NB Financial Innovation
Marshaling Digital Cash for Humanitarian Challenges: Uniting Private, Public and Nonprofit
More people than ever before are impacted by humanitarian crises – some 89 million people were affected by natural hazards and 65 million displaced by violence and persecution in 2016. Those most vulnerable to crisis are also those who live in poverty. The connection between response and resilience has never been more striking.
Fortunately, there is an increasing recognition of the importance of using approaches that incorporate resilience-building in response strategies – and even before crises hit. For example, more and more donors and aid agencies have committed to delivering emergency assistance via cash relief (which can be in digital or physical form) rather than in-kind goods.
In the run-up to the World Humanitarian Summit which took place earlier this year, the UN Secretary General’s Agenda for Humanity called for cash-based programming to be the “preferred and default method of support.” The “Grand Bargain” that emerged from the summit included reforms to make emergency aid finance more efficient and effective via more flexible, multi-year funding, with less burdensome reporting requirements by donors, in exchange for greater transparency and collaboration and reduced management costs by humanitarian agencies. While no overall firm targets were set, there was acknowledgement that cash relief remains an underutilized form of aid, despite the growing evidence that “using cash helps deliver greater choice and empowerment to affected people and strengthens local markets,” according to the Grand Bargain. Even without targets, however, cash-based programming is now at the center of humanitarian reform conversations and is one of the fastest-growing evidence-based interventions used to assist people affected by humanitarian crises. This is no small feat, and there is broad multi-stakeholder support behind increased use of cash.
The Grand Bargain also recognizes the central role of “preparedness, planning and mapping measures (in) ensuring that cash-based programming can be used to best effect.” But what does it mean to be “prepared” to deliver cash relief and how can the use of digital payments help spur preparedness and build greater resilience?
The International Rescue Committee (IRC) and the UN Capital Development Fund (UNCDF) co-hosted an event last month in New York to focus on these very questions. Participants from the private sector, humanitarian agencies, multi-laterals and donors, and government came together to consider what digital preparedness means, and how the incentives and constraints to digital preparedness might be respectively amplified or reduced.
Here are some of the insights from the discussions and recently launched research:
- Change the humanitarian-development divide to a continuum: While financial inclusion experts advocate for humanitarian response as a stepping stone toward becoming banked, humanitarians argue that the best response is the quickest response – not necessarily the one that will lead to an actively-used account. With the average length of crises reaching 17 years, the so-called humanitarian-development divide is no longer as clear cut nor a helpful construct. While the specific mandates may be distinct, finding the synergies can lead to more effective humanitarian response and a quicker transition to greater resilience. Given that strong digital ecosystems can both build financial inclusion and increase crisis preparedness, actively seeking and investing in approaches that are explicit about both sets of objectives have great potential. Indeed, that was the motivation for representatives from both the humanitarian and financial inclusion sectors to come together in February in Barcelona to develop a set of principles for using digital payments in humanitarian response which resulted in the Barcelona Principles. These principles are intended to guide the use of digital transfers in emergencies in ways that both meet immediate needs and can be leveraged for future financial inclusion.
- Incentives matter: There are clear partnership opportunities between the digital finance sector and humanitarian agencies. While it may be uncomfortable particularly for humanitarians to think about people affected by crisis as a “market segment” or crises as a part of market expansion strategy, without analysis of the potential returns for financial service providers to serve populations in risky settings, investments in digital infrastructure will not be made in the places that need it most. A stronger business case can be made to put in place services before crises hit and that will endure after the response is over. In the Philippines, for example, while there was a clear case for issuing banks (those financial institutions that issue cards to consumers on behalf of card networks) to invest in expansion of digital services for populations living in risky settings, for the acquiring banks (those financial institutions that hold the accounts of the merchants), the returns were negative. Humanitarian organizations can help in both customer and merchant acquisition– for good times and bad – thus making such investments more attractive to acquiring banks, and underscoring the value of partnerships. This opens up opportunities for financing tools that go beyond traditional grant-based aid that matches roles and returns. Private financing might be used to support the investments in issuing banks where there is a positive return, while grant-based financing can be used to support humanitarian organizations which often already identify beneficiaries/customers and merchants. By getting into the economics of what it takes to expand digital financial services, we can help relieve over-stretched aid budgets and better utilize private sector investment.
By recognizing that what unites us – a desire to save lives in crisis and improve lives over the long term – is greater than what divides us – outdated perceptions of crisis and development and roles of aid and private sector – we can use digital preparedness to set building blocks toward the road to resilience.
Note: The July IRC-UNCDF event will be followed by a series of webinars over the next two months offering practical guidance on laying the groundwork for rapid and scaled-up cash transfer programming ahead of crises. For more information on the webinars, please reach out to Sarah Cueva at email@example.com for details.
Beth Porter is a Policy Advisor for Financial Inclusion at the United Nations Capital Development Fund where she focuses on advancing responsible finance and promoting financial access for women and youth.
Radha Rajkotia is the Director for Economic Recovery and Development at the International Rescue Committee.
Image credit: Silvia Baur, CGAP.
- Financial Inclusion