How is a shift to cash changing the aid sector?

The use of cash and voucher assistance in humanitarian aid has more than doubled in the last five years. But for many, the question is not why cash is growing more popular in the sector, but why it’s taking so long. Volumes of cash and voucher assistance — also known as CVA — stood at $10 billion in 2022, compared to $4.3 billion in 2017, according to The State of the World’s Cash 2023 report, published late last year by the CALP Network, a global network of organizations involved in the provision of CVA. That increase is partly because humanitarian spending as a whole has skyrocketed in recent years, driven by the pandemic, war, and widespread food shortages caused by price inflation and debt. But cash has grown faster than other spending. In five years, it went from being 13.7% of a $27.9 billion aid spend to 20.6% of a $47 billion spend. The same is not true in the much larger development sector, where cash makes up only a small percentage of all giving. Quite how small, nobody knows, because no one is keeping track. “If you want to advance [cash and voucher assistance], then the agencies have to stop squabbling. … Instead of looking at how you grow the pie, people are focusing on how you divide the pie.” --— Jemilah Mahmood, executive director, Sunway Centre for Planetary Health It may be 3% of development spending, according to figures quoted at the launch of the report by Rory Stewart, special adviser and former president of the international NGO, GiveDirectly, one of the principal proponents of unconditional cash transfers in the development sector. Other sources estimate up to 5%. Either way, the figure is small, and growth is slow. Cash advocates say humanitarian CVA is growing because it works. People are experts in what they need for themselves, so it’s often best to give them the money and let them sort it out. Cash can also have lower overheads, and can lead to more money being spent in local economies. And people like being given cash, because it lets them make decisions for themselves. Cash has been widely tested, and produced consistently good results. But advocates also say that the advance of cash is slower than it should be because it would require changes in relief infrastructure — changes that would not benefit existing players in the system. They say such parties have focused not on what is best for people in crisis, but on what is best for their institutions and their staff. Vested interests Last year, when Stewart spoke at the launch of the CALP report, he said cash was being held back by those in power. “It’s really important to accept that there are very strong vested interests against cash,” he said. Donors want to give money on their terms, he suggested. They want to decide which countries get cash, and what programs are delivered, in order to give themselves leverage over countries and economies in the global south. Similarly, he said, a whole economy has grown up around the provision of aid, and all parts of that economy have grown used to getting paid. The United States government wants the food given out in emergencies to be grown by its farmers. The nonprofits who bid for contracts with USAID, the U.K. Foreign, Commonwealth & Development Office, and the German Federal Ministry for Economic Cooperation and Development, or BMZ, want to continue to win work. And those who work for donor agencies want continued employment. He said he was aware of concerns that the widespread shift to cash could put a lot of aid professionals out of work. There is also simple inertia. People have always done things one way, and they want to carry on. Since aid is a sector with limited scrutiny of what works, and similarly limited accountability if things do not work as well as they should, there is insufficient pressure on agencies to change to a better solution. Even though cash has been recognized as important in the development world, it is mostly employed as a benchmark. At USAID, for example, programs are being judged on whether they perform better than just giving cash. Humanitarian growth Cash evangelists say the amount of aid given in cash, even in the humanitarian sector, is still far too low, with CALP advocating, based on its latest report, that the correct level should be around 50%. Other players are moving in the same direction. International NGO World Vision, for example, has said that cash is 20% more effective than in-kind assistance, and its goal is that cash will be 55% of its total disaster relief funding by 2027. There are many reasons behind the level of growth seen so far in the humanitarian sector. Karen Peachey, director of CALP, said one catalytic event was the Boxing Day tsunami of 2004, which led to a huge amount of support from donors and the public. The affected countries still had functional economies, with strong banking systems and plenty of vendors able to provide supplies, she said, so it made a lot of sense to give cash and let people buy what they needed. After that, the evidence in favor of cash started to increase, as well as people working in aid agencies who believed it worked and were willing to advocate for it. From there, the groundswell of opinion began to grow. Agencies such as the defunct Department for International Development in the United Kingdom and the European Commission's Civil Protection and Humanitarian Aid Operations department began to push for cash support. And NGOs, The Red Cross, and U.N. agencies began to respond to this need and develop the skills needed. It appears as if this groundswell of momentum continued. Effectively, there were now vested interests devoted to cash, as well as those opposed to it. This work was also supported through conversations convened around the Grand Bargain — the commitment made in 2016 to get local leadership more involved in aid. While by many counts the bargain has been considered a failure, Peachey said, it had a positive influence on the adoption of cash. Then came COVID-19. With humanitarian staffers suddenly unable to fly around the world, different solutions had to be found, and CVA spiked further. It dropped back a little as the pandemic came to an end, but there was more evidence that it was effective. Peachey says the barriers to further growth involve both mindsets and practical issues. Cash necessitates a change in the way sector bodies think about things and the way they are done. She flags one of the findings in the State of the World’s Cash report, which highlights that “modality choices are unduly influenced by habits, perceptions, organizational inertia and donor preferences.” It requires a different infrastructure, a different alignment between agencies, and different roles and positions within agencies. Even if the sector does continue to realign to deliver more humanitarian aid through cash, it will inevitably take time. Winners and losers So how will these shifts transform the sector? Will there be winners and losers among aid institutions? Already, advocates say, that question is slowing up progress. Jemilah Mahmood, the executive director of the Sunway Centre for Planetary Health at Sunway University in Malaysia, as well as a physician, development leader, and cash expert, spoke out on the subject at the launch of the State of the World’s Cash report. “If you want to advance CVA, then the agencies have to stop squabbling,” she said. “The veneer of mature debate on CVA belies the ugly fights over market share. Instead of looking at how you grow the pie, people are focusing on how you divide the pie.” And it looks to be the larger agencies who are getting more of that pie. This is a general trend in humanitarian affairs. In recent years, U.N. agencies have received more humanitarian funding, possibly because they were able to handle large amounts of cash as funding increased rapidly over the last few years. The Global Humanitarian Assistance Report 2023, from nonprofit researchers Development Initiatives, shows that the U.N. share of total humanitarian funding rose from 52% in 2021 to 61% in 2022. But even before that, the U.N. was growing increasingly dominant in cash and voucher assistance. Leading the way is the World Food Programme, which first developed a policy on cash transfers in 2008, and has since dedicated more and more resources to understanding how to give away cash effectively. It now gives out $3.3 billion a year, most of which it said is spent on food, although some is used for education, health or housing costs. In 2017, according to CALP, the Red Cross and Red Crescent movement delivered 24% of all CVA, and NGOs delivered 22%, with 52% delivered by the U.N. and the final 2% by others. By 2022, these figures had fallen to 15% by the RCRC movement and 19% by NGOs, with 65% delivered by U.N. agencies, and 1% by others. It is not documented which NGOs are losing out, but it appears likely that the smaller, more specialist organizations are less well-suited to delivering CVA. The exact impact is not clear, since funding is often passed through several agencies. But cash assistance requires an organization, most likely one that is locally based, to identify the right recipients, and it requires an agency to make transfers. To do the latter, agencies need financial expertise, anti-fraud expertise, and IT systems capable of making many secure transactions. This trend is likely to lead to a few larger providers having increasingly dominant roles in the market.