If cash aid is better than in-kind, why hasn't it been implemented and scaled to its potential?

 The answer lies in the very political-economy around cash transfers.  

Uncertainties around Cash

Cash transfers programs (CTPs) as aid are new. CTP’s technology is still evolving. CTP providers have less experience in dealing with banks, electronic payment companies, remittance companies and mobile payment systems to set up cost-efficient cash mechanisms. Hence cash’s potential is still not known and a risk is involved in attempting cash. However, progress has been made. In Philippines, documentation by financial institutions has helped aid agencies to understand payment rates and provide bargaining power to reduce transfer fee. Similarly, in Lebanon, WFP’s partnership with Mastercard enables waived frees for transfers and larger economics of scale.

There is also uncertainty around the type of humanitarian disaster cash would work for and the political context needed for it. However, case studies have shown that cash has work in a range of humanitarian disasters from Ethiopia (protracted criss) to Philippines (sudden on-set disaster) and Lebanon (refugee response) ; Sri Lanka (complex emergency) and Nepal (earthquake), which also have different national and government infrastructures .

Similarly, national governments are wary of cash as they are concerned about whether cash will actually work, whether it will be more prone to corruption and diversions and whether their citizens will approve of it. Governments are also worried about equity with other citizens and too little control (both shown the contrary by cash as in the social cohesion example in Lebanon). The public similarly, is worried about cash being misused by beneficiaries for alcohol and wrong purposes will and be stolen ( there has been no instance of either so far), markets won’t respond and that it creates a culture of welfare dependency (both proven the contrary by how cash boosts local economy and helps break the poverty-cycle). However, through media awareness and increased reports, they are changing their minds and acknowledge that cash also gives populations a sense of dignity in receiving aid not otherwise provided by in-kind aid.

Donor agencies and governments are also concerned about the potential risk of money laundering by terrorists in cash, as well as reporting mechanisms and procurement and delivery risks. However, the fact that cash is delivered through secure payment systems makes laundering unlikely and no such reports of cash have been made thus far. In-kind has in fact been reported more instances of theft where instruments have been reported to steal bags on food on the way to beneficiaries. In Yemen only recently, 372,000 tonnes of food was stolen that the WFP threatened to suspend in-kind aid for 3 million people.

Political obstacles to cash

In-kind aid does not stimulate development compared to cash Yet, it remains political;y popular because of the high vested interests of the stakeholders involved.

In-kind aid itself constitutes the institution of humanitarian aid. Although institutions solve collective action problems in aid provision, they are rigid organisational structures resistant to change and to employ cash.Donor agencies and international organisation have already established an aid delivery system running for decades. They have formulated means for it to be efficient through rules, regulations and economies of scale, making internationally bulk goods cheap and fast to deliver. Moreover, international trade and political partnerships with countries have been made with regard to supply of in-kind aid. To alter or even reduce thess partnerships would mean governments and agencies would have to adopt new, perhaps not-so-profitable and politically palatable ways. Increased coordination with governments and having the top donor countries (such as the U.K, U.A.E, U,S, Japan) in support of cash would ease this obstacle.

In-kind aid is a business, which if forestalled, would potentially cause humanitarian aid to stop. The in -kind aid network does not consist of only donor governments, NGOs and UN Organisations – it also consists of thousands of doctors, nurses, food suppliers, farmers, lobbyists – who would run out of employment even if in-kind shifts by a small percentage to cash. It also involves vested interests. US, for example stipulates that it will give in-kind only from US farmers and will deliver food-aid only on US ships – giving employment and ecnomic benefits to its people. Increasing cash as aid could create public resentment against national governments in rich countries as it deprives them of livelihoods.

Similarly in-kind vs cash debate is also about power. UN agencies such as UNHCR and the WFP essentially play logistics role of in-kind aid where they track, ship and deliver in-kind to the targeted beneficiaries. Having other mechanism such aid in cash would remove this logistic role and potentially make the UN agencies such as WFP, essentially defunct. Although WFP is moving to voucher programs and employing a more monitoring and evaluation role for aid as cash, this move is slow and is unlikely to be devoid of in-kind aid and would give the UN agencies much less power than they have today. Involving the UN in the future role of cash-as-aid and offering them an increased advocacy and logistics/strategic partnership role may ease this to an extent.

