Cash Transfer

A “cash transfer” refers to the direct provision of cash to households in order to reduce poverty and vulnerability. Cash transfer was originally used as a strategy in middle-income countries, but in recent years governments and international agencies operating in low-income countries have adopted and expanded similar programs.

Among the multiple types of cash transfer programs, approaches employed in humanitarian settings include:

  • Unconditional cash provisions, when the agency allows recipients to spend the money as they wish.
  • Conditional cash provisions, when the agency restricts how the money is spent, or sets a prerequisite action to eligibility. (For example, one stipulation for receiving cash may be that the recipient must vaccinate the household children or send them to school.)
  • Cash-for-work, when the payment is offered as a wage for work. Such programs account for the largest share of cash transfer programs in humanitarian emergencies.1
  • Vouchers, when the agency provides vouchers that can then be traded in for goods. After cash-for-work, this is the second most common type of cash transfer program.
  • Social assistance transfers, when cash is provided in the longer term to persistently poor households and vulnerable individuals (e.g., the elderly, pregnant women).2

Cash transfer programs are largely employed in development contexts but are increasingly utilized in humanitarian spaces as well. The provision of cash rather than “in-kind” donations (e.g. food, clothing) reduces the logistical costs of transporting and storing goods. Unlike in-kind donations, unconditional cash transfer programs are also valuable in the promotion of recipients’ sense of agency by allowing the allocation of funds based upon individual needs. Additionally, in development projects and post-crisis situations cash transfer programs can serve to inject money into struggling local economic systems and stimulate recovery.3

In practice, cash transfers allow non-productive households (i.e., those that cannot participate in the labor market due to physical constraints, lack of land ownership, or another asset limitation) to subsist in times of financial difficulty without having to sell off assets or take on debt. The funds transferred can then be applied toward expenses such as education, production capital, and credit. In this way, the implementation of cash transfer programs is seen a means of preventing household destitution as well as an investment in long-term economic development.

Cash transfers can only go so far, however, in contributing to the growth of local markets. If insufficiently monitored, cash transfers can contribute to the inflation of local currencies and have the potential to be ‘wasted’ on goods that do not directly support household welfare. Additionally, while cash transfers can increase access to resources, they do not influence the quality of resources provided (as seen in the cases of education and healthcare).

In the humanitarian field, cash transfers are increasingly considered to be a means of promoting resilience. Cash transfers supplement in-kind efforts by providing the resources necessary for affected populations to rebuild their livelihoods in the aftermath of crisis. Furthermore, they support household investments in securing their property and belongings, help to maintain the local market trading system, and leave space for government institutions and social services.

Cash transfer programs can also play an integral role in the transition from humanitarian relief to development. Specifically, public social services build faith in the government and programs targeted to support previously excluded groups can promote social unity. In practice, however, agencies must account for the possibility that such targeted support may foster tensions.

Challenges of Implementation

Not every situation is suited to cash transfer programs. The implementing institutions must have the administrative capacity to carry out cash transfer programs, and markets must be able to withstand the cash inputs while supporting the needs of the community.

Many national governments fear that by agreeing to institute a cash transfer program in the short-term, they will become obligated to continue the program in the long-term, that households will become dependent on cash transfers, and or/ that the households will use the funds for discretionary purposes. For these reasons, while international donors are increasingly supportive of cash transfer strategies as an emerging model of assistance, they are especially insistent on the role of cash transfers in promoting “graduation” out of poverty. As a result of these expectations, cash transfer programs are implemented as short-term fixes for dependency rather than long-term, ongoing designs.

This short-term approach is at odds with the nature of the recipients: non-productive members who are in greatest need of additional cash support – but who are also the least likely to graduate out of poverty, given their underlying inability to participate in the labor market. This issue is rooted in problems common to many development programs: affordability and sustainability, especially in states with limited funds and administrative capacities.

Capacity and resource limitations introduce additional risks. The provision of only a small amount of cash is linked to a decreased probability that it will be invested; instead, households may be inclined to spend it immediately, and on goods that may not be considered “essential” by the implementing body.

Security risks are heightened for those transporting the cash and for the ultimate recipients as armed groups may value cash more than an equivalent value of in-kind goods. The threat of armed seizure is supplemented by the risk of corruption. (It should be noted, however, that there is little empirical evidence to show that cash transfers are more prone to corruption than in-kind donations.4 )

Cash transfers are increasingly looked to by international donors, national governments, and humanitarian agencies as productive means of promoting relief and development. As outlined here, this trend has justification: cash transfer programs can bring forth benefits, including decreased logistical costs, more flexibility, increased recipient agency, and economic stimulation. However, such programs must be implemented with full recognition of the associated complications. Implementing bodies must be familiar with the unique features and needs of the local population, the characteristics of the market, methods of monitoring and evaluation, and the inherent risks of cash transfer programs.

1 Sarah Bailey, Kevin Savage, and Sorcha O’Callaghan, “Cash Transfers in Emergencies.” Humanitarian Policy Group, 2008. p.6.
2“Guidelines for Cash Transfer Programming.” International Red Cross and Red Crescent Movement, 2007.
3Sarah Bailey, Kevin Savage, and Sorcha O’Callaghan “Cash Transfers in Emergencies,” p.5.
4“Guidelines for Cash Transfer Programming.” IFRC

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