James Shepherd-Barron is a disaster management consultant, author of ‘Absolute Disaster’ and humanitarian adviser to three cash-related industry associations (The ATM Industry Association, The European Cash Management Companies Association, and CashEssentials).
This article was first published on http://www.absolutedisasters.com/five-quick-fixes-to-facilitate-the-scaling-of-disaster-cash/ .
Joub Jannine, a small town in Lebanon’s Bekaa valley, is home to one of the country’s oldest Roman bridges. A few weeks ago it received its first dusting of snow. Just across from the bridge, Mohammed Taha was busying about his one-pump petrol station when a young man drove up on a battered, dusty motorbike. One of the three children perched aboard held out a small red plastic jerrycan which Mohammed quickly filled. He chatted idly as the man counted out a handful of Lebanese pounds, kicked his motorbike back into stuttering life, and departed in a flurry of snowflakes. Apart from the number of occupants on the motorcycle, the transaction could have been taking place anywhere in the world. The only difference was that the man on the motorcycle was not Lebanese, but was one of over 800,000 Syrian refugees benefiting from a monthly cash payment made during the winter months by the UN to buy fuel for cooking and heating.
As well as helping refugees, the programme provides a welcome boost to local businesses like Mohammed’s. “The cash the refugees get every month has transformed them from passive recipients of assistance to active consumers,” he says later over a cardamom infused Turkish coffee. “They are really greasing the wheels of our economy in the Bekaa … my takings have risen by almost 10 per cent since this programme started.”
What he doesn’t say, but could, is that this cash exerts a ‘multiplier effect’ locally which effectively doubles the value of the money in circulation. It’s a win-win-win for the refugees, their donors, and the local economy. What’s not to like?
Apparently quite a lot. What else explains why only $2.8 billion (10%) of the global $24 billion annual humanitarian aid budget for 2016 was distributed in this way? After all, donors and international aid agencies have enough evidence to see that cash transfers like this, although not appropriate in every crisis setting, represent far better value-for-money than distributing physical commodities such as food, blankets and solar lamps. The principle, after all, is simple: cash is a modality, a means to an end. It provides crisis-affected people the means to buy what they decide they need most, rather than what aid agencies think they need. Unlike other forms of assistance, cash puts beneficiaries more in control of the ends.
It also forces aid agencies to re-think their traditional ways of doing business, as cash transfer programming at scale does not fit neatly into the existing disaster management ecosystem, the UN’s coordination architecture, or individual aid agency mandates.
So, what needs to change if the 10% is to rise to 33% or more by 2025, as is DFID’s stated intent, and as was demanded by the World Humanitarian Summit in 2016?
Five core reforms are needed, and needed quickly:
The first is that donors should honour their ‘Grand Bargain’ pledges, a series of commitments made in the wake of the World Humanitarian Summit that, among other aspects to do with harmonisation, calls for relief funding to come without strings attached. This has four main implications: The reduction in visibility that comes with limited opportunities to plaster their logos on pallets of relief supplies; two, that funding would be more efficiently allocated if pooled; three, that multipurpose cash transfers – by which they mean any form of physical or electronic cash, but without restriction on where and how it is to be spent – should be the default transfer modality; and four, that aid should be untied and no longer earmarked for particular sectors. These last two points are of particular concern to the US government whose Food-For-Peace facility exists solely to bolster food security in times of crisis and which, under terms of the highly protectionist Jones Act, insists on using only US assets in its distribution.
Second, since the UN has proven itself incapable of institutional reform, donors could consider establishing an independent not-for-profit ‘humanitarian bank’ which, on the basis of consensual, sector-based advice, can provide the allocative efficiency demanded. At the very least, such a mechanism would facilitate ‘smart’ transacting and optimise cash-flow by releasing funds from donor accounts on a just-in-time basis.
In a speech to the UN Security Council last September, the UK Prime Minister, Theresa May, outlined the British government’s position. “Britain wants the UN to focus on a greater use of cash transfers rather than flying in food and other supplies to help the vulnerable,” she said. “Ministers believe this will help build local markets and help get economies back on their feet.” She also suggested that the UN create one office in each country rather than operating through multiple independent organisations, each with their own office and overheads.
