When an earthquake measuring 7.8 on the Richter scale wreaked havoc on coastal Ecuador in April 2016, the world of 50-year-old Salvador Muñoz was turned upside down. The quake left his family homeless and his home-based tailoring business in ruins.

But the disaster could not take away one thing: Muñoz’s entrepreneurial spirit — something he says he picked up as a small boy. With a cash grant from the Ecuadorian Red Cross, he built a shop using tarpaulins and canes, where he sells takeout food at night. Muñoz also managed to fix one of his sewing machines to repair clothes for people who live nearby.

Back in business, Muñoz feels optimistic. “Our suffering is over, now it’s time to stand up with our heads held high and take back what the earthquake has stolen from us,” he says.

This is exactly the kind of result that proponents of cash transfer programming say a carefully planned injection of money can have — empowering recipients to address their needs in the most efficient and dignified way possible.

As the community began to recover from the initial shock, the Red Cross started providing economic support with the aim of reactivating family livelihoods and stimulating the local economy. Each family received a debit card with US$ 200 to cover immediate, basic needs, says Sonia Cárdenas, a livelihood officer with the Ecuadorian Red Cross. By the end of September, the cash transfer initiative — implemented in coordination with the IFRC — had reached roughly 2,000 families in eight communities.

Cash was just part of the response, however. Moments after the first tremor, the Ecuadorian Red Cross was on the scene, pulling people from the rubble, supporting other rescue agencies, delivering food, water and blankets, helping to install water and sanitation systems and giving talks on health and community organization.

Within this mix of emergency responses, cash transfers will play an important role. Delivered in a variety of forms, from hard currency to unconditional electronic payments or vouchers for specific items, cash is becoming more commonplace as a means to assist people in crises.

From Ecuador to Myanmar, Nepal to Somalia, Viet Nam to Canada, cash transfers are now an integral part of the International Red Cross and Red Crescent Movement’s aid operations. Since 2010, more than half of all IFRC emergency appeals included cash as an element of the response and, in the first eight months of 2016, 85 per cent included some form of cash transfer.

Cash is nothing new, however. Red Cross volunteers provided cash during the 1870–1871 Franco–Prussian War and at numerous times since. It’s generally agreed among aid agencies that the 2004 Indian Ocean tsunami was a turning point for cash as aid after numerous agencies began piloting cash programmes there as an alternative to in-kind aid.

What is new is the volume and scale of cash transfer programming. Though cash programming makes up only 6 per cent of the money spent in aid distribution worldwide, according to the Overseas Development Institute (ODI), the practice has gone mainstream, with nearly all major aid agencies offering cash in some form during their response to major emergencies.

Why is cash coming to the fore now? “With more people living in urban areas, we are responding more and more to urban disasters so cash is increasingly viable because people have easier access to markets and the systems needed to sustain cash transfers,” says Claire Durham, IFRC senior officer for Cash Transfer Programming Innovations.

And even in rural areas, technology is making cash programming more viable as people increasingly use mobile phones for everything from paying debts to monitoring their bank accounts and buying goods at local stores, she adds.

With conflicts lasting longer and the fallout of other crises having long-term consequences, aid agencies are turning to more creative ways to help people restart or create livelihoods while providing assistance that boosts, rather than competes with, local markets, a critical part of long-term stability and recovery.

At the same time, there has been a growing movement within the aid world to find solutions that give more choice and power to beneficiaries — one reason a high-level panel at the recent World Humanitarian Summit in Istanbul in May 2016 came out strongly in favour of greater use of cash in emergencies.

Increasingly, experts advocate for the use of cash grants like the ones in Ecuador that are referred to as ‘unconditional’, meaning it’s up to recipients to use the money to buy what they most need from local markets. With unconditional grants, aid agencies often make recommendations but recipients ultimately decide.

Given the diverse needs many people face after a crisis, aid agencies have come to realize that cash grants with few or no restrictions can help people address a greater variety of needs than restricted grants (to be used only to buy food at particular vendors, for example) or the mass distribution of identical items.

It’s about choice but it’s also about dignity. “When you give cash, you are giving choice; the people can decide more what they need,” says Geraud Devred, a cash and market specialist with the ICRC in the Kenyan capital, Nairobi. “So you are less paternalistic than when you are distributing goods.”

