MONEY TALKS

The surprisingly simple economic case for giving refugees cash, not stuff

Andrew Harper has a staff of 600, a budget of more than $280 million, and an office littered with color-coded maps marked by hand-drawn arrows. Violet is for Isis, orange for Al-nusra Front, and green for the government of Syria. The arrows are for people: Since 2011, nearly 700,000 have poured over the border from Syria to Jordan, and there are an estimated 70,000 more on the border, desperate to get in.

Harper, the UN High Commissioner for Refugees’ top representative in Jordan, has been in refugee crises from Turkey to Sumatra, but none as large and complicated as this. With his budget straining and Jordanians increasingly worried about the refugee camp in Zaatri that had become their fourth-largest city, Harper put into practice his simplest, cheapest option: Move refugees out of camps, give cash allowances to as many as possible, and then essentially let them take care of themselves.

It may not sound like a revolutionbut it could be the beginning of one.

Globally, the provision of aid doesn’t run like this now. The Center for Global Development found that less than 6% of the world’s aid is given in cash. Most aid comes from a fractious combination of governmental agencies and NGOs and is doled out in the form of vouchers and in-kind donations—think blankets, kerosene heaters, and bags of rice. Although somewhat effective at alleviating immediate need for food and shelter, this kind of aid does little to help build new lives.

UNHCR of Andrew Harper
Andrew Harper speaks with a refugee in Jordan. (UNHCR/ M. Hawaii)

And that’s where cash comes in. If the $20 billion or so in aid the world gives to refugees were given in cash, economists argue, spending could be better tracked, and security could improve. Moreover, the administrative savings would be so great, we could help far more people for the same amount of money: 30% more people, some studies have estimated.

The economic case for cash aid extends beyond an immediate cost-benefit analysis though. Harper’s work, and that of a handful of other organizations, essentially turns on its head the way the world thinks about refugees. It empowers refugees, and in doing so, it offers a new economic model for the aid business, one enabled by mobile money and anchored in the effectiveness of markets.

Cash is king

Harper, who’s in the vanguard of the movement toward cash, is a UNHCR lifer. He studied economics in college and had seen cash work in smaller scale projects. His experiment, which started in Jordan and is spreading to Iraq, Lebanon, and Egypt, has enrolled 1.9 million refugees so far. He targets those judged most vulnerable, like women-led households, for monthly allowances. In Jordan, more than 32,000 families have received nearly $200 million, an average of a little less than $120 a month.

He’s the first to admit it’s not nearly enough. “It doesn’t meet their needs; it keeps them on the edge of subsistence,” he said. But for each refugee Harper moves out of the camps, he cuts his per-person cost by two-thirds.

Cash is compellingly lean: It doesn’t need to be shipped, and programs to administer it are relatively easy to set up and maintain. Like UNHCR in Jordan, others have been experimenting with cash, though on a smaller scale. On Lesvos, it took Tom Byrnes, then the head of Mercy Corps’ cash programs in southern Europe, about three weeks to set up programs to give debit cards to the most vulnerable refugees, like women and children traveling alone. With a handful of staffers, the Portland, Oregon-based charity has given out 2,785 debit cards worth a total of more than €500,000 ($557,448) since November.

Cash is less wasteful. Mohamed Madani, 9, one of the refugees in the Mercy Corps program, wears a pair of ill-fitting canvas shoes. Embarrassed, he points to a bloody blister on his ankle. “It was raining,” he whispers in Arabic, to explain why he doesn’t have his own clothes anymore. “We slept in the mud.”

Some portion of in-kind aid never fits, causing much to be thrown away or resold at falling values. A study of Syrian refugees in Iraq showed high numbers selling items they’d received from donors. Nearly 70% sold rice.

Cash can empower refugees. Mohamed’s mother, Mona, and her sister, Widad, handed €250 ($278) debit cards, head to the street to buy food and him a new pair of shoes. Abayas flying as they walk, they grill an aid worker about the stores with the best prices.