A DFID policy paper which came out shortly after this lambast at the UN went further by asking aid agencies to “respect the authority of a single, system-wide leader to define priorities and allocate resources. Competition for resources must give way to collaboration to ensure that assistance gets to those in greatest need, regardless of legal status or what agencies can supply.” The implications of this statement are pretty fundamental, and have far-reaching consequences for everyone involved: most importantly, it calls on fellow governmental donors to provide funds which are not earmarked for particular sectors of intervention. These funds, it suggests, should be pooled into a common pot which are then allocated through a single coherent mechanism. The trouble is no such mechanism exists when it comes to unrestricted and unconditional cash transfers.
Third is that those who know about cash management – i.e the wider financial services sector, not just banks – should make a better job of explaining to an audience of aid agencies that physical currency and electronic forms of payment are not mutually exclusive. One need look no further than India’s recent de-monetisation exercise to gain valuable insight into this mindset: Economic growth in India slowed by over a third during the past year (from 9.1% to 5.7%) in part because of Prime Minister Modi’s demonetisation policy in which 86% of banknotes in circulation were abruptly voided. This was presented at the time as, “a crushing blow to gangsters and tax-dodgers”, but, says the Economist, “In fact, it caused great hardship and disruption without any clear benefits.” (Economist 4 November 2017).
This is another way of saying that entirely cashless approaches to social development are muddle-headed. “What India (and other governments like Nigeria and Mexico) fail to contend with,” says Dana Kornberg in the online blog The Conversation, “is the adverse effect such severe policies have on the poor, who seldom use banks.” It also ignores many of the fundamental precepts of social transacting, not least that many low-income societies lack the infrastructure and social capital required to make a cashless society work.
Fourth, the payments sector, including the commercial banks, should come together at global, regional and country levels to work out how best to provide a single, low-cost, and interoperable digital payments platform for deployment in times of crisis. Given that four of the largest banks in Australia got together in secret recently and decided to eliminate interchange fees altogether, this should not prove impossible.
Fifth, business schools, think-tanks, and management consultancies could usefully provide deeper research into the political economy of cash action in crises. As the Boston Consulting Group recently began to do for the UN’s World Food Programme, this would provide much-needed rigour and transparency into the ‘who pays, how much, and to whom’ aspects of the transaction chain. In addition, too little is currently known about the opportunity costs of humanitarian cash transfer programming. A ‘beneficiary’ to an aid agency is a ‘customer’ to a bank, and a customer who, while poor today, might represent a potentially significant return on investment in the future. As financial service providers all over Southeast Asia will tell you, banking the world’s ‘bottom billion’ represents a legitimate business opportunity. And it’s not just the transaction fees generated today, but their data. Refugees are consumers too, and, being highly price sensitive, are just as open to marketing blandishments as anyone else.
There are also marketing and R&D cost savings to be factored into the equation. How much is that MasterCard or Visa logo worth on the four million refugee debit cards circulating in Turkey, Lebanon and Jordan, for example? Perhaps the private sector should be paying the UN for the privilege of being involved in humanitarian cash transfers? After all, most corporate social responsibility budgets are tax-deductible. Carlson Wagon Lits, the travel agency, pays the World Health Organisation to have one of its branches situated by the front door of its headquarters in Geneva because this allows it access to a more or less captive market, so why not?
Finally, wholesale moves to cash rather than in-kind distributions have obvious implications for aid agency staff who fear losing the interface with communities they serve and a subsequent drop in quality and sophistication of their programming. To an extent, these fears – particularly when it comes to social protection – are justified, and radical re-engineering if not re-purposing of assets will be required. While the presence of non-governmental organisations at the sharp end of international relief remains critical, it does not take twenty NGOs to load an ATM card.
Meanwhile, the FinTech revolution continues apace, and the world’s poorest – including those affected by conflict and natural disaster – stand to benefit as much as anyone else. But the costs and utility of these benefits need to be properly understood by the humanitarian community and private sector, each of whom know little about one another’s capabilities and needs, or about the wide range of collaborations which are possible.
Mohammed Taha in his petrol station high up in the Bekaa knows. Not only does he know the cost of cash, but he understands its value, not just for himself and his refugee customers, but for the society around him. It’s time for the international aid agencies and the financial services sector on which they will increasingly depend to understand the implications for them and their business models. Over the coming months, CashEssentials, a newly formed independent initiative, which aims at offering a platform for debate about the payments and monetary ecosystems, will begin a series of discussions to see what the private sector can do to help take this conversation forward.