To help the poor, rich countries should offer them cash, not cows

Humanitarian aid to developing countries is usually offered in kind, despite evidence that cash may work better. But taxpayers in the developed world are reluctant to hand over cash to the poor, writes Rafia Zakaria

A Syrian man walks at a refugee camp in the Kilis district of Gaziantep, southeastern Turkey. Economists have long debated whether giving humanitarian aid in cash or in kind is better at encouraging long-term development Ozan Kose / AFP Photo
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On its website, the international charity Heifer International claims to “empower families to turn hunger and poverty into hope and prosperity”. It does this, it says, by refusing to give these poor families “a handout”.

Instead, it delivers livestock, cows or goats or pigs, whose new owners then have access both to reliable food and reliable income. They can consume the eggs and milk and sell the surplus in the market for money.

In this way, money from the “haves” of the world is transformed into a sustainable livelihood for the have-nots, meeting the goal of poverty alleviation.

Heifer International is not the first charity in the world to pioneer in-kind assistance for the poor.

For decades, international aid organisations and development assistance agencies from rich nations have been functioning on the premise that to end poverty, the poor must be given the goods they need rather than the cash they crave.

As a result, hundreds – even thousands – of development programmes are funded every year (and praised every year) for their efforts in providing clothes, seeds, textbooks, desks, cows, goats and any number of other goods to the world’s poor.

The myth on which they rest is a familiar one: if given cash, the poor will immediately squander it or become dependent on it. They will, in sum, make the same poor decisions that the rich believe to be the cause of their poverty in the first place.

This premise is wrong. In 2014, a pair of economists, Chris Blattman from Columbia University and Paul Niehaus from the University of California at San Diego, decided to test the efficiency of Heifer International’s hypothesis that giving animals was one of the best ways to alleviate poverty of the recipients.

In an article published in Foreign Affairs they summarised their findings: organisations such as Heifer International spent a huge percentage of donor money on the staff they needed to deliver the "goods". The consequence: a cow that would cost $300 (Dh1,100) locally actually cost $3,000 for delivery by Heifer.

Even more importantly, studies quoted in the article revealed that when the poor were given cash, they did not squander it.

One of these studies, conducted by Blattman himself, involved giving $200 to a group of Liberian “drug addicts and petty criminals” – basically those least likely to spend money wisely.

The results shocked adherents of the no-cash rule: not only did the men not waste the money, but they also spent it on basic necessities and on equipment they would need to start their own businesses.

Since then, several follow-up studies have confirmed the value of cash transfers as a more efficient means of delivering development aid.

The most recent, published by the World Bank, looked at the results of 19 separate studies, all of which tested whether poor people who were given cash would spend it on so-called “temptation goods” such as drugs, alcohol or tobacco. Its findings reiterated what Blattman had said back in 2014, that cash transfers were not squandered away on these temptation goods.

Not only was the finding consistent across all the studies, but it was also consistent across geographic location, with data from Latin America, Africa and Asia all showing the same thing.

The value of giving cash, which permits recipients to make their own decisions regarding what they most need, is not only applicable within the development aid context.

In late 2014, researchers Daniel Masterson from Yale University and Christian Lehmann from the University of Brasilia partnered with the International Rescue Committee and applied the cash-is-better-than-kind hypothesis to international humanitarian disaster.

Focusing on Syrian refugees in Lebanon, they separated recipients into two groups: those living in villages above 500 metres elevation and those living below 500 metres.

Those living above were given e-vouchers for food and ATM cards that they could use to pay for things; those living below were only given e-vouchers for food.

Once again, the research showed that the refugees did not waste the money and used it to buy what they needed.

Aid agencies had projected that those living at the higher altitude would be in greater need for warm clothes. However, they found that the refugees chose to spend the money on additional food so that they and their families would be able to eat.

Having cash had empowered them to make their own decision; like others in just as poor, but more stable, settings, the refugees revealed themselves to be competent to make decisions regarding their own needs.

The study also found that the families that received cash transfers were less likely to send their children to work, that cash transfers generally increased access to education.

There was even some evidence showing that cash transfers actually reduced tensions within displaced families and between the refugee families and host communities. Refugees who could spend some money in the market, thus improving the economic situation of the villagers who hosted them, were unsurprisingly more welcome to stay.

As for the refugees themselves, 80 per cent noted that they would much rather have cash aid than any other kind.

As Chris Blattman, one of the initial proponents of the cash-only hypothesis has stated himself, cash transfers are not a panacea that can magically transform the world and eliminate all forms of need.

One crucial caveat is that the people being helped must actually need cash and not something else. This is particularly pertinent in relation to humanitarian disaster: those affected by an earthquake or a tsunami in a far-flung region are likely to be in need of medical services and supplies.

In cases like these, throwing money at the problem is unlikely to fulfil their need or produce positive results. Similarly, as IRIN, the UN’s news agency, has reported, solutions that defy market solutions, such as building institutions, cannot be provided with cash.

Beyond limitations such as these, the real obstacle before the cash-only hypothesis is the lack of political will among politicians and publics in rich countries.

As one news item in the British press revealed, taxpayers in some countries find it scandalous that development aid is being disbursed in the form of ATM cards and envelopes filled with cash. Some are concerned that corrupt governments in the developing world may keep the money for themselves, making the poverty of their own people even worse.

Their reaction reveals that one reason why some governments and some people give aid is to feel superior to those receiving aid. This last desire is thwarted when the decision of how it must be used is handed over to the poor themselves.

There is good news, however, and even indications that the vast bureaucracies that spend millions in aid dollars to maintain their swollen staffs are changing.

Following the World Humanitarian Summit last summer, the United Nations refugee agency, UNHCR, announced that it would double its use of cash-based aid by 2020.

It’s a good beginning and a timely one given the ever-increasing funding gap between what the world’s poor and disaster ravaged need, versus what rich governments are actually willing to give.

Urgently reducing the money spent on unnecessary aid workers and bureaucratic decision-making is one way to make the money go further and help more people.

One way to hasten this crucial institutional change in the way aid works is for individual donors to only donate to organisations who provide cash-only aid to the world’s poor.

True empowerment for the poor, and sincere concern for the dignity of aid recipients, requires that we simply and directly give them the money.

Rafia Zakaria is the author of The Upstairs Wife: An Intimate History of Pakistan