‘Giving More’ Through Direct Cash Aid

In the second part of our series with the Issam Fares Institute on sustainable futures for Syrian refugees in Lebanon, researcher Daniel Masterson argues that cash aid frees refugees from dependence and enables them to become active contributors to local economies.

Written by Daniel Masterson Published on Read time Approx. 4 minutes
Seven-year-old Syrian refugee Amani al-Antar from the city of Deir Ezzor, Syria, drinks water at a refugee camp in a town in the Bekaa Valley, Lebanon. Research has proven that refugees use cash aid first and foremost for staples and water. AP/Bilal Hussein

BEIRUT – Approximately 65 million people are currently forcibly displaced worldwide, a reality that demands a concerted humanitarian response. How to assist millions of refugees effectively, meeting both immediate and long-term needs, is a central question for the international community. The pressures of helping the world’s refugees are especially acute because at least 86 percent of refugees live in developing countries, where insufficient infrastructure and lack of social services and economic opportunities exacerbate the challenges of displacement.

Social scientists have demonstrated many ways to assist poor households in peaceful settings, but research findings in such settings cannot be generalized to people fleeing from civil war. Given the instability, legal and social vulnerability and uncertainty about the future that confront many refugees, we might expect assistance programs to have different results in refugee contexts.

But we are lacking hard evidence on whether and how much humanitarian programming improves refugees’ situations and whether it has any unwanted side effects.

As an attempt to fill this lacuna, my two years of research on the impact of cash grants for Syrians in Lebanon shows that such a form of aid is an effective tool for improving refugees’ well-being.

Fatima and Oula (mother and daughter) receive ATM cards from a UNHCR official in Tripoli, north Lebanon. (UNHCR)

Fatima and Oula (mother and daughter) receive ATM cards from a UNHCR official in Tripoli, north Lebanon. (UNHCR)

Refugees overwhelmingly prefer cash grants to other types of assistance, largely because the grants allow them to make their own choices about what they need. Equally important, research shows that cash grants reduce friction in local communities and may even improve relations between a host community and refugees.

In recent years, researchers have praised cash grants as the future of aid because the grants give recipients flexibility to prioritize the needs they consider most pressing and because they can be significantly cheaper and logistically less complicated than the staff-intensive delivery of food parcels, tents and other items.

But critics of cash grants fear that recipients may grow complacent or misspend the money. Even when beneficiaries do spend the money responsibly, they feel that humanitarian agencies would make more responsible choices in allocating the aid. Yet others are concerned that cash aid fuels corruption, particularly in locally based, influential groups – local government officials, armed groups, religious institutions – that can get hold of the cash.

Some research has also prompted concern that cash aid could increase young men’s likelihood of joining an insurgency or could get funneled to armed groups. Particularly in the Lebanese context, there are concerns that cash aid might fuel tensions and conflict in communities hosting refugees, because it could attract new arrivals or spark jealousy among poor residents of the host community who are also in need of assistance and without much state support.

But empirical research refutes these concerns. Using a quasi-experimental research design based on altitude criteria for the United Nations’ cash assistance program for Syrian refugees in Lebanon, we found that refugees spend cash aid mostly on staple items and water. The only individuals who work less when receiving cash assistance are children.

Eight-year-old Mohammed Hassan, who fled with his family from Idlib, Syria, sells fruits at a market in the Palestinian refugee camp of Sabra in Beirut, Lebanon. Research indicates that families receiving cash assistance are less likely to send their children to work. (AP/Bilal Hussein)

Eight-year-old Mohammed Hassan, who fled with his family from Idlib, Syria, sells fruits at a market in the Palestinian refugee camp of Sabra in Beirut, Lebanon. Research indicates that families receiving cash assistance are less likely to send their children to work. (AP/Bilal Hussein)

In other words, cash aid reduces the incidence of child labor. In our findings, it also does not exacerbate corruption and actually reduces tensions between refugees and members of host communities.

Our most astonishing finding is that refugees who are facing legal and social barriers to investment and formal employment – due to not owning land, lacking social capital and suffering from depression and other mental illnesses – manage to get a remarkable return on humanitarian aid.

On average, every $1 of cash assistance caused household spending to increase by $1.50, meaning that beneficiaries were able to invest the cash grants or earn additional labor income due to the financial support. Our research also shows that the grants are spent locally, meaning that local Lebanese economies benefit from the cash program.

The eventual outcome is that the refugees become valuable contributors to local economies, rather dispelling the common notion of their being a “burden” on societies.

Each $1 of cash assistance spent by beneficiary households generates $2.13 of GDP for the Lebanese economy. Although a sudden injection of capital could increase inflation, so far there is no evidence of inflationary impacts from cash distributions in Lebanon. This is most likely because Lebanese markets function well and are open and able to provide sufficient quantities of the goods and services required to meet the needs of the refugee communities.

Daniel Masterson’s policy paper for the Issam Fares Institute for Public Policy and International Affairs at the American University of Beirut, which was based on two years of research on direct cash assistance for Syrian Refugees in Lebanon, can be found here.

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