Overseas taxpayers and other funders of international aid can make big savings – and reduce corruption risks
FINANCIAL AID CAN BE SIGNIFICANTLY CHEAPER TO DELIVER THAN IN-KIND AID ▾
Numerous studies have found that financial aid can be much cheaper to deliver than in-kind aid, provided local markets are functioning properly, which they usually are in crises. The lower cost is mainly due to avoiding the logistical costs associated with storing and distributing in-kind aid.
An evaluation of EU humanitarian assistance noted: “When used in comparable contexts, cash transfers are typically more cost efficient than either vouchers, in-kind transfers or the use of combined modalities. In-kind transfers generally have higher distribution costs (storage and delivery) and there are larger administrative costs associated with managing voucher transfers.”
As financial aid is usually more cost-efficient to deliver, more people can be reached for each dollar spent. The four-country study mentioned above calculated that an additional 18% of people (more than 40,000 in total) could have been helped if they’d been given money instead of food.
Biometrics can also be used to verify claimants’ identities, making the process quicker and more cost-effective, as helping to reduce fraud. Jordan, which houses 1 million Syrian refugees, was the first country to use iris-recognition devices to ensure aid goes to the intended recipients. India and Indonesia have also introduced biometrics as a national identification The Center for Global Development has estimated that switching to biometrics for a typical financial aid scheme that gives a million people $20 a month would pay for itself in a year. After five years the savings would reach $64m.
FINANCIAL AID CAN ALSO LOWER THE RISK OF THEFT, LARGELY THANKS TO DIGITAL DELIVERY CHANNELS ▾
Virtually all financial and commercial transactions in the public and private sector, in developing and developed economies, are vulnerable to some form of theft. Although it’s important to minimize this risk, it’s also necessary to be pragmatic and accept that it will never be fully eliminated.
For example, one study of a direct cash-transfer programme to address food insecurity in communities affected by post-election violence in Kenya reported that less than 2% of funds were diverted (Henderson 2008) Other studies have found similar levels of corruption in cash transfer programmes as with in-kind assistance (Campbell, 2014; Dunn, 2013; Hedlund, 2013).
E-payments can significantly cut the risks of corruption with financial assistance. Using mobile-phone-based money, ATM cards and other digital channels, donors can not only ensure the money goes straight to the people intended but also trace its progress and avoid the need to transport cash to beneficiaries. The amounts paid can also be varied rapidly. After the 2010 floods in Pakistan, money was provided digitally to 1.7 million people via debit cards.