Parajuli: Incentivizing Aid for Nepal

by Abhishek Parajuli | 5/11/15 6:32pm

As a Nepali student in the United States, I have been overwhelmed by the support of students and community members for Nepal in the wake of the April 25 earthquake. Fear of government corruption is, however, stifling fundraising efforts. Donors want to make sure their money will make a difference, and there is a simple way for the government to win international trust. Lessons from recent disasters, such as those in Haiti and Sichuan, China, point to direct cash transfers, or DCT, as the most effective way of helping victims. Through DCT, aid is transferred directly to disaster survivors in the form of cash, and the process can help mitigate graft. DCT is the best approach to relief distribution and should play a central role in the Nepali government aid response.

First, DTC effectively addresses the varying needs of people in disaster zones. A family of five in Dhading, a small town outside Kathmandu, has completely different needs and priorities than, for example, a couple that lost its home in Kathmandu. Trying to account for these needs at a macro level is a recipe for waste and corruption — provisions ordered at a given moment may not be needed when they arrive, and middlemen may inflate costs to siphon off aid. Transferring funds to the victims allows them to alleviate their own needs and pool resources to support family members and friends. The response to Haiti’s 2010 earthquake indicates popular support for DTC — a 2012 study published in the Humanitarian Exchange Magazine found that 98 percent of Haitian aid recipients preferred cash transfers to in-kind distributions.

Nepal is perfectly suited for DCT as migrant labor has created a vast network of channels for remittance distribution. The government must map this migrant network and direct relief funds through it to expedite the distribution of immediate relief to the people that need it most. These transfers often require a fee, so Nepali government officials should work with providers like Western Union and local banks to suspend transfer fees.

Though these remittance networks are pervasive, there will be areas that lack access. Here, cash envelopes can be used to distribute aid as they were in Haiti. Nepal’s physical infrastructure will take time to rebuild, but communication networks are mostly operational and easier to reestablish. DCT through mobile banking — by the end of 2014, Nepal’s mobile phone penetration rate was 84 percent — and other network-based means will ensure that survivors receive aid.

While Nepal’s government should avoid corruption and inefficiency by directly transferring funds to people in need, it does have an important role to play. As one medium-term policy to support DCT, the government should increase financial access by helping the poor open bank accounts. Indian Prime Minister Narendra Modi has prioritized opening bank accounts for the country’s poor, and within a year of him taking office, India has opened 15 million bank accounts under the initiative. Nepal too can work with private and state banks to ensure access to financial services for the poor. This will not only provide survivors with a secure channel to receive aid but also grant them access to loans at lower rates than those offered by local money lenders. Relief aid can thus pave the way for longer-term assistance.

Government initiatives must focus on areas where they have a greater impact than private citizens, such as infrastructure development. China recently announced the opening of the new Asian Infrastructure Investment Bank. Nepal is a prospective founding member, and the Nepali government should propose the country’s reconstruction as a test of this new institution’s commitment to developing infrastructure in the region. Second, the United Nation’s appeal for aid has been vastly underfunded. Nepal’s government should increase diplomatic efforts to gather bilateral and multilateral aid. DTC frees up government resources to focus on these medium-term priorities.

People around the world want to help Nepal, but they are unsure that their aid will make a difference. By showing the world that the money will be transferred to those in need directly and efficiently, Nepal’s government will incentivize governments and individuals around the world to give more. Corruption is a justified concern, and international donors must be confident that it is being addressed.