Cash payments as a form of aid

A developing form of aid for populations like refugees and severely impoverished communities is direct cash payments. Rather than provide services or other forms of aid like food tickets and food banks, cash payments put the choices in the users’ hands. They receive cash and then make the decisions on how to spend that cash. Here are two sources that discuss these types of programs in quite different systems: Poverty Unpacked podcast and a research study in British Columbia, Canada.

One of the main reasons for this is to support the dignity of the people receiving aid. They maintain greater autonomy over their choices and aren’t subjected to the same stigma as they are in other programs. But there are downsides. While a lot of people will jump to assuming that the downside is difficulty in managing the money and making “smart” choices, this isn’t the case. Generally the programs do meet with success, in part because it changes the perception of the in need populations from being a burden on the local community to seeing them as a benefit because of increased local spending.

One of the actual downsides comes from price inflation within the local market. With increased spending in the community, sellers may increase their prices, which are already typically higher than the wholesale prices that an organization may be able to leverage. These price increases can then penalize both the people receiving the payments and the broader local community.

To combat this inflation, Kotsi and colleagues (2022) propose that the size of the payments are tied to local prices. If prices increase over a set amount that is identified by the local government and humanitarian organizations then payments are decreased. This reduces spending and ensures that local merchants make less profit than they would have at the lower price.

I think this is interesting but I do worry about the impacts. To me, it once again takes some of the autonomy away from those in need. That’s not to say that it isn’t a good option, but it would be interesting to know the perspectives of the people receiving the funds. Perhaps even, rather than a third party coming in and identifying a solution, it would be good to talk with all the community members involved and see what solutions they might have.

What are your thoughts?