Cash is the answer to change the global aid system

Rose Smith Aid

This blog, originally published by CaLP, examines the benefits of cash transfer programmes in response to recent calls for reform of the humanitarian sector, by the UK Secretary of State for International Development.

The Guardian published an article describing how Priti Patel, new Secretary of State for International Development in the UK, plans to overhaul the aid system. There are concerns that her call for a more efficient sector will translate in budget cuts for international development. What we read in her speech is that she wants to reform the humanitarian sector by being more efficient, ending dependency and creating wealth. That she wants people to “stand on their own two feet”. Assisting people through cash grants has proven to catalyse a change towards efficiency in the humanitarian sector. Cash assistance delivers value for money and stimulates local economies and businesses for growth. Self-reliance is at the heart of giving vulnerable populations assistance in the form of cash. So, could it be that we are all talking about the same thing?

A variety of studies show that recipients of cash not only use the assistance to meet immediate needs (food, shelter, health, schooling) but they also use it to invest in businesses. Cash is not only a dignified way of helping people in need get back on their feet, it incentivises and supports entrepreneurship. After Typhoon Haiyan in the Philippines in 2013, beneficiaries from a Red Cross programme used cash not only to rebuild their businesses after disasters, but also start new ones by investing in new skills or equipment. In Lebanon, Syrian refugees from an International Rescue Committee (IRC) programme are currently receiving cash along with skills training and apprenticeships to expand support for entrepreneurs and promote job growth. Recent successes include placing over 300 apprentices into local businesses, and “providing direct cash relief and creating income-generating activities for over 30,000 vulnerable people in Lebanon.” Evidence shows that when assistance is provided in the form of cash paired with business development support in urban setting refugees have high opportunities of achieving long-term economic self-reliance. If self-reliance is what Secretary Patel is looking for, cash assistance provides a wide range of opportunities for change.

Recipients of cash not only use the assistance to meet immediate needs but they also use it to invest in businesses

Patel has said she is aiming to “challenge and change the global aid system so that it properly serves the poorest people in the world and the taxpayers who foot the bill“. Cash transfer programmes are usually more cost efficient than aid in-kind programmes. Research conducted in 2014 compared the costs of cash programmes versus in-kind programmes in 4 countries, and found that “an additional 44,769 people could have received assistance at no additional cost had cash been provided instead of food”. A DIFD funded study of 2015 praised the huge potential for cash assistance to deliver better value for money, as it “consistently emerges as more efficient to deliver” than in-kind aid.

The evidence is clear, if Patel wants to focus on wealth creation to alleviate extreme poverty she should focus on cash. When cash assistance is provided in the right place, it not only improves a family’s ability to make ends meet, it also can have significant positive effects in the local economy. When supporting Syrian refugees through cash through an IRC program “each dollar that beneficiaries spend generates 2.13 dollars of GDP for the Lebanese economy.” This is called the “multiplier effect” of cash in local economies, and has been much documented. In Zimbabwe, 1 US Dollar in cash assistance has proven to generate around 2.59 USD in the local economy, and 1.78 USD from a programme in Brazil. Assisting people in the form of cash allows humanitarian agencies and local Governments to work together using existing local infrastructure and systems. Using existing social safety nets to deliver aid not only strengthens the local structures but it can also potentially reduce dependency on aid systems and structures.

When cash assistance is provided in the right place, it not only improves a family’s ability to make ends meet, it also can have significant positive effects in the local economy

Patel’s insistence on “much greater transparency from those who receive UK aid” can also be addressed by using cash. More stringent controls from donors on cash assistance have resulted in the development of thorough systems of checks and balances that allow agencies to follow the money from the moment it leaves their accounts until it reaches the beneficiary. Digital payments or e-payments, using mobile phones, can boost transparency even further.
Priti Patel said on Wednesday that “the system needs reform – and Britain can lead the way in delivering it.” UK Aid is one of the biggest donors funding humanitarian assistance through cash. DFID has played in instrumental role in funding key research and programmes, as well as leading in innovation in the humanitarian sector. The UK Government continues to lead efforts for meaningful change in the aid system recently championing the follow up of cash commitments from the Grand Bargain launched in Istanbul earlier this year.

So, if Patel’s call is for a more efficient system, it might be that we have more things in common than we think. If she wants to generate wealth to assist people in need and promote their self-reliance, if she is interested in increased transparency and accountability and ensuring tax payers are served through efficient and well run aid programs, she should look no further: cash is the answer. Giving less aid to vulnerable people is not the solution to ensure better and more efficient spending of taxpayers resources, but providing assistance in the form of cash certainly is.


Simone Lombardini