Why does the aid industry resist cash transfers?

If you have extra money and want to help people in a poorer country, you could send them food, or build them a school, or set up job-training programs. Or you could just give them the money and let them decide what they need most. This is called a cash transfer, and such programs are increasingly used in low- and middle-income countries – usually by the government – to reduce poverty. Mexico started Oportunidades in 2002; Brazil has Bolsa Família. Hundreds of studies have reached a clear consensus: Cash transfers are a effective way to use anti-poverty funds.

International NGOs and charities, for the most part, don’t often use cash transfers. It’s not that the idea is too new: Nobel laureate Amartya Sen proposed it in 1991. But it wasn’t until this century, amid growing complaints that much aid was wasted or fueled corruption, that the idea got wide attention as an international approach. By the late ’00s most of the biggest INGOs, including Save the Children and World Vision, were conducting pilot projects of cash transfers.

And then, despite good results, the charities continued with their old way of doing things, in which they decide what others need, and they decide how to deliver it. Then a couple of years later they conduct another small-scale cash transfer project. Ask any of them today why they don’t just give people the money, and they can tell you they’re doing a pilot project of that very idea. They like doing pilot projects. But they don’t like cash transfers, or any other arrangement in which they give up control.

Amidst a food crisis in Somali, some relief workers struggled to create a cash transfer program. One leader of that effort later recalled that “we implemented the largest NGO cash transfer programme in history. But this was done despite, rather than with the support of, the humanitarian system. It was a battle, every step of the way, and in the months it took to fight it, many thousands of people died unnecessarily.”(1)

By one estimate, less than 6% of aid is simply given as cash.(2) GiveDirectly is the best-known INGO to make cash transfers the heart of its approach. GiveDirectly is also one of just four organizations to get a top rating from GiveWell, which attempts to evaluate charities based on actual effectiveness. GiveWell co-founder Holden Karnofsky, asking why cash transfers are so rare in the charity world, suggested that perhaps it’s because “giving out cash fundamentally puts the people, rather than the charity, in control.”

That was in 2009. As Karnofsky most likely knew, there was already much research showing good results for cash transfers. More studies followed. So many that seven years later, the U.K.’s Overseas Development Institute reviewed 165 of them and reported:

“The vast majority of studies reporting statistically significant results showed that cash transfers contribute to delivering the outcomes that policy-makers intend to achieve. This finding is particularly impressive given its consistency across the critical outcome areas and high number of indicators covered by this review.”(3)

Why doesn’t the aid industry like cash transfers? NPR in 2013 asked “What Happens When You Just Give Money To Poor People?” Many charity veterans opposed the idea. Carol Bellamy, former head of Unicef, objected that people might spend the money on alcohol or gambling. Prior to her ten years at Unicef, Bellamy had been a Peace Corps volunteer, then director of the Peace Corps, so she ought to know. Others express the same concern. New York Times columnist Nicholas Kristof likes the fact that his donation to Plan International “doesn’t go directly to the child’s family (which might spend it on beer).”(4)

The evidence says they’re wrong. A World Bank review found that “[a]lmost without exception, studies find either no significant impact or a significant negative impact of transfers on temptation goods,” defined primarily as tobacco and alcohol.(5) Others back up this conclusion. There’s simply no genuine evidence for the stereotypes offered by these two aid industry stalwarts.

Here is yet another demonstration that the aid industry rests on a deep-seated yet unfounded paternalism. However “development” is defined, shouldn’t it include looking for ways that aid recipients can have more control over their own lives, rather than excuses for more outside control? If we’re going to argue that we must decide things for them, we ought to have awfully strong evidence.

Bellamy had left Unicef by the time cash transfers were widely studied, so it’s understandable she might not have known about this research. But if she didn’t know how people would spend such income, she could have said so. Instead, her years in the aid industry had left her with a condescending assumption which justified the industry in which she had been a central player. As for Kristof, even as he wrote his column, numerous studies had already demonstrated that his fear was groundless, but it justified his desire to sponsor an identifiable child, and to personally deliver a baseball glove to that boy he had sponsored in the Dominican Republic.(5)

Even if if some cash transfers are spent unwisely, that must be balanced against how the aid industry would otherwise spend the money. It would go toward rich-country salaries, first-class travel, and well-paid consultants. Also, temptation goods, and I don’t just mean wine and cigars. Linda Polman, the Dutch journalist who has covered international aid, writes: “Wherever aid workers go, prostitution instantly soars. I’ve often seen bar stools occupied by white agronomists, millennium-objective experts, or gender-studies consultants with local teenage girls in their laps.”(6)

Again, why does the aid industry resist this approach? It’s not a shortage of cash. In the wake of the Haiti earthquake, donations flooded into the Red Cross office. Three years later, sitting on $20 million earmarked to help Haitians, the Red Cross CEO wrote to a colleague, “Any ideas on how to spend the rest of this??” Just giving it to those who’d been wiped out seems not to have crossed her mind. In contrast, ChristianAid used cash transfers to get help to those affected within two weeks of the quake. They found that more than two-thirds of the money was quickly used for urgent needs: Food, water, health, shelter, and cooking fuel. The Red Cross, meanwhile, reported spending $170 million on shelter for displaced Haitians, and says it provided homes to 130,000 people. An investigation by ProPublica and NPR found that the Red Cross had built a total of six permanent homes in Haiti.(7) Might Haitians themselves have found some better deals?

One more time: Why does the aid industry resist cash transfers? On one level, this reflects a deep-seated paternalism, a need to be needed, which fosters a belief that one is needed. Cash transfers recognize that people can – and have a right to – control their own lives. Looking deeper, let’s follow the money. If aid funds don’t pass through the U.N. and the INGOs, then all the benefits that come from being amidst that flow – the salaries, the travel opportunities and expense accounts, the status and power, the control over what political philosophies and religions and languages are pushed – it all evaporates. Cash transfers leave no role for an aid industry which rests on a belief that “They need us to make decisions for them.”

By resisting cash transfers, the industry demonstrates that maintaining a role for itself — self-preservation – is the primary goal, above any thought of what is best for the people it claims to help.

Notes and Sources

  1. Doing Cash Differently: How Cash Transfers Can Transform Humanitarian Aid. Overseas Development Institute, London, September 14, 2015, page 22.
  2. Ibid, page 9.
  3. “Understanding the impact of cash transfers: the evidence,” by Jessica Hagen-Zanker, Francesca Bastagli, Luke Harman, Valentina Barca, Georgina Sturge and Tanja Schmidt, Overseas Development Institute, London, July 2016, page 5.
  4. “Changing Lives, Mitt by Mitt,” by Nicholas D. Kristof, The New York Times, 18 April, 2009
  5. Cash Transfers and Temptation Goods: A Review of Global Evidence, by David K. Evans, Anna Popova, The World Bank, Africa Region, Working Paper 6886, May 2014
  6. The Crisis Caravan: What’s Wrong with Humanitarian Aid? by Linda Polman. Metropolitan Books, New York, 2010.
  7. How the Red Cross Raised Half a Billion Dollars for Haiti – and Built Six Homes,” by Justin Elliott, ProPublica, and Laura Sullivan, NPR, 3 June 2015, and Haiti: Unconditional Cash Transfers, Lessons Learnt, January 2012, by ChristianAid.

Top photo: Cash transfer recipient in Malawi using mobile phone to receive a payment through a small program set up after an earthquake, by Shareefa Choudhury/ Department for International Development (Creative Commons license CC-BY-SA-2.0)

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