The way cash in aid is perceived is also changing. Once viewed with scepticism due to concerns that cash grants would be more susceptible to abuse than material goods, cash distribution is now seen by some as a more efficient and transparent means of providing aid in cases where local markets are able to provide basic commodities.

In its 2015 report on cash transfers, ODI and the Centre for Global Development pointed to more than 200 evaluations and in-depth studies and concluded that “evidence suggests that in many contexts cash is a better way to help people and stimulate markets”.

“The obvious concerns about cash — that it might cause inflation for key goods in local markets, be more prone to abuse and corruption or diversion, or… be more likely to be controlled by men and so disadvantage women — are not borne out by the evidence,” according to the study.

The panel of experts convened to produce the report did not deny that misuse of unconditional grants is a concern — but it’s not necessarily more susceptible to corruption than material or in-kind aid. To back up their point, the report cites examples in which aid recipients sold the goods given to them in order to buy other things they needed more. On the other hand, the report says, certain types of cash transfers (such as digital cash transfers via mobile phone) provide better means of monitoring and assessing spending patterns than traditional in-kind goods.

“Donors and aid agencies developing humanitarian responses should routinely consider cash transfers as the ‘first best’ response to crises,” the ODI’s panel of experts concludes. Instead of looking first for reasons not to use cash as aid, the report proposes: “The question that should be asked is ‘why not cash?’”

That said, cash is not suitable for every situation. In its Guidelines for Cash Interventions in Somalia, Horn Relief (now African Development Solutions) lists some of the conditions in which cash interventions are not appropriate: when disruption to the local market is severe and emergency goods are required more quickly than markets can provide; when there is a high risk of inflation (due to limited goods or lack of traders in the market); or if cash grants left recipients vulnerable to attack or theft, among other concerns.

Cash grants are rarely provided on their own. In the years following Typhoon Haiyan in 2013, for example, the Philippine Red Cross and the ICRC provided cash grants (along with shelter materials) to help people regain livelihoods such as rice production, which both generate income and ease concerns about food insecurity.

Photo: Jez Aznar/ICRC

Even in places of high insecurity, however, cash provides some advantages. Digital cash transfers, for example, allow recipients to continue receiving cash transfers without having to return to a specific location. This reduces the risk of being exposed to danger when gathering to receive aid. This form of cash distribution also eliminates the risks and costs associated with importing, transporting and distributing in-kind supplies into insecure areas.

Martin Kenny, a cash and market specialist with the ICRC’s Somalia delegation in Nairobi, says the ICRC offers three types of cash transfer programmes in Somalia: unconditional cash grants to support people in the initial stages following a critical event; conditional cash grants to help people establish, re-start or expand a business; and cash-for-work, which seeks to rehabilitate infrastructure such as rain water catchments and irrigation canals.

“These projects have a long-term effect,” Kenny says. “If you rehabilitate a canal, it allows more farmers to grow more food, whether it’s for sale or personal consumption, which can lead to increasing their livelihood capacity.”

And despite being unable to send staff to some parts of Somalia, the ICRC can still support people in need through electronic cash transfers that make use of the established mobile phone network in the country. “Even in areas that are completely cut off, you still find a functioning market economy to some extent, which encouraged us to try cash transfers,” Kenny adds.

Another potential advantage of cash is speed. Following the devastating wildfires in the Canadian province of Alberta earlier this year, the Canadian Red Cross Society joined forces with the Royal Bank of Canada to quickly develop a digital platform for cash transfers. Just over a week after the fires forced the entire population of Fort McMurray to flee their homes, the Canadian Red Cross distributed 50 million Canadian dollars to the mobile phones of thousands of evacuees.

“For the Canadian Red Cross, there is no way back now,” says Jean-Philippe Tizi, vice president of the National Society’s disaster management team. “This digital-based assistance is new and super-effective and, at times of major emergencies, it’s a must.”

One reason cash was seen as extremely practical is that victims of the fires who had lost homes or jobs had dispersed to different cities. Cash was the most flexible way to give each individual the help they needed.

It’s not about replacing in-kind donations with cash, however. In the early days following the disaster, the Canadian Red Cross also provided a range of services, from distributing blankets and food items to providing accommodations and emotional support.

But how do aid workers analyse markets in the wake of an emergency, when there is little time for in-depth research and analysis? To address this question, the ICRC, the IFRC, the American Red Cross and the British Red Cross teamed up to develop tools to help staff quickly assess local markets after a shock and decide whether to respond with cash, in-kind aid or a combination of the two.

