The British government should consider expanding a £200m aid programme that gives cash directly to some of the world’s poorest families and individuals, a watchdog has recommended.

The Independent Commission for Aid Impact (Icai), which scrutinises aid money, said the government’s cash transfer programmes – likened by one MP to “exporting the dole” – have improved the lives of millions of people and provided “strong value for money”.

The prime minister, Theresa May, staunchly defended cash transfers and the foreign aid budgetearlier this month after both came under renewed attack. The benefits of the scheme have been recognised by the public accounts committee and the National Audit Office.

The Department for International Development spends 2% of its aid budget on cash transfers, which provide regular monthly payments of small sums to households and individuals. Recipients include pregnant women in Nigeria, who receive cash to provide better nutrition, parents in Pakistan, where the funds are intended to encourage school attendance among children, and the elderly in Uganda, to mitigate poverty. Payments vary between £6 a month for families in Uganda to £19 for a family of five in Zimbabwe.

The Icai report, published on Thursday, found that between 2011 and 2015 DfID, the largest funder of cash transfers among bilateral donors, reached 6 million people – not the 9 million DfID had originally and erroneously reported – through the scheme. Icai found it had met some but not all targets for improving school attendance and that work on health and nutrition and women’s empowerment could be improved. The watchdog also said there was a lack of a strategic approach to providing recipient governments with technical assistance.

But the review found that cash transfers “helped to make vulnerable people more resilient to shocks such as ill-health, or bad weather hitting their farms, by encouraging them to save and giving them access to credit”. In Kenya, participating households spent significantly more of their money on health and education and less on cigarettes and alcohol, the report found.

DfID “should consider scaling up its financial contributions in the short to medium-term” where there was evidence of support from national governments, said the watchdog.

Alison Evans, Icai’s chief commissioner, who led the review, said: “DfID’s use of cash transfers has helped to tackle poverty and vulnerability for some of the poorest people in the world.

“The department has reached millions of people, providing strong value for money, and helping deliver on the commitment to ‘leave no one behind’.

“But there is no room for complacency. Going forward, DfID needs to do more to improve on school attendance, health and nutrition and women’s empowerment, where the global evidence shows that cash transfers can make even more of a difference.”

The review awarded the DfID-supported scheme a “green-amber” rating, the second highest score, in recognition of “satisfactory achievement in most areas but partial achievement in others”.

Stephen Twigg, the chairman of the Commons international development committee, welcomed the report.

He said: “Icai’s review shows the value of DfID’s cash transfer programmes and adds to a wealth of evidence which shows that, contrary to recent coverage, cash transfers are an effective means of development.

“DfID should carefully consider its options for scaling up and improving its work in this area, based on the evidence which Icai has found, to ensure that it is achieving maximum value for money.”

Tim Livesey, Oxfam’s head of UK policy and government relations, said: “The independent review confirms what many in DfID and the development sector have long known: cash transfers have the potential to be one of the best, fastest and safest ways to help people raise themselves out of poverty by investing in their own, and their family’s future.”

Earlier this month, Nigel Evans, a former commons deputy speaker and member of the international development committee, called for a review of the scheme in Pakistan. He claimed cash transfers were “clearly open to fraud”.

The £4bn scheme highlighted by Evans was the Benazir income support programme in Pakistan, which provides support to the poorest 25% of households. Icai said the scheme had achieved “considerable success”. However, the report also highlighted “targeting errors” common to cash transfer programmes.

The largest such error was in Pakistan, said Icai, where the World Bank had found a quarter of recipients to be well above the threshold of the poorest 25%. Another occurred in Nigeria, where DfID introduced random pregnancy tests after fake urine samples reportedly led to the initial inclusion of women who were not pregnant.