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Cost efficiency: unconditional cash transfers

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The IRC’s unconditional cash transfer programs range in cost efficiency from 14 cents for every dollar transferred up to $1.32 for every dollar transferred, with programs that reached more households using community-based targeting achieving the highest cost efficiency.

With the unprecedented scale of emergencies facing the humanitarian community, we are in urgent need of programs that enable households to meet their basic needs and avoid negative coping mechanisms, and which use our scarce resources efficiently. Unconditional cash transfer programs—in which beneficiaries receive cash or vouchers that they can use as they please, rather than in-kind food or shelter assistance—are rapidly gaining popularity as a means to reach large numbers of people in need. Not only are cash transfers generally cheaper in administrative cost per dollar of value transferred, they aim to give beneficiaries greater dignity and control to prioritize their own needs. Nonetheless, there are still many questions being worked out about the optimal method to target and deliver cash transfers in different environments. One aspect to understand about these different program design options is their cost implications—will some program design choices dramatically increase or decrease the efficiency with which we transfer money?

The IRC is committed to maximizing the impact of each dollar spent to improve our clients’ lives; our Best Use of Resources (BUR) Initiative specifically focuses on improving the reach and impact of IRC programs, by using cost analysis to identify the most cost efficient and cost effective ways to deliver programs. In this analysis, we have examined 8 unconditional cash transfer programs across 7 countries, using existing financial and administrative data to produce an estimate of each program’s cost efficiency.

  • Cost efficiency analysisestimating how much it costs in administration and program management per dollar transferred to beneficiaries with different program designs—helps decision-makers to make the best use of available resources. The “cost transfer ratio” is the ratio of all non-transfer costs, such as staff time, targeting surveys, or transfer fees, to the value of the money that was transferred to recipients throughout the program. Comparing this ratio across programs allows us to see how design choices about the amount transferred, the scale of programs, and the targeting and transfer method affect a program’s cost efficiency.
  • The IRC’s unconditional cash transfer programs have a wide range of cost efficiency, from a minimum of 14 cents for every dollar transferred up to $1.32 for every dollar transferred. While some IRC programs are extremely cost efficient, there are others which cost more in administration than the money they are giving away, and we can learn from this analysis what design choices might make our work more cost efficient.
  • The biggest single factor driving cost efficiency is the scale at which programs are run—reaching more households spreads the fixed costs of country support over a wider pool of beneficiaries, driving down per household costs dramatically. The IRC may want to consider guidelines that cash transfer programs should reach some minimum number of households in the future.
  • Program design choices about targeting method have more of an impact on cost efficiency in contexts where there is a large difference between local and international wage levels. In contexts where the price level is very low and fewer dollars get transferred to each beneficiary, non-transfer costs take up proportionally more of a program’s total costs than in contexts with high price levels and larger transfers. In low-price contexts, the cost of giving money to a wider pool of beneficiaries and accepting some margin of error may actually be lower than the cost of extensive targeting activities.

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