Giving Cash to the World's Poor

The last thing you'd probably expect to see a Malawian drought victim do is whip out her ATM card and pull cash out of a machine. But that's exactly how some aid recipients in this beleaguered African nation now receive their monthly entitlements. As part of a relief experiment, the British government is handing out £750,000 of aid in the form of cash rather than food. Instead of standing in line for hours waiting for a sack of rice, Malawians simply swipe a card in one of several special mobile ATM machines located in pick-up trucks, then use the local currency to buy food, medicines, fertilizer or even pay for housing or school fees for their children. "Often, people affected by disasters are the ones who know best what they need," says Chris Leather, an adviser for Oxfam, the nonprofit group carrying out the program.

It's a novel development idea that's catching on around the world. Until recently, most of the world's relief aid came in the form of material goods like food, water, blankets, medicines or building materials, delivered by international staff that parachute into disaster areas, or local NGOs funded by rich donors. But in recent years, as the nonprofit world has increasingly come under fire for inefficiency, mismanagement and even corruption, there has been a push for new strategies. Cash aid, which has been delivered to about 100,000 aid recipients in countries like Bangladesh, Pakistan, and Ethiopia via pilot programs, is one of them.

The idea behind cash aid is to cut the cost of aid delivery, reduce opportunities for corruption and theft of goods, and empower aid recipients by giving them more control over their own well-being. So far, cash-aid programs represent only about 10 percent of the $3.2 billion yearly international food-aid spending. But experts expect the figures to rise sharply this year, as the U.S. government (the world's single largest aid donor) has thrown its support behind the strategy, following an April report showing that 65 percent of the country's $2 billion food-aid budget is eaten up by red tape and logistical costs.

Cash aid, which is typically delivered via ATMs with special biometric scanners or in local banks, offers several key advantages. First, cash programs cost about half as much to run as traditional emergency-aid programs—that's a huge savings considering the multi-millions of dollars spent on food relief delivery each year. Second, cash is more discreetly doled out, a big advantage in war-torn areas where humanitarian workers don't want to attract attention (aid distribution can turn violent: a British humanitarian taskforce saw its first attempt to hand out food and water in Basra in 2003 end in gunfire). Unlike food aid, cash won't create unfair competition for local farmers. Development experts say it also helps to foster dignity among victims of war or disaster, giving them choices as well as introducing them to formal banking systems that they might access in the future.

But the idea isn't a silver bullet. For starters, like any sudden resource transfer, cash can distort local markets, triggering inflation in key goods, as was the case for housing supplies in post-tsunami Sri Lanka. Critics also say there's a broader possibility for corruption, since cash (unlike a sack of maize or a bar of soap) appeals to those at all levels of the economic food chain. As a result, cash aid projects are pioneering innovative ways of registering recipients—the Red Cross and UNHCR both employ retinal scanners to identify recipients. When cash is distributed via banks, agencies make sure to work with big national or international institutions with strong regulatory frameworks. Proponents of cash aid also counter that most corruption in materials and food-delivery programs happen during procurement, storage and transport, none of which applies to cash transfers. Also, cash-aid programs are relatively easy to audit, particularly when carried out electronically, so that the date and location of each handover of cash is tracked.

Still, it's clear that cash-aid programs need to be structured carefully. For starters, early trials show that like other forms of aid, cash aid works better when it's handed out to women—young men, for example, are more likely to spend the money on beer and cigarettes, whereas mothers will put the aid on essentials for their families. Likewise, cash works best in places with functioning markets, where recipients can still buy what they need locally at reasonable prices, and where cash can actually be delivered securely. "If you are in a village that's completely cut off by flooding, and there's absolutely no food left, then what you need is someone to turn up with blankets, bottled water and shelter materials in a helicopter," says Paul Harvey, a research fellow at the British government's Overseas Development Institute. "Someone turning up with $100 wouldn't be too helpful."

There will be plenty of testing grounds this year, as the United States, U.K. and other nations roll out numerous cash-aid trials around the world. Only a few months ago, the British Red Cross successfully delivered £1.6 billion to Indonesians displaced by last year's earthquake in Yogayakarta. In a few weeks, Save the Children will begin doling out cash to victims in Mozambique. As in Malawi, the simple swipe of a card will, it's hoped, bring relief.