Author: Ayako Iba.
In the latest in our guest blogs on the topic of the European Microfinance Award 2023 – Inclusive Finance for Food Security & Nutrition – Ayako Iba from the UN World Food Programme discusses the global food crisis and the role cash transfers can play in addressing access to food, while promoting financial inclusion at the same time.
At the backdrop of a global food crisis, triggered by the effects of economic shocks, climate crises, and conflicts, the link between food security and financial inclusion has become ever more evident. In 2023, over 345 million people – more than double the number in 2020 – are facing high levels of food insecurity, amid soaring food prices and the ripple effects of cumulative economic shocks at the national and global level.
By November 2022, the Horn of Africa had suffered four failed rainy seasons, over 1.4 million people in Somalia alone were displaced, and 66% of them due to drought. Halima Abdulle Samatar and her four children fled to a camp for internally displaced people (IDPs) in Dolow, after their family crops withered and 60 goats died. With the cash transfers Halima received from the World Food Programme (WFP), in addition to food, she paid for schoolbooks for her children and medication. Initially, she also saved $5-$10 per month to build a shelter, because they were sleeping in the open. Soon after, by continuing to save and buying goods on credit from a local wholesaler, Halima opened a small shop, made of corrugated iron sheets and wood, to sell batteries, pens, and groceries in the IDP camp.
Cash transfers (also referred to as cash-based transfers) are cash assistance provided to the people who need it the most in the form of direct payments, which can come in many forms and from different entities. For example, WFP prioritises sending unrestricted cash transfers and avoids imposing conditions, in order to maximise the contribution of cash to meeting people’s needs and transforming their lives, particularly in the context of humanitarian emergencies.
Other development organisations might focus on cash transfer programmes that are conditional to specific actions, such as attending a farm-management training. It can also be restricted to buying food items or making only cashless payments, depending on the programmatic objective. Several governments use cash transfers as a large-scale social protection programme as well. The funds can be transferred to bank accounts, electronic money accounts such as mobile money wallets, or distributed in the form of a voucher, prepaid card, or cash.
WFP, The largest provider of cash transfers
The UN World Food Programme (WFP), the world’s largest humanitarian organisation, is taking the lead in tackling Sustainable Development Goal (SDG) 2, by seeking to end hunger, achieving food security, and improving nutrition by 2030. Cash transfers for WFP have proven to be an effective tool to tackle the important intersection between this SDG on Zero Hunger and financial inclusion, because as the case of Halima demonstrates, cash transfers enable people to take control over their essential needs, including food security and nutrition, and, at the same time, build financial resilience.
In 2022, WFP spent a third of its total budget in cash transfers, by distributing almost 3.3 billion dollars to 56 million people across 72 countries. WFP prioritises unconditional and unrestricted cash transfers, because its aim is to empower people with the choice to address their essential needs in local markets, while also helping to boost local economies. It also uses conditionality as part of programmes that are inherently conditional, such as school-based or resilience programmes. Most importantly, WFP designs cash transfer programmes in a way that the experience of people receiving the cash is the most dignified.
That being said, WFP would not be able to deploy such a scale and volume of cash transfer programmes without forming strategic business partnerships with financial service providers (FSPs), NGOs, governments and retailers, which also play critical roles in implementing risk mitigation measures that ensure that the money WFP sends reaches the right people.
For example, WFP had contracts with more than 109 FSPs as of end-2022, ranging from banks, mobile money operators, microfinance institutions, remittance service providers, amongst others including fintech companies. In addition to the WFP assurance framework, WFP benefits from FSPs’ expertise for transferring funds in a secure, traceable manner, and in compliance with local regulation. At the same time, the FSPs’ resources - such as staff, agents, and IT systems - help WFP maintain its wide outreach, by assisting people most in need, taking into account their needs and preferences, as well as the geographical area and the existing infrastructure.
Cash transfers for essential needs and financial inclusion
As the recently published WFP Cash Policy illustrates, cash transfers can contribute to addressing people’s essential needs while supporting to build their financial resilience in multiple ways:
Unrestricted cash operations can help reduce the difficult trade-offs people face when deciding which of their urgent needs to prioritise. Evidence shows that 60-70% of income for vulnerable households is spent on food. It can also help avoid that people are forced to resort to coping mechanisms that cause serious harm to their physical or mental well-being, such as young girls marrying, sex work, or undermining their ability to bounce back from crises, for example, by selling their productive assets.
People receiving cash transfers to support their essential needs will often be introduced to formal financial services for the first time, when they are requested to open bank accounts or mobile money wallets. Financial literacy trainings are offered when assisting people to register with the FSPs, for example, on the importance of keeping their PIN code confidential and how to submit complaints.Also, opening accounts in the name of women on behalf of their households can be a gateway to women’s empowerment, by counterbalancing the existing gender inequality, not only in terms of access to financial services, but economic opportunities in overall.
The people we assist have to make financial decisions to better respond to shocks and often have pre-existing financial obligations. For instance, they might need to invest in fertiliser or crop storage to improve their food security situation. In such cases, most people have financial services of their preference that they rely on, whether they are saving groups, remittances, or informal lending. However, reliance on unstable or informal financial services often translates to limited access to adequate and cost-efficient payment services, insurance, or credit, which can help to seize economic opportunities or cope with sudden drop in income or unexpected expenses. Thus, cash transfer programmes should be designed to facilitate the transition to formal financial services, while taking into account the channels that the people are already familiar with.
Cash transfers create a positive spillover effect for the local economy. In a programme evaluation WFP conducted in Kenya, it was reported that, after deploying cash transfers, the monthly sales volume of local traders increased by 94%. In a similar evaluation in Lebanon, it was observed that a multiplier of 1.51 dollars was generated in the local economy for every dollar of cash transfers. Hence, providing cash transfers can help to boost demand for local goods and since it is commonly denominated in local currency, it can also curb local currency devaluation.
That being said, WFP commits to using the modality or combination of modalities (cash, value vouchers, commodity vouchers, in-kind food, capacity strengthening) that best addresses the people’s essential needs. Each context is different, and every household has specific needs and strategies for navigating through crisis and hunger. Through thorough assessments, including feedback from food-insecure people, WFP identifies the modality that is the safest and most likely to achieve the best outcomes for them. For example, where food is not available and markets are unlikely to respond to greater demand because commercial supply chains are seriously disrupted, or where people prefer other modes, WFP uses in-kind food or a combination of modalities.
In all, well-designed cash transfers can give people their agency back and, crucially, their right to choose. The key to success is to design cash transfer programmes with a people-centred approach, by tailoring the transfers to their needs and enabling them to receive cash on an account in their name, so that they are better able to resist to shocks and build their financial resilience. In this way, cash transfer programmes can effectively and efficiently support people to meet their essential needs, while helping to break the vicious cycle of poverty and vulnerability and also boost local economies.
About the Author:
Ayako Iba is a Financial Services Specialist at the World Food Programme. Her focus is on monitoring WFP’s exposure to counterparty and operational risks of contracting FSPs for cash transfer programmes, by overseeing due diligence exercises and proposing risk mitigation measures. She has over ten years of experience in the financial inclusion sector, having worked for a microfinance institution in Mexico, evaluated financial literacy and client protection programmes of the World Bank, and assessed financial and social performance of over 70 FSPs worldwide. Ayako holds a MSc in Local Economic Development and a BSc in Sociology from the London School of Economics.
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