The Madani sisters
The Madani sisters with their children. (Elizabeth MacBride)

Not incidentally, cash helps refugees avoid camps. Even those considered models, like Zaatri in Jordan, breed learned-helplessness. Barbed-wire camps on Lesvos, housing about 5,000 people in trailers, are notorious for riots and rapes.

Most importantly, the Madani sisters show us the long-term economic case for switching to a cash-based system. Out of the camps, empowered by cash, it’s clear they don’t think of themselves as victims. They plan to save most of the money on their cards to travel to Athens, where they will apply to be resettled in Germany, to join their husbands. A smarter world would see them not as victims or threats, but as a market for goods and services.

Harnessing market forces

Refugees can be seen individually as consumers and collectively as a huge, stateless country of people, who, by virtue of being funded by the humanitarian system, can afford to pay for services and goods. (There were more than 65 million displaced people in 2015, up from 42.5 million in 2011.) With more cash in hand, economists say, refugees could create their own markets or boost existing ones, for everything from clothes and food to education, job training, or financial services.

Cash programs flow via mobile money, and the infrastructure created to administer the programs can create a glide path for refugees into the world economy. On Lesvos, the refugees’ debit cards draw on a Mercy Corps bank account. Byrnes, the administrator, said the nonprofit could eventually set up bank accounts for refugees. That would help the refugees, who would build credit histories in their new countries, and also banks, insurance companies, and others who could sell them financial services.

A refugee ATM debit card.
An ATM debit card created for refugees. (Elizabeth MacBride)

Owen Barder, vice president at the Center for Global Development, recently argued for a humanitarian endowment, where the system would capitalize a fund for refugee resettlement, using the proceeds to deliver a lump sum to host countries. Barder estimated that if a $4 billion fund were capitalized with a bond paying 2.5% a year, 100,000 refugees could each be endowed with $40,000, which would be given either to the host country, or extending his argument, direct to the refugee.

Game-changing technology

Big investors have recognized the potential. Segovia, the software company that runs payment management for Mercy Corps’ cash program, is backed by Arif M. Naqvi, the CEO of Dubai-based private equity firm Abraaj Group, and Reid Hoffman, the co-founder of LinkedIn.

Technology is the great enabler here, because it allows companies and aid agencies to transfer cash, manage payments, and, perhaps counterintuitively, improve security.

The terrorist threat posed by refugees has mainly been a red herring: Most terrorists have been disillusioned or vulnerable young men, exposed to violent ideologies. In some cases they have been second-generation immigrants, parts of communities that haven’t integrated well—or, perhaps, been welcomed—in their new homes. One benefit of cash is precisely that it could smooth entry into a new country. Another is that some new systems to distribute cash promise a near-foolproof form of identification.

At UNHCR centers in Jordan, for instance, each refugee looks into a machine resembling binoculars, built by a small Jordanian company called IrisGuard. Refugees’ irises are scanned, translated to a number and stored in the cloud. When refugees arrive at a Cairo Amman Bank ATM, where UNHCR runs a bank account for them, they look into another set of binoculars, and can withdraw the money in their name. Each iris is individual across more than 200 data points, says Imad Malhas, IrisGuard’s CEO. The company gets 1% of each transaction.

A new welfare state?

If the promise of cash is a new global market, the risk is a new global welfare state.

Aid agencies and donors, comfortable with the control that comes along with giving in-kind aid or vouchers allowing refugees to buy only what is deemed necessary, have worried that refugees handed cash would spend it on booze and cigarettes, and stop working.

“We didn’t really test things until about a decade ago in development,” said economist Paul Niehaus. He co-founded Segovia and the charity GiveDirectly, which will funnel $45 million in cash to world’s poor this year. “We just now have the experimental evidence that people aren’t going to blow it all.

