Against Child Labour. Note the link the ILO makes between social protection and keeping children out of work and in school.

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Practice

Define social protection, and distinguish social insurance from social assistance.
Classify each scheme as social insurance, social assistance, public works or a universal service: (a) RSSB pension; (b) VUP direct support; (c) free primary education in public schools; (d) VUP expanded public works; (e) occupational hazards cover.
Name the three functions of social protection and give a Rwandan example of each.
Explain, with the case of the two families, how health insurance protects a family's future income.
A household of 6 people in Category III joins CBHI. Using RSSB's rates, what is its total contribution?
Explain why a high share of informal employment is a challenge for a contributory pension system.
"Welfare spending is a cost, not an investment." Evaluate this statement with reference to Rwanda.

Show answersHide answers

Social protection: public and private transfers, care services, livelihood support and insurance that give the poor and vulnerable income security, a dignified standard of living and protection against life-cycle and livelihood risks. Social insurance is funded by members' contributions; social assistance is paid from public funds to people in need without previous contributions.
(a) social insurance; (b) social assistance; (c) universal service; (d) public works; (e) social insurance.
Protection: VUP direct support for households with no one able to work. Prevention: CBHI, which stops an illness from pushing a family into poverty. Promotion: graduation support, financial services and public works that help households build assets.
Without insurance, the family paid the bill by selling its cow (a productive asset) and taking a child out of school (losing future human capital), so its future income fell. With insurance, it paid a small share, kept both, and its income recovered.
6 × 3,000 = 18,000 Frw.
Contributory pensions are financed by regular contributions deducted from formal wages. Informal workers have irregular incomes and no employer deduction, so most are not covered, and the scheme cannot reach most of the workforce without voluntary or tax-funded alternatives.
It is both. In the short run it uses public money. But it protects human capital (children fed and in school), prevents asset sales after shocks, supports local demand and builds infrastructure through public works, which raise future growth. Its value depends on good targeting and on paths to graduation. Conclusion: well-designed welfare is largely an investment.

Quick check

Match each Rwandan scheme to its type.

Tap one on the left, then its partner on the right.

Key points

Welfare systems (social protection) protect people against life-cycle and livelihood risks: social insurance, social assistance, public works, universal services and community support.
In Rwanda: RSSB schemes (pension, occupational hazards, maternity leave, RAMA, CBHI), EjoHeza (Law N° 29 of 2017), VUP (since 2008: direct support, public works), Girinka and free primary education.
Social protection works through protection, prevention and promotion; it protects human capital, prevents asset sales, encourages investment and supports cohesion.
Challenges: cost, targeting, dependence without graduation, and a 91.8% informal employment rate (2025) that leaves most workers outside contributory pensions.

1One illness, two families

2Types of welfare system in Rwanda

3Why welfare matters for economic development

4Comparing welfare systems

One illness, two families

Types of welfare system in Rwanda

Why welfare matters for economic development

Comparing welfare systems