NAIROBI, 30 June 2011 (IRIN) - As the drought in Somalia intensifies, with an estimated 2.85 million needing aid, more and more relief agencies are looking at the option of cash transfers, saying the system helps beneficiaries by giving them freedom of choice.

"Cash transfer programming is a very simple concept: give people money so they can buy what they need," Sarah Bailey, a research officer with the Humanitarian Policy Group of the UK's Overseas Development Institute (ODI), told IRIN.

Cash transfers also stimulate local markets and support local producers, according to officials and beneficiaries. For cash transfer programmes to work, Bailey said, markets need to be working, "but markets are often stronger than we think".

She said agencies therefore had to understand markets before deciding what assistance to provide, "and cash transfers are only appropriate when the market can absorb the cash injection and people can buy what they need".

She said agencies should always choose the most appropriate type of assistance for each context: in some cases this would be cash; in others, food aid.

Insecurity

Across much of Somalia, conflict, prolonged drought and a series of crop failures have precipitated a humanitarian crisis, with hundreds of thousands fleeing their homes.

According to the Food and Agriculture Organization's Somalia Food Security and Nutrition Analysis Unit (FSNAU), most of the 2.85 million Somalis needing aid are in the south-central region, representing 61 percent of the total population in crisis. But the area is largely under the control of Al-Shabab militias, and their perceived hostility to aid agencies means the delivery of food assistance is "extremely limited".

"The 1.75 million people in crisis in the south include rural, urban and IDPs [internally displaced persons], an increase from 1.4 million in January," FSNAU said in a statement on 28 June.

The spokesman for the UN Word Food Programme (WFP) in Nairobi, Peter Smerdon, told IRIN the agency's operations remained suspended in the south-central areas of the country under the control of the opposition Al-Shabab. Somalia's internationally-recognised transitional government's authority extends to only parts of the capital, Mogadishu.

"WFP is providing food assistance [not just general food distributions, but also supplementary feeding, food for education, food for assets, school meals] for now but is exploring the possibility of using cash transfers or vouchers," he said. "WFP is feeding one million Somalis, but under a new emergency operation starting on 1 July will aim to assist 2.65 million people."

With security considerations affecting aid distributions, cash transfers present a viable alternative. In Somalia cash transfers are mostly through money transfer companies and sometimes via mobile phones.

Kate Churchill-Smith, programme and communications officer for international NGO Horn Relief, said cash transfers in Somalia, apart from being a flexible and dignified aid tool, also had other benefits.

"Somalia's pastoralist population, for example, tends to carry a large debt burden," she said. "If the aid community provides vulnerable Somalis with food aid, we are ignoring both their considerable debt repayment needs as well as their water needs. As a result, they may sell their food aid in the market to meet their obligations."

However, Churchill-Smith said if cash were targeted at the most vulnerable households, "they will use a cash grant to meet their most basic and immediate needs - and this isn't always just food".

Horn Relief's Sanag Emergency Response Project benefits more than 8,000 households (about 48,000 people), primarily in northeastern Sanag, Sool and Bari regions but also in the central region of Mudug. It also chairs the Cash-Based Response Working Group in Somalia and has, at the request of the Working Group and the Agriculture and Livelihoods Cluster for Somalia, developed guidelines on cash programming. The cluster has adopted the guidelines.

Advantages

Jawahir Hassan Ali, a mother of seven, told IRIN the food aid she used to receive from relief agencies had not been enough to feed her family and buy other essentials such as medicines and vegetables, much less send her children to school.

In February 2011, Ali's family was included in a cash transfer programme run by Horn Relief in her home town of Baran, Sanag region. Before she started receiving cash, she sometimes had to sell some of her food, even though it was not enough.

"I had no choice; I could not even afford a piece of meat or one tomato," Ali said. "Now with the cash I feel like a free woman. Sometimes I even buy shoes for my children, when I have saved enough."

The cash transfer had made decision-making easier, she said, adding: "I can now decide what is important for my family."

Inflation debate

Critics suggest injecting cash into an economy can generate inflation, although Churchill-Smith rejected the notion, saying the amount of cash handed out was small compared with the size of the local economy. "Evidence to date has consistently shown that cash transfers have no inflationary effect on local markets."

She said many poor households depended on credit to survive, and small businesses unable to repay loans could not order goods or were forced to close. "Traders are then unable to pay off their debts, which is how the chain of credit travels to urban centres. Cash grants act as local cash injections and have been shown to have an extremely positive effect on the local economy."

All aid assistance has the potential to affect markets. "Cash transfers can cause inflation and food aid can hurt producers by lowering prices," said the ODI's Bailey.

Source: The Integrated Regional Information Networks (http://www.irinnews.org )