In Lebanon, for instance, an IRC report found that 87,700 families given $575 via ATM cards spent the money on food, clothes, fuel oil, and getting out of debt. More children stayed in school because fewer families sent their kids out to work.

While their parents are applying for debit cards …
While their parents are applying for debit cards… (Elizabeth MacBride)

The question of whether monthly cash allowances to refugees, like UNHCR and Mercy Corp are giving, will become another big-state benefit is a harder one to answer.

“People are not rubber bands that snap back to normal. Refugees have a huge problem of learned helplessness,” said Richard Mollica, director of the Harvard Program in Refugee Trauma.

But refugees receiving any kind of donor aid risk becoming reliant. Time-limited cash aid that keeps people out of refugee camps seems to have a lower risk of provoking learned helplessness, Mollica said, especially it if were given through families or community organizations.

Tear those walls down

One of the obstacles to donors shifting their giving to cash has been that the NGO edifice that funnels their money is built to resist its own destruction.

Take food aid. It’s first in line to be replaced by cash, because of steep shipping costs. In 2013, USAID, the biggest donor to the World Food Programme, shipped 1.4 million metric tons of aid. From 2011 to 2014, it spent $70 million a year on shipping. Built into that spending is support for American shipping industry: USAID gives preference to US cargo ships, which raises costs by about $26 million a year, according to the US Government Accountability Office.

In a cash-based aid system, there will still be charities: There will just be a lot fewer of them. Without a specific mission tied to a physical item or particular service, many NGOs lose their raison d’etre.

“I believe that mobile money will be a bigger game changer in development than the green revolution ever was,” said Maura O’Neill, formerly chief of innovation at USAID and now a teaching fellow at Berkeley’s Haas School of Business. “If you don’t embrace at the leading edge of this change then someone will come in and say you’re irrelevant.”

Rather than shifting to cash, many organizations support vouchers, which require administration and staff comparable to in-kind donations, and offer similar fundraising advantages.

All of this frustrates Andrew Harper, the UNHCR’s representative in Jordan, to no end. Having set up bank accounts for refugees in Jordan, he hopes other NGOs and agencies will convert more of their spending to cash, and put it in a unified account. He struggles for words, cursing. “I’m frustrated by the resistance and simple mindedness of some agencies,” said Harper. “You can say this: Making things more effective and efficient can be a threat to existing way of doing things.”

The humane case for cash

The economic case for cash comes around, in the end, to the human case. In the marketplace of ideas, there is competition for which view of refugees dominates: Are they victims, threats, or people like ourselves except for circumstance? And if it’s the last, how ought they to be treated, so that they can most quickly move on to new versions of their old lives?

On Lesvos, I met a woman, Amelie Djuikea Tanefo, 29, who walked most of the way from Cameroon to Turkey, pregnant. She worked in a textile factory in Turkey. She crossed the Mediterranean twice, once in a shipping container and once in a rubber dinghy to Lesvos.

The refugee who walked from Cameroon — Ameile Djuikea Tanefo
Ameile Djuikea Tanefo walked from Cameroon to Greece. (Elizabeth MacBride)

Once there, she was placed in the island’s Moira refugee camp-cum-detention center, before she was identified as vulnerable and moved to a smaller center. She didn’t need a blanket or chocolate croissants (a staple of the diet in Moira) or—thank God—the solar powered lights provided by one international NGO to help women avoid rapes.

What she needed was underwear, and she planned to buy it for herself when she had cash in hand. She had a gray sweatsuit, but no bra. This was just a fact, one she wanted to move on from, like the rape back in Cameroon that made her pregnant and led to her being kicked out by her family.

“In my country, it is taboo to talk about sexual violence, and that is why I didn’t want to live there, and why I didn’t want my baby to,” she said through a translator. “But I am not afraid to speak and not ashamed.”
After the baby’s arrival, she hoped to get an apartment and go to school. She didn’t have a career plan yet, but if she walked from Cameroon to Greece, why should any of us doubt she’ll get where she wants to go?

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