What's Happening?

In a humanitarian disaster donate cash, not aid

Friday, September 23, 2016

Prof Graham Heaslip, Head of School, GMIT School of Business

The traditional practice of humanitarian relief is to provide the people in need with goods, however, assistance in the form of physical goods is shifting towards providing cash-based assistance instead of goods. Cash-based responses (also known as cash transfer programmes, CTPs) are mechanisms to provide resources to a population in two main ways – by providing them directly with cash or by giving them vouchers.

Cash transfers can be viewed as a challenge to the traditional roles established by humanitarian sectors such as nutrition, shelter, etc., as cash can address any of these needs as long as there is market supply. Cash transfers shorten the logistical supply chain, simplify procurement and remove the need for transport and warehousing considerations which may shrink the humanitarian sector considerably. In short, a shift from material to financial flows diminishes the total cost of aid whilst simultaneously empowering beneficiaries. This has meant that beneficiaries have changed from being passive beneficiaries to becoming active members of the humanitarian supply chain.

Generally speaking, CTPs imply a reconfiguration of the humanitarian supply chain with consequential important contributions to the reinstatement of the local economy. In humanitarian supply chains where the main activity is providing physical goods, the actors conducting the activity of distribution are commonly a local partner such as the local authorities or local NGOs. In the distribution of CTPs, there is a shift for the role towards an actor that can better handle the financial flow, for example, new telecommunication solutions for cash transfers such as “mobile money” launched by Safaricom have enabled CTPs in various African countries.

Perhaps the most intriguing change is the impact on financial vs. material flows in the humanitarian supply chain. In the traditional model, financial flows originated from donors to humanitarian organisations, which used these finances to pay for material supplies that they delivered to beneficiaries. In a cash transfer programme, financial flows from donors still come to humanitarian organisations, which then assess the possibility for distributing cash directly to beneficiaries. If this is possible – given that there are items available on a market, for instance – the financial flows go directly to beneficiaries, who pay themselves for the products and services they need. Humanitarian organisations become the brokers of these flows, and the distributors of cash, but not the providers of materials. Their role in delivering materials diminishes to the materials that are not available on the local market.

Like any relief intervention, cash transfers are considered in relation to the context in which they will be used. The local market will be affected by an injection of cash so it is important that the market can absorb the extra capacity without causing soaring inflation to occur. The market must also be able to supply the goods needed by the beneficiaries and in-kind aid is more appropriate anywhere there is ‘supply failure’ which is lack of supply regardless of the existing demand.

This also implies a significant change in supply chain strategy. The traditional humanitarian supply chain “pushes” items first and gradually moves towards a “pull” strategy once more information becomes available. If supplies are “pushed” through a system, quantities are dictated by an upstream authority with little or no input from the recipients. In other words, aid is being sent regardless of the need. In a “pull” system, quantities are determined at the point of consumption. That is, the correct aid (food type, water, blankets and shelter) is delivered. Cash transfer programmes enable a pull strategy to be implemented from the beginning. Through this, arguably, they can meet the actual needs of beneficiaries quicker and more accurately.

The impact of cash transfer on humanitarian operations cannot be understated. They alter supply chain design, the very role of beneficiaries as well as humanitarian organisations, and change the strategy of aid delivery from push to pull. Perhaps the most important factor is the elimination of many logistical activities that needed to be performed by humanitarian organisations. Delivering cash diminishes the needs for lengthy procurement and assessment processes, pre-positioning, transportation and distribution. This bears the potential of significant reductions in costs for delivering humanitarian aid at the same time as it is an important move from aid to trade.

Heaslip, Graham. "In a humanitarian disaster donate cash, not aid." Galway Independent, 21 September, 2016.

Prof Graham Heaslip, Head of School of Business, GMIT