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Rethinking international aid: Could cash be part of the solution?

By Joanna Macrae 26 January 2017

International development aid has been coming under a lot of scrutiny in the past few weeks. A series of front page stories have variously accused aid agencies in general, and the UK government in particular, of wasting the public’s money on aid.

Defenders of international development look first to restating the moral argument that we do have a responsibility to help the poor overseas. But just restating that providing aid is the right thing doesn’t address the other critique of aid put forward by aid supporters as well as its detractors: how can we be sure that it works?

Meeting the responsibility to demonstrate impact

One of the most excoriating attacks of late was on a UKAid-funded programme in Pakistan, in which very poor households receive a modest amount of cash (about £30 every three months). The Daily Mail’s reporting implied that such programmes risked fostering idleness among the poor and fueling corruption. The article concluded with a big question: ‘Does the extraordinary practice of handing out British public funds overseas [in cash] represent a sensible use of public money? Many British taxpayers will doubtless think they know the answer’.

If taxpayers made decisions on the basis of gut instinct, I expect it might be ‘no’. But if they made it is on the basis of evidence and cost effectiveness, I expect it would be a resounding ‘yes’! The reason why UKAid has grown its investment in cash-based approaches (albeit to just 2% of its total spending) is because, as the Prime Minister acknowledged, the evidence suggests they work.

GiveDirectly’s cash programmes in Kenya, for example, have been shown to deliver a 58% increase in assets, a 34% increase in earnings. At the same time, the number of days that children went to bed hungry reduced by 42%.

The global evidence also shows that when the poor receive cash, they tend to work harder (rather than remain idle), and spending on cigarettes and alcohol goes down.

These results demonstrate that far from being feckless or stupid, the extreme poor make very smart decisions about their own development. Arguably they often make better choices than aid agencies could on their behalf.

This suggests that cash should serve as a benchmark against which other aid investments are measured. We should ask ourselves: are we sure that we are making better choices for the poor than they would themselves?

Meeting the responsibility to maximise value 

A second challenge arising out of the current critique of aid is how to demonstrate that we are maximising value for the poor.

One of the things that worries people who want to help the poor overseas is that their money gets eaten up by bureaucracy. For more than four decades, international aid has flowed from the donor to the beneficiary.

As money flows along the chain, it becomes harder to know how much value is transferred to the ultimate recipient. But the advent of digital payments technology—systems such as M-Pesa—mean that it is possible to move money very quickly, cheaply and safely from wealthy people to the poorest.

That doesn’t mean that every charitable endeavour could be delivered in this way—we will always need to provide vaccinations and  improve infrastructure. Nor does it mean that you don’t need good management and administrative systems in the field to make sure that aid is delivered well. But if aid investment should follow the evidence of impact on individuals’ lives, rather than ill-informed rhetoric, then cash should be a growing part of public and private aid portfolios. Let’s hope that happens.