In the context of the humanitarian crises that are on the rise around the world, the provision of cash transfers has become a popular practice that has been adopted by aid organizations and governmental bodies to help affected populations. These transfers are seen as a swift intervention that can respond to immediate needs during a crisis. They are seen as an alternative to more conventional forms of aid such as food, blankets, medication, and kits. On the positive side, it appears to be an effective means of promptly aiding those in need although it can still present potential risks. Find out more about some of the benefits and disadvantages of cash transfers in humanitarian contexts in the article below.
Key Takeaways:
- Cash transfers to deliver the EU’s humanitarian assistance has seen a significant increase in recent years, rising from 17.4% of the total budget in 2015 and 2016 to 24.6% in 2021 and 2022.
- According to the UNDP, in countries facing economic difficulties as a result of war, cash transfers can help to reduce poverty.
- Experts weigh the pros of cash transfers by suggesting they are more efficient and effective, allowing the beneficiaries to decide how to allocate funds and ensuring that aid reaches them directly.
- The risks include lost vouchers or cash, potential spending on undesirable items, and transaction costs. Cash transfers are susceptible to corruption which necessitates rigorous monitoring mechanisms.
- Some experts suggest that conditioned cash transfers may be more beneficial for long-term aid programs while unconditional payments can meet to day to day needs
DevelopmentAid: What are the pros and cons of cash transfers in humanitarian aid?
“The Pros:
- Efficient Handling and Transportation. Cash transfers are lightweight and easy to transport. Unlike bulky food supplies or shelter kits, cash can be swiftly delivered via mobile money, smart cards, or vouchers. This flexibility ensures that aid reaches those in need promptly. Cash can be instantly sent to recipients, providing rapid relief. In urgent situations, this speed is crucial to address immediate needs.
- Efficiency and Cost-Effectiveness. Evidence suggests that cash transfers are often more efficient and effective than other forms of aid. By allowing affected individuals to decide how to allocate funds, more aid reaches the beneficiaries directly.
- Dignity and Autonomy. Cash transfers empower recipients. They can choose how to use the funds based on their specific needs and circumstances thereby preserving their dignity.
The Cons:
- Structural Challenges. Risks include lost vouchers or cash, potential spending on undesirable items (such as tobacco or alcohol), and transaction costs (which can be up to 5%). Ensuring aid reaches all family members can be challenging.
- Corruption Vulnerability. Like any system that involves money, cash transfers are susceptible to corruption. Rigorous safeguards and monitoring mechanisms are essential.
Striking the balance:
Cash transfers offer flexibility, efficiency, and dignity but they also come with challenges. As humanitarian agencies and governments navigate this landscape, finding the right balance is crucial. By understanding both the pros and cons, we can design aid programs that truly make a difference to the lives of those in need.”
“The need for a more flexible form of aid in poor countries has led to the introduction of cash transfer systems. Traditional methods of aid delivery such as physical services may still be required especially to alleviate a disaster situation. However, they remain a clumsy and inflexible form of aid. The advantages of a direct cash transfer system allow for a more flexible and easily transportable method of providing aid faster and in an even more relevant fashion. Many countries may often not have electronic banking systems countrywide, and cash is therefore king. The downside of providing cash aid is corruption and consequently, there has been a move to conditional cash transfers (CCTs) as opposed to unconditional payments (UCTs). This does however suggest the need for monitoring and again this may not be the most optimal method of aid delivery if urgency is paramount. The initial assessments seem to suggest the CCT method may be more beneficial for long-term aid programs whilst UCTs suit day-to-day needs.”
“Pros:
- Recipients/beneficiaries receive aid in a more quick and efficient manner
- People can buy what they need instead of receiving aid in form of food and supplies
- No need for paying for freight and shipping for food and supplies to affected areas
- Easy for distributors to carry out their tasks
- Better management and reporting to donors
Cons:
- A lot of work needs to be done in the planning and the initiation stages, such as meeting with stakeholders and government personnel to approve the project
- Registration of the beneficiaries can be a hassle and a stressful task for distributors
- Beneficiaries duplication: two beneficiaries from the same household being registered
We did a cash transfer project in Vanuatu a couple of years back through one international NGO (INGO) and the outcome was pretty good. Apart from the planning and initiation stages, and the registration of beneficiaries, the aid received through the cash transfer project was very quick and efficient. We carried out the cash transfer through cards that were issued to each beneficiary for each household registered, sort of like debit cards. Funds were put on each card and a lot of shops and other partners signed up to be part of the program. Beneficiaries used the cards to shop for what they needed in the registered shops and the INGO then reimburses the shops and hardware. So not only do the beneficiaries receive humanitarian aid but also local shops and other partners receive aid as well. Therefore, comparing food and supplies aid to cash transfers, I would see cash transfers as being one of the most cost-effective and efficient ways to distribute humanitarian aid to affected areas.”
“The use of cash transfers or traditional forms of aid influence lots of parameters of the economy from government to local supplier level. Cash payments are time effective, decentralized, and support the local economy of the recipient. Grants in goods give support to the superior economy involved in the grant chain. Cash payments require capacity building in the countries in need in terms of procurement, reports, monitoring and evaluation while the traditional form is a more hands-on approach from the perspective of the donor. Cash transfers make it more difficult to monitor the effective use of the money by the beneficiary with the possibility of corruption. There are certainly many pros and many cons for both forms of aid. It all depends on how the political and financial systems are in the countries of concern.”
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