| Résumé: | The use of cash transfer programmes in humanitarian contexts is growing. In comparison to in-kind assistance, cash transfers are widely praised for enhancing autonomy, reducing costs, and boosting local markets. A recurring question in the literature on cash transfers is whether the use of transfers should be restricted to food and other essential items and exclude temptation goods such as alcohol or tobacco. We use first-hand data from 896 refugee households living in the recently created Kalobeyei settlement in Kenya, making use of a ‘natural experiment’ to study the relative effects of restricted versus unrestricted cash transfers to refugees. Our research shows that removing restrictions on cash transfers has positive impacts on asset holding and subjective well-being. Households receiving unrestricted cash transfers are also less likely to engage in the costly practice of reselling food in order to access non-food items. We find some evidence that unrestricted transfers may lead to higher expenditure on alcohol and tobacco. Although this is worrying, it relates to only a limited proportion of households and a small proportion of their budget. But both modalities of cash-based assistance are associated with a massive problem of indebtedness, which undermines their effectiveness. A staggering 89% of sampled households are indebted towards their retailers. Cash transfers are used as a form of collateral by retailers to guarantee debt repayment. We discuss the pros and cons of various policy options for addressing the problem of indebtedness, including debt repayment schemes or debt relief, social safety nets, more frequent transfers, training, and monitoring.
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