Download Chapter
WFP / Giulio d'Adamo

Chapter 12.4 Financial mechanisms and services for risk reduction

Cash transfers and remittances

Photo: WFP / Giulio d'Adamo

Cash transfers are increasingly used as part of humanitarian assistance programmes. Cash gives people more choice and flexibility than in-kind assistance, allowing them to make their own decisions about what goods and services to buy, according to their own needs and priorities. Delivering cash avoids the often high transportation and distribution costs of other forms of humanitarian aid. Injecting cash into local markets can also help stimulate local economies and encourage economic recovery. The contribution of cash transfers to DRR and vulnerability reduction in general is still being developed and discussed. The approach can be effective in helping households to cope with short-term shocks such as poor harvests, rises in food prices and unexpected expenses. There is also a role for cash transfers as a component of wider social protection programmes, which can be linked to humanitarian response.+S. Bailey, Cash Transfers for Disaster Risk Reduction in Niger: A Feasibility Study (London: Overseas Development Institute, 2008), http://www.cashlearning.org/downloads/resources/documents/cash-transfers-for-drr-in-niger.pdf. See also Is Cash Transfer Programming ‘Fit for the Future’? Final Report (London: Humanitarian Futures Programme, 2014), http://www.cashlearning.org/downloads/calpffffinalreport.pdf.

Remittances from family members working in another place or country total many billions of dollars worldwide and form a vital element in many household incomes. In normal times remittances contribute to DRR by helping to diversify livelihoods, provide health care and education and build better (and stronger) houses. They are also an important source of financial support during crises. Money is sent through a variety of formal and informal channels. Because remittances go directly to family incomes they have a direct impact on livelihoods, and households themselves choose how to use the money. There is evidence that remittances from family members abroad increase after disasters. Families that have access to remittances are less likely to have to sell off their livelihood assets to cope with crises, and they recover more quickly.

Money transfer systems depend on transport and communications infrastructure. Where these are damaged in a disaster, remittances may not arrive quickly enough to meet emergency needs and it may be difficult to locate families if they have been displaced by the disaster. In some circumstances, mobile phone banking or e-payment systems can be an effective method of transferring money quickly. Payments, transfers and withdrawals are made via mobile phones and cash can be drawn down from local money agents, which makes financial services and remittances more accessible to people in remote locations and places where banks do not have branches. The transaction costs are relatively low (with a particular saving in time and money getting to distant branch offices), savings are in safe locations and customers have access to a wider range of financial service providers.

These new technologies have been tried in emergencies, including the post-election violence in Kenya in 2008 and the Haiti earthquake in 2010, and the results are encouraging.+D. Datta, A. Ejakait and C. Odak, ‘Mobile Phone-based Cash Transfers: Lessons from the Kenya Emergency Response’, Humanitarian Exchange, 40, 2008, http://www.odihpn.org/humanitarian-exchange-magazine/issue-40/mobile-phone-based-cash-transfers-lessons-from-the-kenya-emergency-response; K. Sossouvi, ‘Innovation in Emergencies: The Launch of “Mobile Money” in Haiti’, Humanitarian Exchange, 54, 2012, http://www.odihpn.org/humanitarian-exchange-magazine/issue-54/innovation-in-emergencies-the-launch-of-mobile-money-in-haiti. However, there are a number of challenges: money transfer systems of this kind are complex, requiring time, effort and technical skill to set up; they depend on reliable network coverage; and the high demand for cash may cause problems for local money agents who normally manage much smaller sums. Other barriers to access include illiteracy and lack of familiarity with the technology. Formal identification documents are needed to register for schemes and collect payments, but the poorest may not have such documents, or may have lost them in the disaster.+G. Smith, ‘New Technologies in Cash Transfer Programmes and Humanitarian Assistance’, Humanitarian Exchange, 54, 2012, http://www.odihpn.org/humanitarian-exchange-magazine/issue-54/new-technologies-in-cash-transfer-programming-and-humanitarian-assistance.