Moreover, leaders of national governments prefer to give in-kind rather than cash because it “appears” more politically attractive and appeasing to their citizens. Saying you spent $1 million for 400,000 for food appears much more tangible and appeasing than the government saying they spent $1 million to give cash to recipients for the taxpaying citizens of their country.

The median, taxpaying voters in donor countries prefer in-kind to cash because of the uncertainties highlighted above. Taxpaying citizens are also reported to display a ‘paternal altruism’, where although they prefer giving the poor selected commodities, they would not favor the poor to buy what goods they like (LLP Case Study 2017) . This makes national government resistant to changing largely to cash-aid policies instead of in-kind. However, as mentioned previously, with media awareness this is changing.

Trade offs

Due to the high political support and stakes involved in-kind aid, it is likely in-kind will still remain the predominant type of aid, even though it does not address the fundamental objectives as well as cash. Cash-as -vouchers are considered as the trade off between in-kind and cash . However, as highlighted above, they have the same costs and sources of failure in providing assistance as in-kind.

Policy Recommendations :

Having realized the political and economic obstacles to cash, the following policy recommendations strengthen the case for cash against opponents and 'soothe' the opposition against cash reforms:

1.   Scale up CTP interventions to achieve economies of scale : This would reduce the inefficiency of cash transfers caused by banking fees. It would also reduce delivery and implementation cost further - making cash as aid (even) cheaper for both donors and recipients.

2.      Shift to multi-sector cash transfers : this means not having 30 cash cards to meet 30 different objectives as in some countries today. It means substituting cash for multiple-kinds of unkind assistance and using cash as a multi sector tool to provide optimum flexibility, autonomy and marginal utility for beneficiaries and reduced sunk and implementation costs for donors.

3.      Increase coordination and consolidate cash distribution platforms : Increase coordination among different relief agencies and increased partnerships with the private sectors would reduce costs to implement cash, increase transparency and make monitoring efforts more seamless to evaluate the impact of cash in humanitarian aid.

4.      Rationalise programs and actors : As mentioned above, the only way to increase the use of cash is to incentive all stake holders involved into an incremental rather than a sudden change. UN agencies such as UNHCR and WFP already support cash and have produced reports ofthe same. Now the mission is to support the UN agencies to undertake a more pro-active role in the project monitoring and evaluation, and strategic partnerships side of logistics for CTPs rather than merely tracking and delivering in-kind to make sure the aid actually gets to those in need. The key lies in providing UN agencies a platform for change rather than alienation.

Caution though ...

Cash is not the panacea to humanitarian aid inefficiencies - vouchers and in-kind are useful in certain conditions but those are rare. Due to the versatility and liquid of cash, provides donors and recipients higher value for money in terms of efficiency, effectiveness and economy.

The issue of CTPs highlights the question of not only what aid should be provided but how it should be provided. The reason cash has obstacles is not only because of the political barriers it faces but also because of its new ‘rookie’ status and its inefficiencies in the “how”. The article also brings into attention that a comparison between cash vs in-kind vs vouchers is not so straightforward and the type of transfer is only one factor driving efficiency. The delivery mechanism, political stakeholders, program design and scale of intervention also significantly determine value for money in our concerned aid mechanisms (CC Venton 2015).

The efficiencies of value for money (VfM) of cash vs in-kind transfers can vary within countries at different times and even between seasons (as in the case of Ethiopia). Hence, each humanitarian intervention, should consider the time, region, targeted population as well as the combination and scale of intervention most appropriate for the beneficiaries.

A ‘differential diagnoses’ of each recipient country with reference to context, culture should be taken when providing aid for humanitarian aid international to be harmonized and coordinated and successful.