Cash Transfers: The Future Of Development Aid


The practice of helping those less fortunate is something that has been an integral part of human identity for many thousands of years. Appearing in many different forms, the act of giving has developed over time, being shaped by culture and technological advancements.

In the 21st century, a major source of help for those in need comes in the form of development aid. Governments, groups, or individuals from developed areas will often use their resources to help those living in developing areas to improve their situation and quality of life. This may come in the form of medical services, the introduction of vital infrastructure such as roads and bridges, education, and food.

Development aid has seen great successes in recent years. For example, through groups such as the Bill and Melinda Gates Foundation, diseases such as polio which once seriously impacted the quality of life of those living in developing regions, have been almost entirely eliminated.

 

The origins of cash as a form of aid

One form of aid which is often overlooked however is the provision of money directly, known within the area of development aid as ‘cash transfers’.  The practice of giving money directly to those in need is not a new idea. The Catholic tradition of ‘almsgiving’ involves doing just that; giving money to the poor for them to spend according to their needs. When it comes to development aid however, cash transfers have only recently come into the spotlight.

Only 26 years ago, in 1981, Economics Nobel Prize Laureate Amartya Sen raised the idea of cash transfers as both a morally and economically valid response to humanitarian crises. It was however only in the late 1990s that some Latin American governments started to experiment with the idea. These early forms of cash transfer were conditional, and came with strings attached. The recipients of the money would have to meet certain requirements set by the providers, such as ensuring regular school attendance for their children. These transfers met some success, and by 2011, 18 Latin American and some African countries had introduced their own programs.

In the non-governmental organisation sector, the disastrous 2004 boxing day Tsunami led to many independent aid groups trying out cash transfers alongside other forms of more ‘traditional’ aid.

 

Why cash transfers are overlooked

Perhaps the greatest reason for cash transfers being overlooked as a valid form of development aid is the notion that poor people have no idea how to spend money wisely, and will waste it on things such as drugs and alcohol. There is the widespread belief that wealthy people in developed countries are the ones best suited to determine what people in developing countries need the most. This assumption seems to be ingrained deeply into many people’s minds, and is something they don’t even think to challenge, merely accepting it as truth.

There are numerous flaws with this belief system though; first and foremost the fact that the evidence shows it is simply not true.

 

What we know

In 2015, the Department for International Development (DFID), a United Kingdom government department responsible for the administration of overseas aid, convened a ‘High Level Panel on Humanitarian Cash Transfers’. According to DFID, the goal of this panel was to “examine the transformative potential of cash transfers for humanitarian response and the humanitarian system”.

The panel found that instead of the recipients of cash transfers wasting the money, they overwhelming spent it responsibly, buying essential items. Only very few spent the money on ‘anti-social’ items such as alcohol or tobacco. In the Panel’s background note, it was stated that the fact there was so much doubt regarding whether the recipients would use the money wisely “suggests some troubling biases within the international humanitarian community about how they view the people that they assist.”

The Panel also determined cash transfers to be an economically effective form of aid, partially due to the fact that it is often much cheaper to get money to people in comparison to other goods, since money does not need to be transported or stored.

Furthermore, many traditional forms of aid tend to be limited in their effectiveness if what they provide does not match what the recipients believe they need. Instead of using items they are provided with, they may simply sell them for cash or give them away. Donors are forced to justify to the people they are helping why their form of aid is important, and more valuable to them than the equivalent cash.  Cash is not affected by this problem due to its versatility and the fact it can be used to buy anything. In fact, according to the Atlantic, a recent four-country study found that in comparing cash and food aid, nearly 20% more people could be helped through cash transfers.

This also relates to sentiments regarding to the provision of aid. Consultations with aid recipients in the Middle East carried out by the World Humanitarian Summit found that with regard to whether people in the region believed aid agencies were addressing their needs, interviewees gave an average score of 3 out of 10. Supporters of cash transfers believe that their use could help increase the satisfaction of aid recipients.

Cash transfers additionally contain other benefits, such as increased dignity for recipients. The DFID Panel also stated that cash transfers can reduce the need for families to resort to dangerous ways of making money such as child labour or engaging in dangerous forms of work.

Some believe that electronic cash transfers can also result in less corruption. With corruption being prevalent in the governments of many countries that receive aid, the ability to track money could mean that corrupt individuals would not be able to interfere as much as they could if there were physical goods beings stored and transported.

 

Limitations

Despite the many advantages of cash transfers, there are some limitations which must be considered by aid providers.

Firstly, cash transfers are not always appropriate. In countries where the economy is majorly failing, or inflation is out of control, the provision of money will not be as helpful as the provision of physical goods.

Context is extremely important. Charity evaluator ‘GiveWell’ has determined that in malaria prone areas, people are often not inclined to buy mosquito nets, even when they are available at cheap prices, instead favouring food and other items. In this particular circumstance, the provision of the item itself has been found to be approximately five to ten times more cost effective than unconditional cash transfers when it comes to saving lives.

There is also the question of where the money should go. Should it go directly to individuals, or to representatives who can make decisions on behalf of others? If it goes directly to individuals, the path most cash transfers are currently taking, making bigger changes such as the improvement of infrastructure might be difficult as many people would have to use their money collaboratively. On the other hand, if the cash goes to a representative, they would be able to put the money towards bigger projects, but there would also be the risk of corruption and that not everyone would be happy with the decisions that a representative might make on their behalf.

Transfers are also not always possible due to lack of infrastructure. Areas may lack the means to process and deliver cash directly to individuals who need it.

These limitations all however pale in comparison to the massive benefits cash transfers have been seen to provide. What these limitations do show though, is that cash transfers should not stand alone as a sole form of aid, but should be utilised alongside other aid forms in order to be most effective.

 

A look to the future

Currently only 6 percent of global humanitarian relief consists of cash transfers (both conditional and unconditional). With many organisations now overcoming prejudices and realising their benefits though, this figure is likely to drastically increase over the coming years.

Now former UN Secretary-General Ban Ki-moon recently called for cash transfers to become “the preferred and default method of support” for humanitarian aid. The International Rescue Committee, a global humanitarian aid group founded by Albert Einstein, has shared this sentiment, committing last year to deliver a quarter of its humanitarian aid in cash transfers by 2020 and that it will “default to a preference of cash over material assistance.”

Technological developments also bode well for the rise of cash transfers as a dominant form of development aid. The international transfer of money is now easier than it has ever been before, and aid organisations can and are taking full advantage of this.

Cash transfers seriously challenge traditional views on development aid, the forms it may take, and the way it is administered, yet with the advantages it offers and its growing recognition in the international community, it is likely not long until cash transfers are a form of aid that is overlooked no longer.

 

Fraser Lawrance