Layering Cash into Market Systems Programs: Catalyzing Market-Driven Recovery in Nigeria
Written by Sasha Muench, Alison Hemberger, Ali Blumenstock, with support from John Rachkara and the RRA team. Read the full learning brief here.
All too often program lessons are confined to lessons from one mode of implementation. This blog highlights what happened when one USAID Activity broke down the wall between direct cash assistance and facilitative market systems interventions. It offers a rare opportunity to understand what humanitarian responses are appropriate, when, and by whom, to inform future market-driven crisis responses.
In Nigeria in 2021, given the context of the COVID-19 pandemic alongside other compounding shocks, including conflict, climate change and fuel and fertilizer price spikes, households and businesses needed access to short-term humanitarian assistance to help cope with crises and avoid sliding deeper into poverty. The USAID-funded Feed the Future Nigeria Rural Resilience Activity (RRA) in Northeast Nigeria (NEN) used short-term humanitarian response, in the form of unconditional cash transfers (UCTs), layered into a market systems development (MSD) program to support positive coping and accelerate resilient recovery in Nigeria.
The intervention surfaced important insights about:
- The positive impact of Northeast Nigeria’s short-term cash response, particularly in improving coping and recovery for marginalized groups;
- The importance of pre-existing market knowledge, networks, and partnerships to the design and impact of humanitarian interventions;
- Operational lessons for implementing direct-delivery interventions alongside market facilitation strategies; and
- Ideas for how to leverage cash responses to support inclusive change in local economies.
MARKET-DRIVEN CRISIS RESPONSE ACTIVITIES
RRA is a five-year, $49M USAID-funded program implemented in the states of Borno, Adamawa, Yobe and Gombe (BAY-G) in NEN. RRA seeks to facilitate economic recovery and growth in vulnerable, conflict-affected areas by promoting systemic change in market systems. It empowers vulnerable households, communities, and systems to cope with current shocks and stresses and to be prepared to withstand future ones. In 2021, in response to COVID-19 and other shocks, RRA pivoted to launch a humanitarian response that would help households cope, jumpstart local economies, and prevent further backsliding among the businesses that marginalized groups rely on most. RRA delivered unconditional cash transfers to 47,387 farmers, 5,560 local MSMEs, and 85 key intermediary actors; 56% of recipients were women.
Farmers and microentrepreneurs received a cash transfer disbursed directly by Mercy Corps into individual recipients’ bank accounts using a standard bank transfer mechanism. When eligible recipients did not have a bank account, RRA partnered with several commercial banks to quickly facilitate opening new accounts, which led to the establishment of 19,602 new bank accounts. Despite delays in program approvals, which pushed the cash transfers back from the planting to the harvest season, evidence from all programs suggested that recipients used the funds to purchase assets for supplemental non-farm business activities or to pay off input suppliers and then store crops to sell at a higher price later.
The cash transfers had dual aims of helping vulnerable households meet basic needs and begin reinvesting in economic activities, while also sustaining and jumpstarting the local economy on which they rely. Thus, RRA provided cash not only to farmers and MSMEs, but also to key intermediary actors, such as input suppliers, buyers, and service providers. Intermediary firms received a subaward capital support grant plus complementary support to adapt business practices. These firms spent the cash increasing storage capacity and business infrastructure, expanding the hectares of land under cultivation, adding to the number of farmers in outgrower schemes, and increasing marketing and promotion. RRA’s complementary business support included technical assistance to adjust business plans to the current context.
OUR FINDINGS
Market impacts of cash transfers
Cash transfers can stimulate individual spending and wider business investments. From the 53,032 rural recipients who received cash, households suddenly had money to purchase agriculture input supplies and livestock and MSMEs could restock and add new business lines, which in turn gave upstream suppliers the ability to buy and sell. The speed and scale of impact of cash at multiple levels — households and key businesses — was a key benefit of the UCTs, and since it was a one-time transfer, the intervention did not add to longer term inflation, market distortions, or dependency. According to RRA’s DCoP, the intent of rapid infusion of cash into the agri-food market system was to “basically shock the market to start breathing again.”
Careful targeting of cash transfer recipients is vital to create ripple effects. RRA’s deep understanding of market systems supported them in targeting firms who played a critical role in market functionality, such as input suppliers and buyers. For example, GreenPal, a seed supplier who was already working with RRA, used funds to invest in storage equipment, purchase a milling machine, and market the benefits of improved seeds. This enabled them to store seed until movement restrictions were lifted, grind unsold seeds for local household consumption, and expand their sales network to reach additional farmers in the next season. The cash allowed them to sustain their market role, delivering a greater return for rural farmers and households.
The key to minimizing distortion is unpredictability. The infusion of liquidity into markets was a positive shock after a series of negative shocks, and was unexpected by households and businesses. Market actors did not adjust prices or business practices in a way that distorted the market because the cash was unanticipated. And since the UCT was only delivered once, there was no incentive to adjust longer-run business plans after the distribution.
Deeper engagement with local systems, driven by investment in private sector engagement, is vital for longer term impact. The “spark” of impact created by cash will be short run, if not paired with investments that support longer run incentives for inclusive growth. For example, prior to this activity larger agrifood firms were reluctant to expand to areas due to fear of conflict and uncertainty about the scale of the local economy. Cash transfers helped suppliers to make initial investments in NEN, and RRA helped to facilitate the launch of input and fertilizer sales to smallholders by a subsidiary of Flour Mills of Nigeria, and the expansion of a door-to-door sales model by Unilever. The path to sustainable change is long, but these private sector investments have continued and evolved on the back of the cash “spark”.
