With a record 65.6 million people displaced from their homes worldwide, rarely has helping refugees been such an important and demanding task.

Policymakers and humanitarian workers struggle with stretched budgets, while citizens in host countries grow frustrated, especially when developing regions share a disproportionately large responsibility due to their proximity to conflict. If ever there was a time for new thinking on refugee policies, this is it.

Amongst all the promising new technologies and apps being developed, a simpler innovation is being discussed, which arguably has the biggest potential for improving refugee assistance: cash.

Giving money directly to refugees could prove to be the most effective way of helping them. More than 200 studies so far have shown evidence of the approach’s feasibility and effectiveness, with governments and humanitarian agencies increasingly giving it their backing.

However, as the Overseas Development Institute (ODI) found in 2015, only 6% of total humanitarian spending is on what are called “cash-based interventions” (CBIs). This represents a big increase from 1% in 2004, but still a very small proportion of humanitarian assistance.

So why should policymakers shift to cash? And what potential issues are there with the new approach?

1. CBIs are cheaper and more efficient

The most obvious difference between CBIs and food aid is the cost associated with transporting and storing tonnes of supplies. Cash can get to its recipients quicker, and with less up-front costs.

CBIs commonly involve giving refugees smart cards to buy goods at local stores or ATM cards to withdraw money. With more than 60% living in urban settings, the necessary infrastructure - such as banks and ATMs - are often readily available.

Although the principle of giving cash is simple, the technology needed to dispense it has become increasingly advanced: for example, a project in Jordan uses iris-scanning ATMs to identify refugees and dispense cash. The project, which has been running since 2016, has helped 30,000 refugee households access cash easily and securely.

Various experiments on direct cash transfers have been carried out. One four-country study from 2014 found that 18% more people could be assisted at no extra cost by dispensing cash instead of food handouts. With the mode of transfer (cash, food transfers, food vouchers) randomly assigned to different villages, and their value equalised, the per-transfer cost of providing cash was always found to be less than food. The same held true in different countries and environments - from a city in Ecuador to rural Niger.

Using cash transfers instead of food aid has also been shown to lead to greater dietary diversity and better nutrition in urban households. This, in turn, helps to stimulate business for local farmers and other food suppliers.

Many developed countries have been generous donors and humanitarian organisations have many resources at their disposal - but the current refugee crisis is stretching both aid budgets and the patience of tax-payers. Value for money, therefore, is paramount.

2. Cash is more transparent than aid

Transparency has been a long-standing problem in humanitarian aid, with very limited information available on how much funding actually makes it to beneficiaries. This ambiguity can cause political problems for donor countries, as well as refugee host nations.

CBIs make it much easier to give a clear picture of what money is going where, allowing for a greater deal of accountability in the process. Also, there is very little evidence of money being misspent on so-called “temptation goods”, such as alcohol and tobacco. A World Bank survey of 19 studies found only a 5% correlation between cash transfers and the purchase of such goods.

3. It can boost the local economy

While coverage of the refugee crisis frequently focuses on the shores of Greece and Italy, 87% of Syrian refugees reside in neighbouring countries. Jordan hosts a staggering 2.8 million refugees, making up nearly a third of the country's total population. About half the refugees are Syrian.

Cash not only gives refugees the means to stay afloat, but can help boost the local economy. In Lebanon, where more than a million refugees now use smart card vouchers to buy goods at local shops, or ATM cards to withdraw money, local businesses have reported increased revenues.

In an International Rescue Committee trial carried out over the winter of 2013-14, 87,700 Syrian refugee families in the Lebanese mountains were given $100 per month through ATM cards. They found that for every $1 spent by Syrian refugees, $2.13 was generated for the Lebanese economy. There was little evidence of inflation as supply moved to meet the demand, and there was also evidence that the refugees were more likely to receive help from members of the Lebanese community.

The United Nations calls this a “protection space”, where refugees can build positive interactions with host communities by buying their goods. This could prove to be especially important in Lebanon, where tensions run high and many politicians have called for the repatriation of refugees to Syria.

4. CBIs give refugees more agency

Despite the fact that their right to work is enshrined in the 1951 Refugee Convention, refugees around the world are frequently denied access to the formal labour market. Host countries tend to restrict work, which makes it difficult for them to rebuild their lives - especially considering that more than half of current refugees have now been displaced for over 10 years.

For example, the Dadaab refugee camp in Kenya has housed 350,000 Somali refugees - who do not have the right to work - since the early 1990s. Giving refugees cash can be important for their dignity, providing at least some element of choice and control over their lives. It also helps to align aid with what people need, rather than what humanitarian agencies can provide.

It's no surprise, then, that the aforementioned CBI studies boast overwhelmingly positive feedback from the refugees themselves. For example, an initial survey of the iris-scanning program in Jordan found that 91% of refugees were satisfied with it. In the Lebanese project, 80% of recipients said they would prefer to receive cash over other forms of assistance.

So what are the downsides?

CBIs do not work in all situations. Most importantly, the markets in the area need to be functioning effectively. When markets are too weak, and the local supply cannot respond to increased demand, a cash inflow from elsewhere could lead to inflation. This can erode the value of cash transfers and destabilise the local economy.

Following the tsunami in Sri Lanka, a pilot study took place in which beneficiaries were randomly assigned food or cash. However, the unforeseen deterioration in security in 2006 - in a region controlled by Tamil militants - restricted goods movements and pushed up food prices, rendering cash transfers far less useful. Though not a refugee-related example, this case illustrates the potential issues with CBIs. It is vital to carry out thorough market assessments prior to giving out cash transfers.

There are other practical issues to consider. With the transfer of large amounts of money, security concerns arise. Especially given the proximity of refugees to Islamic State, people are worried about cash falling into the wrong hands. In the case of the UNHCR’s Jordan project, the sensitive biometric data used for withdrawing cash could be hacked.

However, in the Jordan program, UNHCR has an advanced method of encryption which should protect the data effectively, and more generally there are safeguards in place against potential security dangers. The cash cards given to refugees, for example, only allow for a certain amount of very modest expenditure each month, making it difficult for terrorist groups to steal any significant amount of money.

The Apolitical view

The overwhelming weight of evidence supports the use of cash-based interventions to help refugees. While the situation does not always call for it, and special attention needs to be paid to ensuring the system is completely secure, there are no significant reasons why cash cannot replace food as the main form of aid in most situations.

Changing to cash-based help from the traditional starting point of food aid would be a big move. However, more and more organisations – such as the UN Refugee Agency (UNHCR), World Food Programme, and the European Commission – have given it their backing.

The humanitarian system, including aid agencies, donor governments and organisations, spends around $25 billion per year around the world. Making that spend more efficient could have a huge effect on the lives of those in need. With a refugee crisis exhausting budgets and showing few signs of improvement, giving refugees money instead of food could have a profound effect.

(Picture credit: Flickr/WFP: Giulio d'Adamo)