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Giving money to people in a humanitarian crisis is often a lot smarter for everyone than providing food and other in-kind aid.

It’s not always the best solution, but it can deliver a much bigger bang for its buck, provided local markets are functioning. And they usually are, even in the severest crises.

This site provides the main arguments and evidence for scaling up the proportion of financial aid in emergencies, based on studies and the views of leading commentators. It’s produced by the Cash Learning Partnership
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FAMILIES

can buy what they need, avoiding costly wastage



LOCAL COMMUNITIES

can become more economically self-sufficient, reducing their dependence on aid



LOCAL GOVERNMENTS

can collect more taxes to fund future crises themselves


OVERSEAS TAXPAYERS

and other funders of aid can make big savings



There’s widespread support for scaling up the proportion of financial aid

FOR THE BENEFIT OF ALL

FAMILIES


Families affected by a crisis can buy what they really need, avoiding the costly wastage of inappropriate goods

Families’ needs differ. So it’s no surprise that they tend to make better buying and investment decisions for themselves than external organisations on their collective behalf.



THE GOODS SUPPLIED CAN BE INAPPROPRIATE

About 95% of humanitarian funding is spent on food and other in-kind aid. Sometimes the items are broadly what people need; sometimes not.

In one survey in the Middle East, recipients of humanitarian assistance rated aid agencies’ success in meeting their priority needs just 3 out of 10.



Unwanted items are frequently sold, wasting valuable resources

In the worst cases, more than 50% of in-kind aid is sold by recipients, often at a big discount, to buy what they really need. This devalues the impact of donors’ aid.



Families often prefer money in crises

80% of people receiving humanitarian assistance in Lebanon preferred money over in-kind aid and less than 5% wanted in-kind aid. 15% preferred a combination of the two. Other studies have produced similar results.

80%













ECONOMISTS ALSO THINK FINANCIAL AID IS BEST

In a survey of economists, 84% agreed with the claim that “cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value.” Amartya Sen also won the Nobel Prize for Economics for proving the value of this approach.


The benefits can be BIG as families spend their money smartly

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Improved nutrition

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Better Health

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Greater access to education

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Financially rewarding employment



LOCAL COMMUNITIES


Local communities can become more economically self-sufficient, reducing their dependence on aid

Like all injections of money into an economy, financial aid has an ‘economic multiplier’ effect. This helps to strengthen businesses, increase consumption, and create jobs for the benefit of the entire community.


Multiplier effects can double the money’s impact

Research has estimated that the multipliers of financial aid are typically in the range of 1.5 to 2.5. This means that an injection of $1 million of cash generates an additional income of $1.5 million to $2.5 million for the local economy.





The extra economic activity benefits the wider community

In Mexico, households that did not receive any money from a financial aid scheme in the country benefited from its wider economic multiplier effects. Consumption of goods increased by up to 12% and their probability of owning livestock rose by about 10%.



The additional money is often invested in productive assets

About a quarter of the money provided by Mexico’s PROGRESA conditional financial aid scheme was invested by recipients in land and livestock. This led to a 24% increase in consumption after the programme had finished.



There are no lasting inflationary impacts on the economy

A World Bank study of 30 financial aid programmes found that they had no significant, lasting impacts on inflation. In contrast, imported in-kind aid can have a deflationary impact, damaging local markets.





LOCAL GOVERNMENTS


Local governments can collect more taxes from the extra economic activity to fund future crises themselves

Financial aid is increasingly delivered direct to families via bank accounts and other formal, traceable channels. This can bring more people into the formal financial system, making it easier for governments to collect taxes. The aid itself is not taxed!


Huge numbers of people are outside the financial system

Nearly 2 billion people in developing countries are not part of the formal financial system. This partly explains why low-income countries collect just 12% of their GDP from tax, compared to 33% in OECD countries.



Financial aid can bring more people into the system, increasing tax revenue

A study of a cash programme in Uganda targeted at poor 16-35 year-olds found that four years after it started recipients were earning 40% more from their trades and about 40% more likely to be paying taxes.

It can also boost GDP, widening the taxable revenue base

Through its multiplier effects, financial aid can stimulate the economy as a whole. In Lebanon, a winter assistance cash programme for Syrian refugees increased the country’s GDP by 1.3%.





OVERSEAS TAXPAYERS


Overseas taxpayers and other funders of international aid can make big savings – and reduce corruption risks

As financial aid can be delivered electronically to beneficiaries via banks and mobile phones, it does not incur the high shipment costs of in-kind aid. It also leaves a digital trail, reducing corruption risks.



Financial aid is much cheaper to deliver

In Ethiopia, the World Food Programme found that it was 25% to 30% cheaper to deliver money than in-kind aid. Another four-country study calculated that it was 13% to 23% more cost-efficient.



Mobile phone payments offer even greater savings

Nearly 7 of 10 people in the bottom fifth of the population in developing countries own a mobile phone. In Niger, mobile phone payments reduced the variable distribution costs by 30%. In Kenya, the savings were up to 90%.



Biometrics can also slash costs

It’s estimated that using biometrics to validate claimants 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.



Better still, the risks of theft are lower

Losses from fraud and corruption are an unwanted but unavoidable problem in virtually every transaction. Estimates for financial aid put the losses at about 2% – comparable to the rate for the UK’s social welfare system and ‘shrinkage’ from major supermarkets, including shoplifting. More than 50% of some in-kind aid has been ‘diverted’.







There’s widespread support for scaling up the proportion of financial aid for the benefit of all.

Over 200 million people are affected by natural disasters, wars and other crises each year, yet just 6% of the $25 billion of humanitarian aid is financial aid – despite its obvious advantages. Most experts agree that percentage should be much bigger.


Financial aid is appropriate for most crises

The Global Public Policy Institute estimates that financial aid could be appropriate in 70% to 80% of all humanitarian crises, either on its own or in conjunction with in-kind aid and other assistance.















It’s share of funding could be 7 times larger

Based on financial aid’s potential use across different types of crises,it has been calculated that it should account for between 37% and 42% of total humanitarian funding. Or about $10 billion, compared to today’s $1.5 billion.



Many are calling for it to be scaled up

Numerous international bodies, independent aid auditors, journalists and others have called for financial aid’s share of humanitarian funding to be scaled up dramatically.

Many policy makers and aid agencies have also committed to increasing it, through a Grand Bargain agreed at the World Humanitarian Summit.




“Those who genuinely care about ensuring taxpayers get value-for-money from the aid budget should be shouting for more cash, not less.”

Newsweek

“Where markets and operational contexts permit, cash-based programming should be the preferred and default method of support.”

UN Secretary General