Working Together, the Humanitarian and Private Sectors Could Expedite the Build Out of Digital Infrastructure for Emergency Cash Transfers and Lower the Cost Burden for Local Actors
- Working together, the humanitarian and private sectors can expedite the adoption of “last-mile” digital infrastructure that can help reduce poverty and better prepare for emergency response.
- Putting ATMs and point-of-sale devices in crisis zones could get life-saving funds to displaced people faster and create sustainable markets for local banks and merchants.
- Two billion people do not have access to basic financial services – people in crisis settings are far less likely to have access.
- Despite evidence showing their impact and efficiency, cash transfer programmes make up just six percent of global humanitarian assistance – the IRC has committed to make 25 per cent of its assistance in the form of cash transfers by 2020.
ISTANBUL and NEW YORK – The International Rescue Committee (IRC), which provides humanitarian aid in more than 40 countries and resettles thousands of refugees in the United States every year, today released two reports that:
- Underscore the need for greater investment in electronic payment systems, which provide the optimal solution for delivering emergency cash – or cash transfers – to people in need in crisis-prone areas;
- Highlight the role the humanitarian sector can play in making it easier and less costly for local merchants and consumers to adopt electronic payment systems;
- Demonstrate how scaling cash transfers in crisis-affected and high risk countries can provide net gains for beneficiaries, financial-services providers, development actors, humanitarian organisations, and donors, including governments.
“This research provides important insights into the reasons why one of the most effective forms of humanitarian aid remains inaccessible to people in the world’s toughest places,” said Jodi Nelson, IRC senior vice president of policy and practice. “The reports also identify the potential for the humanitarian and private sectors to work together to develop the infrastructure and partnerships that can overcome the obstacles to providing this vital aid, aid that will help support local economies.”
High Costs, Low Returns Stymie Development of Digital Infrastructures in Crisis-Prone Areas
According to the IRC, countries in which humanitarian emergencies are most likely to occur are the least structurally prepared to receive cash transfers. While international funders committed $31 billion toward financial inclusion projects in 2014, these projects are generally undertaken in countries that are at low risk of humanitarian crises.
A lack of infrastructure for cash transfers generally is due to the high operational costs associated with working in disaster and conflict zones, and anticipated low revenues from populations living in a crisis environment. The IRC reports show that humanitarian and financial services organisations could collaborate to mitigate these challenges by bringing banking services to people and merchants in crisis-prone areas which would lower the cost associated with customer and merchant acquisition.
For example, humanitarian organisations could provide those in need with debit cards, work with local merchants to deploy the infrastructure to accept the cards, and partner with banks to install ATMs in locations where cash is likely to be needed during emergencies.
Model Shows Investment in Cash Programmes Could Spur Growth, Reduce Private-Sector Risk and Burden
The IRC’s research also found that investment in cash-transfer preparedness before emergencies could serve as catalyst for local-level economic growth after an initial humanitarian response. According to the IRC, factoring in likely aid flows from crises, using new financing mechanisms and re-envisioning partnerships with private sector could change the economics for digital finance service providers.
Based on assumptions related to demand, transaction frequency and total volume, the IRC developed a return-on-investment model based on revenue and expenditure projections for banks. In the Philippines, for example, for every dollar invested in the expansion of financial services to humanitarian organisations, issuing banks would receive a $1.14 return over a ten-year period, indicating a strong business case for issuing banks to invest in partnerships with the humanitarian sector.
The IRC estimates that, in Lebanon alone, World Food Programme banking partners would save $50,000 in merchant acquisition costs and $400,000 in customer acquisition costs over ten years.
Humanitarian organisations that provide cash transfers are significant consumers of banking services. In the Philippines, cash transfers played a significant role in the response to Typhoon Haiyan in 2013: The U.N. Office for the Coordination of Humanitarian Affairs (OCHA) estimates that some of the largest humanitarian organisations disbursed a combined $36 million to 1.4 million people.
Links to Reports:
Untapped humanitarian demand: A business case for expanding digital financial services