Using unconditional cash transfers as a springboard to financial inclusion
UCTs may enhance longer-term financial inclusion with conducive timing and conditions. All UCTs were disbursed directly into individuals’ bank accounts, but when recipients did not have a bank account, RRA partnered with banks to quickly facilitate opening new accounts. This led to the expansion of banks’ rural agent banking networks and services, and raised awareness among the local population of agents and their services. The requirement of a bank account to receive the UCT, alongside a COVID-induced shift in banking practices due to movement restrictions, opened up nontraditional payment mechanisms and technological proficiency. And, evidence suggests that bank usage is enduring beyond the cash transfers with 75–87.5% of bank accounts in the RRA target area still active as of November 2022, compared with 46.3% in non-RRA areas.
At the same time, the number of bank accounts opened increased banks’ interest in partnering with RRA and other programs to reach previously unbanked clients. In addition, to facilitate the provision of loans and other products and services from banks to farmers and MSMEs, RRA utilized a push-pull approach by supporting banks to increase outreach and lower operational costs, while assisting farmers / MSMEs with financial literacy training and business planning. With one bank (Sterling Bank), RRA negotiated waiving a standard loan requirement of six months worth of savings (instead substituting a 25% upfront equity deposit), and supported the bank in reducing loan processing times from three months to 48 hours. As a result, they disbursed over 1,000 loans to RRA participant farmers and MSMEs in 2022 totaling approximately USD 246,424.
UCTs can be a spark but durable partnerships with financial institutions are crucial to financial inclusion. These financial service interventions are still evolving and developing. Indeed, the UCTs sparked increased bank usage that has endured beyond the life of cash interventions, but these interventions are a first step, and RRA will continue to work with financial institutions to expand financial inclusion interventions. One important element of this will be later data collection to test the longer-term links between cash and financial inclusion.
The impact of unconditional cash transfers on MSD operational effectiveness
UCTs create challenges for low-profile, facilitative interventions but can also generate community interest. The UCT put stress on RRA’s operationalization of an MSD approach, which typically uses low profile interventions to avoid negatively affecting the incentives and relationships of local businesses, institutions, and target group members. The RRA team found that the visibility of UCTs created expectations of further handouts, especially in post-conflict areas where communities are used to humanitarian programs offering regular handouts or payments for training. However, with time RRA team members were able to help clarify the one-time cash transfer and reiterate the value of business models to communities. At the same time, communities recognized that programs were trying to help them cope with crises through the cash activity, which helped with community acceptance and trust in the context of activities that blended direct delivery with MSD.
Cash injections can create pain points in specific market functions. The cash transfers were not without their challenges; firms facilitating loans or introducing sustainable services found it difficult to compete with the unconditional cash offered by RRA. And in some circumstances, where UCTs were only distributed to a few members of a savings group, this added to existing tension and low levels of trust, while other groups were able to overcome the imbalance and even pool the cash to use as loan collateral or to purchase equipment.
Looking forward
In fragile contexts, programs that take a market systems approach are critical to supporting more resilient local economies. But organizations must also proactively anticipate regular shocks and stresses and widen the set of tools they use to support systems and program participants to adapt — the costs of not acting are too high. Short-term UCTs may be necessary to avoid backsliding; simultaneously, development programs have a critical role to play in safeguarding local systems, leveraging partnerships, and layering in complementary activities that focus on building the resilience of vulnerable households and market systems. As one FTF CoP pointed out, “programs cannot promote agriculture if farmers cannot afford to farm.”
Operationally, implementing large-scale UCT activities requires a significant amount of work in a very short time and must adhere to strong standards. Moreover, UCT implementation and market systems facilitation require different skill sets. UCT requires rigorously utilizing standardized tools across a large population and area, while systems facilitation requires flexibility and adaptation to partner needs and opportunities over time. Coordination can happen within and across organizations if they create a culture of cross-team collaboration and maintain deployable teams with a range of skills, but there continue to be limited incentives at both donor and implementer levels to look beyond narrow program or department mandates to address larger, multifaceted issues.
Despite the challenges of effectively sequencing and layering humanitarian and development interventions at scale, RRA’s use of UCTs to respond to the catastrophic market effects of COVID-19 demonstrates the benefits of a cash strategy that stimulates local economic recovery by targeting both marginalized individuals and the specific market actors that support them.
Despite the challenges of effectively sequencing and layering humanitarian and development interventions, the RRA case provides some hope and a key lesson. When UCTs are implemented rapidly, for a short duration, and supported by longer term facilitative market interventions, they can be an effective tool to protect vulnerable individuals and stimulate inclusive economic activity.
This blog and the accompanying brief are part of a series of briefs produced by Mercy Corps to capture learning on its Markets in Crisis approaches, including recent lessons from market-based drought response in Ethiopia. The series focuses on operational lessons; evidence of market-based coping and adaptation; and pathways to resilient market systems change. For more information, you can also see snapshot lessons from programs, which serves as a primer for this series.
For more information about Market Systems at Mercy Corps, contact us at ahemberger@mercycorps.org.
