Delivering humanitarian aid in digital age

Could the same digital payment platforms that you use to buy a cup of coffee or make a charitable donation be used to alleviate extreme hunger around the world? That’s the question a research team led by Tarek Ghani, an assistant professor of strategy at Olin Business School at Washington University in St. Louis, wanted to answer.

“Despite progress over the last half-century, global hunger levels have set new records in each of the last three years,” Ghani said. “Most households experiencing food security crises live in fragile and conflict-affected states like Afghanistan, Democratic Republic of Congo and Yemen, where oppressive state and non-state actors often seek to control resource flows and restrict humanitarian access.” 

According to the researchers, humanitarian organizations face a difficult dilemma: either deliver aid and risk supporting hostile actors and exacerbating conflict or suspend operations in the face of urgent needs. 

Under the right conditions, though, digital payments could be an effective and less expensive way to ensure aid is delivered directly to intended recipients, according to a new study forthcoming in Management Science by Ghani along with co-authors Michael Callen and Miguel Fajardo-Steinhäuser, at the London School of Economics, and Michael G. Findley, at the University of Texas at Austin. Aid agencies are already taking notice of their work.

To study the utility of digital payments, the researchers conducted an experiment in Afghanistan, where they partnered with locally elected community development councils to identify extremely poor, female-headed households to receive digital payments. Altogether, approximately 2,400 vulnerable women in three Afghan cities were recruited for the study.

During an onboarding session, each woman opened an account with HesabPay, an Afghan commercial digital payments platform, and completed a test purchase with a nearby private merchant using the platform to ensure that tech illiteracy would not prevent them from using the aid.

Finally, the women were randomly assigned into two groups. The treatment group received digital payments of 4,000 AFN, approximately $45, every two weeks from Nov. 6-Dec. 31, 2022. The control group received the same benefits from Jan. 1- Feb. 28, 2023, allowing it to serve as a comparison for the treatment group during the first two months of the study.  

Surveys completed throughout the study showed the payments led to substantial improvements in food security for recipients and their families. Households reported skipping fewer meals and eating a more diverse diet during the program. They also used funds to purchase needed medications.

Notably, despite the beneficiaries’ limited tech literacy, 99.75% used the payments and 98% of the total value transferred in the four payments was spent in the first eight weeks. The researchers also noted that over 20% of the funds were spent at different merchants than those who facilitated the initial test transaction during onboarding, indicating that beneficiaries understood they could use the payment at any participating merchant.

Recipients’ mental well-being also improved during the study period. Beneficiaries were 33.5 percentage points more likely to report that they felt the economic situation of their household had improved compared with the month prior, from a base of just 4.8% in the control group. Beneficiaries were also 28 percentage points more likely to report being very or quite happy during the study. 

With access to participants’ transaction data and follow-up surveys, the researchers also found no evidence of diversion, such as being asked to provide favors or pay extra-legal taxes to local authorities.

A significant benefit of using digital payments to deliver aid is that it’s less costly than traditional forms of humanitarian aid. For the study, the researchers estimated the cost of delivering the entire $180, across four disbursements, was just $2.44 per recipient or 1.4 cents per transferred dollar, excluding the cost of recruitment. With the one-time recruitment cost, the delivery cost per person was $12, which breaks down to 6.7 cents per transferred dollar. 

For comparison, the United Nations World Food Programme’s global cost to provide cash-based humanitarian aid is 17 cents per dollar. “To contextualize this difference, we estimate that if WFP had delivered all $357M of its 2022 cash-based assistance in Afghanistan digitally, the savings would be sufficient to support an additional 77,000 households or 538,075 individuals for the four-month lean season,” the authors wrote.

Ghani said he was encouraged that aid agencies are noticing their test program’s success. In particular, the World Food Programme is using insights from the study to scale digital payments to over 100,000 households in Afghanistan in partnership with HesabPay, which continues to operate in the country.

Could digital aid work elsewhere?

According to Ghani, most digital transfer programs are currently carried out in more stable contexts such as Kenya and India, where there is rich evidence to support their effectiveness in reducing poverty and improving quality of life. The present study demonstrates that these technologies also can be effective in more volatile crisis situations, where basic human survival is the goal.

“Delivering aid digitally offers the potential to reduce coordination costs and delays, increase transparency for donors and preserve privacy of beneficiaries, and utilize local supply chains without relying directly on local authorities,” Ghani said.

Digital payments will not work in every situation, though. First, vulnerable households must have access to phones. Second, there must be enough merchants who accept digital payments to allow convenient and competitive shopping. And third, markets must have enough goods to meet demand, the authors said.

Even in the best scenarios where potential recipients have phones, merchants accept digital payments and markets have adequate supplies to meet demand, there will be challenges to overcome, the authors cautioned.

“Although critical, it’s not enough to just increase food supply. Historically, responses to famine have required complementary strategies to redistribute resources,” Ghani said. “As programs like the one in our study scale, humanitarians will need to grapple with the complex interdependencies between aid agencies, digital payment platforms and governments in fragile states.”