Cash vs. in-kind aid: Do humanitarians need to pick one over the other?

“Why not cash?” It’s a question included in the 10 principles guiding multipurpose cash-based assistance outlined by the European Commission’s humanitarian aid and civil protection department earlier this year. But it’s also a question that humanitarians themselves should ask when planning the best way to deliver aid during crises and disasters. While cash transfers have found their way into humanitarian response strategies, concerns about inflation and improper use of these funds — worries that cash will overwhelm markets or will be spent on the wrong things — continue to limit their use at a larger scale. Cash transfers, according to Sarah Bailey, research associate at the Overseas Development Institute’s Humanitarian Policy Group, “reveal double standards in humanitarian aid. They are held to a higher standard for justifying the decision to use them. They face a higher bar for understanding risks and markets.” While there is more — and, in many cases, better — evidence on cash transfers than most humanitarian approaches, cash faces greater scrutiny than food aid, according to a background note prepared for the high-level panel on humanitarian cash transfers convened by the U.K. Department for International Development. First, available evidence has generally supported the idea that cash has not led to inflation in humanitarian contexts. For example, UNICEF’s evaluation of the unconditional cash and voucher response during the 2011-12 crisis in southern and central Somalia shows that cash and vouchers amounting to $110 million did not raise food prices, which even fell because of decreasing global prices when the famine was declared. Second, recipients of such cash assistance have been shown to spend the money wisely, often on the items and services they need most. A study looking into the value for money of cash transfers in emergencies shows that after Typhoon Haiyan hit the Philippines in 2013, those receiving cash aid spent the money on food, shelter, medicine, agricultural inputs and other essentials. “Risks like insecurity and corruption are important and real, but we have no evidence that cash is more risky,” Bailey, also the co-author of the paper, told Devex. “If anything, cash transfers mean there are more options on the table to reach people in need, including in some of the most difficult and challenging places.” From the Franco-Prussian War to the Nepal earthquake Cash transfers distributed as aid are not a recent practice. Writing for the Humanitarian Policy Network in 2011, Bailey pointed to the American Red Cross’ delivery of relief after the Franco-Prussian War and the 1900 Galveston floods as an early example of cash assistance. Famine responses in 19th century India also involved what humanitarians now call cash-for-work programs. Responses to some of the biggest disasters in the developing world in the past decade — the 2004 Indian Ocean tsunami, the 2008 earthquake in Sichuan, China, the 2010 Haiti earthquake, Typhoon Haiyan, and most recently, the Nepal earthquake — have likewise included cash aid. In Nepal, where the devastating earthquake that claimed at least 8,800 lives marked its third month last Saturday, cash transfers complement in-kind assistance. Mercy Corps was one of the groups that immediately addressed the needs of Nepalese in the aftermath of the earthquake. Today, four of Nepal’s main districts — Nuwakot, Kavre, Sindhupalchoka and Dolakha — receive kits of nonfood relief items and unconditional cash transfers from Mercy Corps. Radovan Jovanovic, emergency response team leader for Mercy Corps’ Nepal operations, told Devex the team works in four to six village development committees in each district. Cash transfers are limited to 7,500 Nepalese rupees ($75) for every household — an amount recommended by the cash cluster and national authorities. Meanwhile, locations are selected in coordination with respective clusters and the District Disaster Relief Committee, which also endorses all activities. Fieldwork itself is done in “very close cooperation” with the Nepal Red Cross Society, Mercy Corps’ main local partner. While NFRI kits are distributed at designated locations, cash distribution is done through local vendors or saving and lending cooperatives, depending on the situation in the district or of the village development committee. “Banks or remittance services were considered initially, but in most of affected areas these are still closed, so Mercy Corps decided to find alternatives such as private vendors, wholesales and cooperatives,” Jovanovic said. The Mercy Corps team visits the recipients of both cash and NFRI kits after two weeks. But since post-distribution monitoring has just started for most of the districts, it’s still too early to draw conclusions for now, according to the emergency response team lead. “For the time being, we have information from distributions where grantees expressed gratitude for such comprehensive support as they can procure any specific item that might be missing from the NFRI kits,” he said. “It would be nearly impossible to adjust kits to contain everything a family might need, so cash can cover any specific need of the family.” Based on the information that Mercy Corps gathered during the distributions, families also planned to use the cash for rebuilding their houses or paying for labor to clear the rubble. To give or not to give cash? While sometimes pitted against each other, cash and in-kind aid can work together, as the Mercy Corps example shows. But the decision on whether to provide cash or items — or both — depends on several factors, including the location and the situation on the ground, according to Jovanovic. In areas where markets still work, it might be detrimental to the local economy to swamp the area with items that are already available. On the other hand, in areas where everything is destroyed, in-kind assistance might be more effective. “Even in these two situations there are many variations and specifics that need to be taken in consideration, so the only thing I can say is that agencies must not assume before assessing what is more effective,” Jovanovic said. Indeed, a nuanced understanding of markets is necessary to be able to respond to disasters appropriately. In another background note, Bailey and co-author Sophie Pongracz wrote that evidence has shown that, “in every situation in which cash has been used at large scale thus far, markets have responded.” For example, a 2007 HPG background paper showed that the large-scale and rapid cash transfers managed by the Indian and Sri Lankan governments after the Indian Ocean tsunami “were critical to assisting the affected population quickly and effectively.” More long-term cash aid — money to reconstruct shelter and replace assets, monthly stipends for food and nonfood items and services, compensation for the relatives of those who had died or had been disabled, and funeral assistance — also helped in the recovery of both the population and the economy. While markets can’t magically work when supply chains are severely damaged, they are still more resilient than many assume. “In some cases, humanitarians assume that markets won’t respond to cash injections and turn to in-kind aid to be ‘better safe than sorry,’” Bailey said. “But markets don’t disappear in crises and are quicker to recover in disasters than we often think.” Bailey cites the example of Adeso, a nongovernmental organization formerly known as Horn Relief and one of the first groups to adopt cash transfer programming in Somalia, to illustrate how this can happen. “[They] knew that shops being closed in villages didn’t mean that cash transfers wouldn’t work, but was because traders had been giving out credit in tough times and couldn’t sustain it,” she said. “Distributing cash was a lifeline to getting trading going again.” Of course, the decision on whether or not to give cash — conditionally or unconditionally — is also a matter of timing. The day after an earthquake or a typhoon hits, for example, isn’t the best time to start asking how people buy goods, receive remittances, and whether the government is on board to give cash. “Humanitarians need to be savvy and flexible — disaster settings change quickly,” Bailey said. “Cash may not be the best solution on day one, but it may be later.” Check out more funding trends analyses online, and subscribe to Money Matters to receive the latest contract award and shortlist announcements, and procurement and fundraising news.