Released in 2014, the Rapid Assessment of Markets (RAM) guide and the more detailed Market Analysis Guidance (MAG) are designed to help emergency assessment teams integrate market analysis into initial fact-finding to ensure that aid, in whatever form, stimulates and nurtures the local economy, rather than triggering price rises or stifling market recovery and growth. “The market is key to understanding what response is most appropriate,” says Devred.

The foundation of these assessments are visits to local marketplaces, individual and focus-group discussions with key traders and suppliers, analyses of government or trade-group data where available, and interviews with potential aid recipients.

The basic goal is to determine how a given shock has affected people’s access to essential commodities and to identify how to help people get those goods in ways that support local markets and work within “the formal and informal institutions, rules, and norms that govern these interactions”, according to the guidelines.

To attain a basic understanding of these variables, the guidelines offer a list of questions: what are the key commodities people need? Where can those commodities be purchased and for how much? Is there competition on the market or do some suppliers control prices collectively? What is the state of the labour market? How do families get most of their incomes and how has the crisis affected those livelihoods? What are the prices for these commodities from the point of production to distribution and retail?

“In the beginning, we try to understand the functioning of the [local] market, as well as the security situation that may influence the access of local populations to the markets,” says Jules Amoti, head of the cash-programming sector at the ICRC’s economic security unit in Geneva. “We also try to understand the flow of commodities, the financial capacity of people to purchase those goods, the cash transfer mechanisms available in the market and all the social factors around the use of cash in the community.”

While the rapid assessment might provide enough basic data to guide interventions for four to six weeks, continuous monitoring is encouraged as prices and volumes change over time. Responders can then adjust their response, whether in-kind or cash, based on the evolving situation.

Ideally, those responding to any given event or crisis will already have collected market data as part of disaster preparedness activities or as part of long-term relief operations in prolonged crisis. One of the biggest challenges facing the Movement now is to develop greater capacity to assess markets and, when deemed appropriate, to rapidly deploy cash transfers as a potential response.

Many National Societies, for example, have not yet put the pieces in place — legal agreements with banks and telecom companies, training of volunteers in cash distributions, garnering support of governments, communities and donors — to be able to react quickly with cash in the event of a disaster. In cases where National Societies do not yet have systems in place, the IFRC helps them set up systems with relevant banks and to craft agreements with third parties (banks, telecom companies, retailers, etc.).

While the technical aspects can be set up relatively quickly, lack of preparedness can delay a cash response by weeks and, in some cases, months, particularly when National Societies or governments have never implemented cash programmes before. “This is why we are encouraging more National Societies to prepare for cash transfers, so they can respond quickly as soon as crisis hits,” says Holman.

Similarly, capacity for market assessment and cash deployment within ICRC is far from universal and so the organization has, since 2012, begun investing more heavily in staff training in market assessment and use of cash programming.

More broadly, aid agencies also see the need to improve the overall quality of assessment, selection of recipients and monitoring to minimize the chances that cash could be corrupted to support armed groups, run afoul of anti-terror legislation or simply be used in a way that does not help people get back on their feet. Aid agencies must also ensure the personal data taken from recipients to make electronic payments are secure.

Degan Ali, executive director of the Nairobi-based African Development Solutions and one of the pioneers of cash programming, says that over time, data management functions should be taken on by governments, who would develop data protection legislation and practices (see editorial, page 1). When governments are not able to fulfil this role, a neutral agency might be appointed.

Another issue is the ‘sectorization’ of cash, in which various agencies provide cash only for their specific speciality — cash for food, cash for livelihoods, cash for shelter. “As aid groups offering cash proliferate, refugees or displaced persons must go from organization to organization, each time answering the same questions in order to get specific services or goods from each agency,” says Ali, who would like to see international aid groups collaborate more widely on standard systems whereby recipients must only register once, then receive a card that can be used by a variety of agencies. While this has been done in some domestic and long-term international emergencies, cooperation mechanisms for large international responses are still far from the norm.

Cash grants were part of an ICRC micro-economic initiative that helped a local woman build a network of women handicraft weavers in the Iyakkachchi community of Pallai, Sri Lanka.

Photo: Tuan Zaharan/ICRC