This paper examines the business and price effects of cash-based assistance provided to refugees in Kenya. In 2018, the World Food Programme’s Bamba Chakula (BC) program provided cash transfers to about 400,000 refugees living in the Kakuma refugee camp and the Kalobeyei settlement. Beneficiaries received monthly digital transfers ranging from US$3 to US$13, which were restricted to food items and could only be spent at licensed shops. Licenses for participation in the BC system were allocated to food retailers through a competitive selection process. The committee’s primary objective was to ensure a diverse group of business owners, considering factors such as gender, origin, and the geographical location of their shops.
The authors leverage the quasi-random variation in the allocation of BC licenses and employ matching methods to compare the outcomes and practices of businesses with and without a BC license. They estimate the medium-term effects of obtaining a license on business revenue, profit, productivity, and prices. Additionally, they assess the medium-term effects on household consumption, asset ownership, and total household income of the applicants.
The analysis utilizes data provided by business owners who applied for BC licenses and a business survey conducted in the Kakuma refugee camp and the Kalobeyei settlement in October and November 2018, encompassing the entire population of refugee applicants for BC licenses. A total of 429 interviews were conducted with refugees who had applied for a BC license, of which 350 still owned a business. To examine the impact of the BC program on retail prices, the authors use survey data from a representative sample of households whose members arrived in Kakuma and Kalobeyei after March 2015, collected in July and August 2018. The authors also conducted focus group discussions and 122 qualitative interviews with business owners and their clients.
Main findings:
- Applicants selected to receive a BC license benefit significantly from the cash transfer program. Licensed applicants have monthly business revenues that are, on average, US$3,784 (175 percent) higher than those of unlicensed applicants. Additionally, licensed applicants have monthly business profits that are, on average, US$685 (154 percent) higher than unlicensed applicants.
- Licensed applicants employ more workers, have higher labor productivity, and sell a larger variety of commodities. On average, licensed applicants have at least 46 percent more employees than the control group. Labor productivity in the treatment group is, on average, 14 percentiles higher than in the control group, equating to at least a 70 percent increase in average value added per worker. BC businesses also offer a larger variety of goods.
- BC licenses positively impact the living standards of successful applicants’ households, including food intake, asset ownership, and household income. Households of licensed applicants have significantly higher food consumption scores (FCS), indicating greater food security and a more diverse diet. These households also possess more assets compared to those in the control group. There is no evidence of crowding out other income opportunities, as households with and without a BC license have similar income from other sources. The substantial effect on total household income suggests that unsuccessful applicants who do not own a business were unable to start another equally lucrative activity.
- There is no significant effect on cash sales, indicating limited negative spillovers between licensed and unlicensed businesses. BC shops are not more attractive for purchasing food items with cash. Rather, BC licenses may negatively affect cash sales for businesses that would exist without the BC program.
- The large effects observed are partly due to the higher likelihood of successful applicants continuing to own a business, as well as the greater success of licensed businesses compared to unlicensed ones. Successful BC applicants were 24 percentage points more likely to still own a business at the time of the survey. Licensed businesses have profits that are US$526 (86 percent) higher than those of control group businesses. This difference is substantial, equating to about 18 times the average monthly wage of paid employees (approximately US$29) and 39 times the value of monthly food assistance per refugee (approximately US$13).
- Licensed businesses charge higher prices than unlicensed businesses. Prices for purchases made with cash are, on average, 16 to 30 percent lower than those made with BC mobile money. These price differences suggest that BC transfers have created a two-tier market structure, where BC businesses enjoy higher market power.
The authors conclude that the restricted cash transfer program led to the creation of a parallel retail market where a limited number of businesses wield significant market power. On one hand, the market for hard cash transactions remains relatively competitive, with approximately 1,400 shops offering low prices to attract consumers. On the other hand, the new market for digital cash transfers is confined to 252 licensed vendors who can charge higher prices. Due to market imperfections, licensed businesses capture a portion of the benefits intended for the cash transfer program. These findings underscore the drawbacks of establishing a less competitive, parallel market for distributing cash-based assistance and suggest that most refugees would benefit from policies aimed at addressing these market imperfections.