Can direct cash transfers shift how local organizations are funded?

Local organizations understand the needs of their communities best, yet they only receive 2.1% of donor money as of 2022, according to research consultancy Development Initiatives.

What is preventing international NGOs and implementers from moving the needle? The funding crisis is partly responsible. In 2023, the United Nations received just over one-third of the $57 billion it requested to provide aid, marking its largest shortfall in years. There are also concerns about inefficient use, corruption, and administrative costs, restricting funds from arriving at local organizations. Ultimately, however, funders must be willing to let go of power and lead from the bottom up.

Direct cash transfers, which place financial resources directly into the hands of beneficiaries, could play a major role in restructuring these systems while leveraging the influence of local organizations. It is also one of the most researched aid interventions in the world — with over 300 randomized control trials, Caroline Teti, vice president of risk, safeguarding, and compliance at GiveDirectly, told Devex. Most of them show positive results for why cash is a better way of responding to challenges, she said. As of 2022, approximately 20% of international humanitarian assistance was provided in the form of cash and vouchers.

Why cash transfers?

Cash transfers are built on reducing the number of intermediaries between donors and recipients. This allows a higher percentage of aid to reach the people who need it, Teti explained. GiveDirectly aims for 85 to 90 cents per dollar donated to reach the intended recipients, she said, adding that with traditional aid, as little as 2%-4% of funds can reach the target beneficiaries.

The flexibility also allows them to prioritize their own needs, whether it's food, health care, education, or shelter, Abdullahi Bularafa, regional cash and voucher assistance adviser at Mercy Corps, told Devex.

“Digital cash transfers also offer a high degree of transparency and can be tracked more easily than physical goods. This reduces the risk of fraud and ensures that funds reach the intended participants,” he said.

Beyond the known benefits, direct cash transfers can stimulate local economies because participants typically spend the cash locally. “This can lead to a positive ripple effect, supporting small businesses and creating jobs within the community,” he said, adding that they also improve long-term livelihoods by helping participants meet immediate needs and invest in their future.

Cash transfers are particularly effective during conflicts and disasters because they can provide quick and scalable support, according to Teti. They have largely been made possible through mobile money technologies, which has allowed communities — even in remote areas — to receive cash transfers, she explained.

Breaking up with top-down approaches

In traditional aid, oftentimes the people and institutions making decisions are removed from the communities they aim to help, which can lead to a lack of real impact on the ground, Teti said.

On the other hand, cash transfers give people an opportunity to take charge of their destiny and “tell their story of change … What we have seen is it is not just a factor of giving people choice and power, it is also an opportunity for us in the aid sector to learn from them,” Teti said.

For example, in Kenya, she observed cash transfers enabling a semi-arid community to develop irrigation solutions, an idea traditional aid might have overlooked. In Mozambique, a group of women used a $50 monthly cash transfer to set up and organize a community kitchen.

In contrast, if you give that money to a donor, traditional aid might involve hiring engineers and nutritionists, which can lead to higher costs and less practical outcomes for the community, she said. “The investment in the building of the project will be so much that at the end of it, all the women and the children will have nothing to cook in those kitchens.”

Sometimes cash transfers don’t work

While cash can be a valuable tool, it must be used thoughtfully and considerately, Teti explained.

First, effective use of cash requires reliable delivery mechanisms, such as access to banks or mobile money services.  The lack of verifiable identification is also a challenge as participants cannot access banking services or purchase a SIM card for mobile money, Bularafa said. “One of the biggest shortcomings of cash transfers is its potential to exclude the most vulnerable due to limited connectivity,” he said.

Second, cash may not be practical in situations of high vulnerability, such as during conflicts when people are displaced and have lost access to essential resources such as phones and banks.

Third, the effectiveness of cash aid depends on the state of local markets. “There will be some communities where market systems are broken, and giving people cash doesn't give them the solution they are looking for immediately to change their lives,” Teti said.

Finally, cash can sometimes increase risks, insecurity, and other violations. “[These include] theft or violence against cash recipients … and tension between recipients and non-recipients,” Bularafa said. Teti emphasized that local community members often have the best insights into whether cash aid would expose communities to additional risks.

How local organizations can leverage cash

Local organizations are closest to the communities they serve. They also have the opportunity to understand their needs and preferences so that programs are tailored and cash is used effectively, Bularafa said.

However, delivering cash safely and efficiently requires more than just proximity. It requires the right infrastructure and systems for safe cash transfer, as well as training local organizations.

Teti explained that this infrastructure involves access to “clean data” on recipients; and systems that enable the smooth transfer of funds to local communities. “About 1.2 billion people have access to mobile money, making it a key component in ensuring the process is secure and efficient," she said.

“If they have the right level of integrity to collect clean data, they can partner with big organizations so that cash can be transferred to their communities,” Teti said.

Local organizations also need training on the end-to-end process of delivering cash. This training ensures they understand every step, from data curation to final distribution, she said.

A universal basic income model

In 2016, Give Directly — one of the biggest players in the direct cash field – launched a 12-year randomized control trial in Kenya to understand the best methods for improving lives and reducing poverty.

The study compares four groups: no cash, 12-year basic income, two-year basic income, and two-year equivalent lump sum. The cash grant is about $30, delivered every month.

“We realized that not so many people were doing unconditional cash the same way that we were. Most organizations are doing conditional cash, where people are given money and their conditions attached to it. We started getting questions around, what is it about basic income that you can link to unconditional cash delivery?” Teti said.

Preliminary analysis during COVID-19 found that people receiving long-term or lump-sum payments fared better in nutrition and health care compared to the two-year group receiving monthly payments. Last year’s second midterm review again saw positive indications for the long-term and lump-sum recipients, Teti said. “We are seeing more investment in income-generating activities, more productive assets, better nutrition among the long-term arm, and it was only comparable to the lump sum arm,” she said.

While the study runs until 2030 and is still evaluating which model is most effective, “they both give us evidence that cash really works,” said Teti. Insights from the study in Kenya have already been used to guide similar projects, such as a basic income model in Liberia, she added.

Looking ahead

Cash transfers are increasingly attracting more attention from organizations and donors, said Teti, including those traditionally not involved in cash transfers — such as gender-based violence response and health interventions. She said that GiveDirectly has implemented cash transfers to terminally ill patients in Malawi, urban refugees in Kenya and Uganda, and women in male-dominated sectors such as construction.

Integrating digital platforms, such as mobile banking and digital wallets, will make cash transfers more efficient and secure, allowing them to reach beneficiaries faster and lower administrative costs, Bularafa said.

Cash transfers also offer a way for donors to connect with the real stories of the people they are helping and see the tangible effects of their contributions; instead of relying on secondhand reports from NGOs, she said, emphasizing that this also “gives donors perspective of the lie that has been the aid sector for many years.”

Recipients then also have the opportunity to share their decisions, the reasons behind them, and how these decisions have improved their lives.

“Let us not depend on ourselves so much, either as aid workers or as donors. Let us go down to communities and listen to them. When we listen to them, they will give us the practical solutions of what works,” Teti said.

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