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Cash delivery mechanisms in tsunami-affected districts of Sri Lanka

Working paper

Working paper

Sri Lanka had never before experienced a disaster of the magnitude of the Indian Ocean tsunami of December 2004. Over 35,000 people were killed, 516,000 displaced. Some $900 million-worth of assets were destroyed, and around 200,000 people lost their livelihoods. About 75% of the fishing fleet was destroyed, and 23,449 acres of agricultural land salinated.

The initial emergency response was based largely on commodities. As the immediate emergency phase passed, agencies began to explore ways to restore livelihoods in affected communities, and some agencies have given cash grants to restart economic activities. This paper documents the experiences of different cash delivery mechanisms implemented after the tsunami in order to develop guidelines and recommendations for future cash programming.

Data for the study was gathered from secondary information, key informant interviews and focus groups discussions in three tsunami-affected districts – Batticoloa, Ampara and Hambantota – in late September and October 2005. The study sites included government-controlled areas and rebel-controlled area, and encompassed different ethnic and livelihood groups.

Cash relief was used to fill gaps in commodity-based assistance, to meet incidental expenses and to settle urgent debts; cash also allowed people free choice and dignity. Cash transfers did not inflate commodity prices because markets functioned well, except in some rebel-controlled and conflict-affected areas. In some areas, alcohol consumption increased after the tsunami, and some small-scale alcohol businesses were established. It is not certain whether increases in alcohol consumption were related to an availability of cash, or whether they were a response to trauma.

Cash was provided in the form of cash for work (CFW), government grants, conditional and unconditional grants distributed by a few aid agencies and cash transfers from private individuals. The government provided funeral expenses (Rs15,000), allowances to purchase cooking utensils (Rs2,500), cash assistance to complement food relief (Rs200 a week), emergency resettlement allowance of Rs5,000 per family and cash grants of four instalments of Rs5,000 per family. Although CFW programmes provided a source of income, uncoordinated interventions by NGOs meant that they distorted the labour. Cash grants disbursed by NGOs were mostly aimed at restoring livelihoods, replacing assets and house reconstruction.

Agencies adopted various approaches to deliver cash. Direct distribution by donors was the most popular method. Cash delivery through partner organisations (POs) was the dominant method of cash transfer for livelihood recovery projects implemented by aid agencies. Because the POs were from the affected areas, they were able to identify recipients and appropriate livelihood projects. POs were involved in the selection of beneficiaries, the delivery of cash and project implementation and monitoring. Some NGOs delivered cash through community-based organisations (CBOs).

The formal banking system was the cheapest and quickest method of cash transfer, though agencies seldom used it. Most tsunami-affected areas had good networks of formal banking systems. There is significant potential to use existing banking networks in the future. Post office systems and micro-finance institutions also have extensive networks across Sri Lanka, and are interested in becoming involved in cash grant activities.

Cash transfer mechanisms have a cost component in terms of beneficiary selection, delivery, monitoring and feedback. These costs are more-or-less the same in every cash transfer approach except transfers through POs/CBOs. Delivery is cheapest formal banks, micro-finance institutions and post offices. Direct delivery by the aid agency is the most expensive method of cash transfer. Aid agencies could handle transfers more efficiently and cost-effectively by increasing their staff capacity. This would eliminate the cost component of providing physical resources to POs/CBOs. In forming partnerships with different financial institutions, aid agencies have to negotiate commission rates to cover the cost of bank transactions, cash transfers, management services and insurance fees.

This study recommends using formal banking systems as the most cost-effective method of transferring cash. In areas where banks are not accessible, micro-finance institutions or post offices could be considered. In rebel-held areas, direct delivery by aid agencies or POs/CBOs is appropriate.

M. M. M. Aheeyar