Emergency aid used to be a short-term fix to a grim situation: handouts of food and other needed goods to alleviate the suffering of some of the world’s poorest beset by famine, drought or flood. Now, aid agencies increasingly deliver cash in continual social protection payments which help the poor build safety nets and avoid crises. And a few pioneering thinkers in the aid industry realize that cash + technology can also = infrastructure for financial services. Donors and governments can not only get social payments to the right people, but improve access to finance for entire communities historically off the radar screen of traditional banks.

Aid agencies are wising up to new ways of delivering help. They’ve realized that smaller amounts of aid, spread out over time and in the form of cash, can help poor people build there own safety nets, before a crisis hits. Cash is also much cheaper and more efficient way of delivering aid. Some 65% of America’s US$ 2 billion food aid program is eaten up by red tape and logistical costs, according to a US government report.

By contrast, the cost of cash payments typically average less than 10% of the total grant amount, and often just 2-4%, according to forthcoming research from the UK’s DFID. But if cash is cheaper to move, it’s also susceptible to fraud and theft. On a recent CGAP trip to Malawi, Concern Worldwide reported that every payment of cash was counted 9 separate times during a social safety net program in 2005. That’s 9 opportunities for an extra hand to dip into the envelope, not to mention the security headache and expense of moving large amounts of cash over unsafe rural roads.

Technology can help. Providing a recipient with a magstripe ATM card and funneling payments electronically cuts out many of the intermediate steps for counting and moving money where the risk and expense reside. And for those of us interested in access to finance, it also provides banking, often for the very first time. South Africa’s Sekulula Card is an example.

Developed by AllPay, a division of Absa Bank, the Sekulula Card is designed for government grant recipients to access their grants electronically. Absa opens a basic transactional bank account for recipients and issues a Visa Electron-branded debit card usable at any Visa certified ATM or POS terminal. Pioneered in Gauteng province, by 2005, nearly 500,000 people or two-thirds of all recipients in the province had selected this option. Clients are allowed to make two free withdrawals per month and do not need to maintain a minimum balance. In November 2006, Absa announced that cellphone banking services would be extended to Sekulula account holders.

Services like Sekulula work where ATM and POS networks are already in place. But what about areas where no banking infrastructure exists? CGAP and the Financial Sector Deepening Trust in Kenya have partnered to tackle this head on through a Social Protection Payments Challenge Fund. The aim is to co-finance prototypes that deliver social payments plus basic savings, remittance and other financial services to 68.000 people in food insecure households living in the arid northern part of Kenya.

The Challenge Fund has made two awards: to Vodafone, which will adapt its M-Pesa mobile payments solution recently launched in Kenya, and a consortium of Sevak Solutions, Kenya Commercial Bank and Paynet Holdings, which owns Pesa Point, Kenya’s largest ATM network. The Sevak consortium will create a solution based on POS terminals and mobile ATMs. Both Vodafone and Sevak will identify local merchants with excess liquidity to distribute payments on behalf of the government. CGAP will evaluate these pilots to extract lessons for others to use in building financial services around social payments.