Bringing innovation to international development can often generate mistakes in looking for one-size-fits-all solutions. Perhaps due to an excess of optimism, or some form of naivete, we tend to hope that innovative solutions can behave as a magic wand. Yet it’s important to reveal the truth: cash transfers are not a panacea.

Last month the first-ever World Humanitarian Summit took place in Istanbul, as a global call to action by the United Nations Secretary-General. There, Ban Ki Moon required leaders from government, civil society and business to commit to five core responsibilities. Number four, named ‘change people’s life’, asked to switch from delivering aid, to ending need. Direct cash transfers are a favourable tool to do so.

Choosing a solution in international development can sometimes mean selecting one single avenue for a given problem. But in international aid, often the answer is ‘both’ rather than ‘either this or that.’ This is true also in the case of cash transfers.

But what are cash transfers?  

Cash transfers are money sent from organisations, donors or government directly into the hands of households or individuals in need, as an alternative to in-kind support. There are several ways to refer to cash transfers and it is worth clarifying them.

First, cash transfers are used both in the international development sector  - programmes dealing with social, economic and environmental development -  and in humanitarian aid - programmes dealing with emergency situations.

Second, there are different types of cash transfers. The simpler distinction is between conditional and unconditional cash transfers, but each of these have sub-categories:

Conditional cash transfer (CCT)
The cash is sent with specific requirements around how the money can be spent. CCTs are largely used within Central and Latin American government pro-poor and social protection policies.

• Payments for Ecosystem Service (PES)
  Direct payments to communities to protect/conserve their natural environment. So far, the largest PES has been implemented by the USA, whilst one of of the most interesting case studies in developing countries comes from Zimbabwe.
• Voucher 
  A paper, token or electronic card that can be exchanged for a specific good or value. Vouchers are a favourable method when there are security concerns or market barriers, like in the case of ICRC in Palestinian territories.
• Cash for Work 
  CCTs in which cash is given in exchange of public or community work. They are usually used when there are requests of manual labour as part of an emergency response, as in the case of UN-Women in Syrian Refugee Camp.

Unconditional cash transfer (UCT)
The cash is sent with no conditions attached to it. These are more often used in emergency situations, but some charities, like GiveDirectly, are using them to promote and give basic incomes to communities.

• Multipurpose cash grants (MCGs)
  Used in humanitarian aid to permit affected populations to choose how to spend their money. They are usually  the result of partnerships, like UNICEF in DRC.  
• Hybrid programmes 
  Programmes with UCTs as key components. In some cases, though cash transfers are given with no specific conditions, beneficiaries need to meet eligibility criteria, are monitored, and receive additional training. An example of this is the ACF-USA programme in Kenya.

Why are cash transfers so interesting?

Cash transfers are becoming one of the key topics in the global debate on aid effectiveness.  The international community proposes to switch to cash as the default service for all emergency situations (when a local market is in place), and for many developing programmes (with reserves for some specific areas, like social protection and safety, or to some extent health and education).

As explained in GPPI report, donors would come out as the winners of such a switch, because they would demonstrate to be evidence-driven whilst saving: Data have proved cash transfers’ impact and, particularly in the case of UCTs, their cost effectiveness.

Opportunities and challenges

Some challenges remain. Oxfam International's Humanitarian Director sums them well: Do we trust poor people? If there is less to distribute, what do we do? The first question comes from our fear that money will not be spent well. Most recently the Centre for Global Development ran a sample survey of 10,000 people in 28 European countries, and it revealed that people don’t trust UCTs. The second question explores the need for INGOs to change their approach to development, become smaller, more specialized, and more efficient.  

As discussed in our paper this shift implies a series of opportunities for a more resilient, more accountable and more transparent international sector, able to truly respond to the needs of beneficiaries. On the one hand, cash transfers can move international organisations towards raising overall standards by spreading new competition into the sector. On the other, people are better than aid agencies at making their own choices, and cash is a more dignified way to go.

Cash transfer programmes, therefore, can develop local agency and context specific knowledge; support new public-private partnerships needed for their implementation; and, with the appropriate data management, demonstrate higher quality of monitoring and evaluation.

Read our challenges brief and opportunities report

Image credit: 401(K) 2012 via Flickr, CC 2.0 license

This blog was first published on our Challenge Prize Centre website. Read the original blog.