Developed economies have welfare states. They vary in their funding and generosity, but the principle is always the same: people going through periods of unemployment or ill health receive direct support, and the support is usually cash, not in-kind support like food. The assumption is that to address social ills, you just need to give people money.

The picture is very different for international aid, both development aid to economically underdeveloped countries, and emergency assistance after disasters or wars. Donor organisations and countries rarely hand out cash, generally doing so only in emergency situations. Most humanitarian aid comes from a huge and complex patchwork of organisations delivering many different kinds of aid.

A charitable description of the situation would talk of how this brings expertise and well-targeted interventions to people in need. An uncharitable one would talk about high salaries for international staff, haphazard and incoherent programmes and long and expensive supply chains for delivering goods that could be supplied locally.

As well as these practical considerations, there are moral ones: does the current setup reflect a neocolonial mindset that people in poor countries don’t know what’s best for them?

Different ways of giving

Critics are starting to get more of a hearing in international aid circles. And the approach of giving money, directly, with or without conditions, is increasingly being tested. American NGO GiveDirectly, which makes unconditional cash transfers to people in rural communities in Kenya and Uganda, is the poster child for this. But there are other experiments too, for instance around conditional cash transfers (linked to what they can be spent on, for example education) in Latin America.

The contrast between conditional and unconditional cash transfers mirrors an ongoing debate about welfare states: whether benefits should be conditional (like Jobseekers’ Allowance recipients having to apply for jobs, or Local Housing Allowance recipients spending the money on rent) or whether we should shift to a universal basic income.

Shifting global aid spending towards cash transfers is a startling prospect which would dismantle much of the structure of existing aid programmes. There are some compelling reasons to think that it’s better than in-kind support such as food or tents, or complete educational or health programmes (although even critics of current aid policies would agree that humanitarian experts are needed in some instances, like capacity building or peace building projects). And it would align much of international aid budget with the biggest flow of support from rich countries to poor; the huge sum of remittances sent home to family members by immigrant communities in richer countries.

And yet, despite unconditional cash transfers having gone from a few pilot projects to an annual sum of $1.2 billion in the last 10 years, this still only represents 6% of total humanitarian spending. Why not more?

Not everyone is convinced that they are the solution, and even if they are, sticking points remain. At the very least, more testing, more evidence and more evaluation needs to take place.

Room for improvement and unanswered questions

There are moral, cultural and ethical barriers to the expansion of cash transfers. Is it right to hand over money without conditions? Does money solve the systemic problems that underlie poverty, or is it just a plaster? (There is some evidence that cash transfers are not linked to economically impactful investments, for instance.)

There are also issues with how cash transfers align with the rest of the humanitarian aid system. One of their strengths is how they let people buy their own goods and services, letting them prioritise and address multiple needs. But in an environment in which multiple organisations are separately trying to address these, this potential for coordination is not an easy thing to harness. In Lebanon, for instance, more than 30 different aid agencies provided cash transfers and vouchers for 14 different objectives, undermining the prioritisation autonomy that cash transfers can provide.

Finally, there is a problem of lack of expertise in the humanitarian sector - moving from in-kind aid to cash donations changes the nature of what they do. Aid workers are not experts in finance; aid organisations are not well equipped to ensure their money is being spent accountably.

So how do we harness the potential of cash transfers?

Solutions here might lie in new technology, to track how money is spent, or in partnerships with private sector expertise, through new and cheaper digital payment tools that ensure money is spent efficiently and legally.

But we mustn’t fall into the trap of thinking that something technically possible is socially desirable. Just because we can track every penny spent through digital payment systems doesn’t necessarily mean that we should. It may be that we need to change the way we think about accountability or ethics, rather than changing the way cash transfers are reported. The main concerns reflect questions of “how” and “why” as well as “how much” and “how quickly.”

In the next few months, the Challenge Prize Centre’s international team is going to be looking at the issue of cash transfers and whether a challenge prize model could unlock ideas that give international aid organisations the confidence to use them more effectively.

Our event

On the 29th of June Nesta's Challenge Prize Centre will be convening a group of experts and stakeholders to help us explore the issue and develop ideal scenarios for the international aid community. We hope there will be room for collaboration, and perhaps some prizes later in the year. Get in touch if you'd like to attend.

Image property of the Institute for Money, Technology and Financial Inclusion.

This post appeared originally in Nesta's Challenge Prize Centre website.