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Disaster Response in the Digital Age: Investing in Digital Finance to Accelerate Humanitarian Assistance

Authored by

Nandini Harihareswara
Nandini Harihareswara
Senior Digital Finance Advisor

Nandini Harihareswara is a Senior Advisor to the Digital Financial Services Team at USAID.

She was a founding member of the Digital Development Division in 2011 and served as the Strategy & Operations Chief, managing budget, staffing, and operations. She helped to found the Better Than Cash Alliance, one of USAID’s flagship partnerships. She helps to lead USAID’s work in engaging partners, donors, businesses, and host governments to move towards using electronic payments as appropriate. In that effort, she works with USAID Missions and private corporations to advance the use of e-payments. She has worked with more than 30 USAID Country Missions in their work to advance access to finance and financial inclusion. She currently co-leads efforts to advance USAID’s development objectives in Agriculture, Humanitarian Assistance, and Power using Digital Financial Services. She also leads a research effort to better understand how different financial models and public-private partnerships can be used to build critical digital infrastructure, such as payment systems, broadband connectivity, and data systems.

John Lamm
John Lamm
Markets Advisor

John Lamm is a Markets Advisor at USAID's Office of Food for Peace (FFP).

As a member of FFP’s Technical Team, he provides recommendations and guidance related to the use of cash-based interventions to the various country teams. He has previously managed cash-based emergency awards for countries in East Africa, West Africa, and Central and Southeast Asia on behalf of both FFP’s Emergency Food Security Program and the U.S. Department of Agriculture’s Local and Regional Procurement Pilot Project.

Laura Meissner
Laura Meissner
Economic Recovery and Markets Advisor

Laura Meissner is the Economic Recovery and Markets Advisor for USAID’s Office of U.S.

Foreign Disaster Assistance (OFDA), where she provides guidance on assessing, mitigating, and repairing the effects of disasters on local markets and vulnerable populations’ livelihoods as well as on cash and voucher-based interventions. In her work at OFDA she has contributed to the disaster response and recovery in Syria, Iraq, the Horn of Africa, the Sahel, and the Philippines, among others. Prior to joining OFDA in 2010, Laura managed the Minimum Economic Recovery Standards initiative for the Small Enterprise Education and Promotion (SEEP) Network.  

This post, written in partnership with USAID’s Office of U.S. Foreign Disaster Assistance and Office of Food for Peace, is part five in a blog series on digital financial services from USAID’s Digital Finance team. Read part four here

Humanitarian practitioners might be noticing an uptick in discussions and initiatives about cash-based payments, including how digital or electronic payments can play a role in their distribution. Evidence from USAID experience shows that electronic transfers can be a powerful way to deliver humanitarian assistance quickly and conveniently, sometimes with important side benefits for the local economy and the recipients. However, e-payments are not yet available in all locations nor are they necessarily appropriate for all populations. USAID, other donors, individual humanitarian agencies, and groups like the Cash Learning Program (CaLP) and the Electronic Transfer Learning Action Network (elan), are exploring how digital payment systems can maximize the utility of cash transfers for humanitarian response while delivering lasting benefits, such as expanding financial inclusion and contributing to the growth of economic infrastructure. 

As USAID works toward the audacious goal of universal financial access by creating enduring, inclusive market infrastructure, we are also working to understand how we can ensure that investments in these systems both enable a faster, more cost-effective response in times of disaster and help build resilience in communities susceptible to frequent crises. We envision this happening in two ways: first, ensuring that we, as a donor, are utilizing digital payments in times of disaster whenever appropriate (increasing institutional demand); and secondly, seeing that long-term investments in digital finance sectors support relief efforts when required.  

Cash in Humanitarian Response

In recent years, cash has gone from a little-used response option to a standard feature of humanitarian assistance (see here for the Cash Atlas managed by CaLP, which maps out existing humanitarian cash programs around the globe; here for a brief summary of humanitarian cash programming; and here for a summary of the state of evidence on humanitarian cash transfers). USAID continues to recognize the importance of response analysis to guide decisions between in-kind and cash-based assistance. However, when done correctly and under the appropriate circumstances, cash-based interventions can provide many benefits to recipients and stimulate the local economy. Humanitarian cash transfers can be conditional (e.g. in exchange for work on community projects) or unconditional. They can help disaster-affected people meet critical needs, including food, shelter, water, and livelihoods. USAID continues to recognize the importance of response analysis to guide decisions between in-kind and cash-based assistance and recognizes that all contexts are suited for cash.

Humanitarian cash can be transferred in a variety of ways, depending on the available service providers and the beneficiary profile. These may include NGOs distributing physical cash; recipients collecting cash from money-transfer vendors, shopkeepers, banks, or microfinance institutions; direct deposits into bank accounts; value-loaded or reloadable cards similar to debit cards or gift cards; and mobile-phone transfers. As guiding principles, USAID’s Office of U.S. Foreign Disaster Assistance (OFDA) stipulates that transfer mechanisms should be convenient and secure for beneficiaries, safe for partner staff, accountable, and cost-efficient.

Benefits and Challenges of Electronic Transfers in Humanitarian Assistance

Last year, USAID procurement policy formally created the expectation that USAID partners use electronic payments to the greatest extent possible in lieu of cash, and with NetHope, we’ve released a toolkit to help partners make the switch. Even before this reform, however, USAID and its partners had been finding that digital payments are often the right delivery mechanism for humanitarian cash transfers. In Nigeria, Food for Peace (FFP) beneficiaries receive a smart card to use with vendors equipped with special point-of-sale devices linked to a secure payment system and real-time tracking of purchases. The system has improved accountability and enabled vendors to accommodate more beneficiaries than was possible using paper vouchers. Similarly, FFP funding to the UN World Food Program (WFP) is delivered to Syrian refugees in Turkey via electronic cards topped up monthly to allow them to buy food in local supermarkets. This program is rebuilding lives, supporting the local economy, and allowing displaced families to regain a sense of agency and normalcy.

In Ukraine, USAID/OFDA supports partners to provide conflict-affected families with deposits directly into their bank accounts – just as most of us receive our paychecks – a convenient, safe and accountable solution for everyone. T​hese programs are contingent upon bank system functionality and verified targeting criteria. OFDA beneficiaries who received cash via mobile phone transfers in Niger in 2010 were found to have lower transaction costs as well as greater diversity in spending, food consumption, and crop production, as compared to similar people who received the same amount of money in cash. 

Despite this progress and the growing evidence base as to the benefits of using digital payment “rails” to deliver emergency assistance, significant operational challenges remain. Digitizing payments raises questions about how best to protect personal data, sometimes a critical concern for at-risk communities. Also, because humanitarian assistance targets those hit hardest by disasters or crises, recipients are often the poorest and most vulnerable – and sometimes in remote locations. As a result, the services may not work for the most vulnerable, even if a given country’s digital payment sector is thriving. For example, many drought-affected communities in northern Kenya in 2011-2012 didn’t have the mobile coverage, so rather than using Safaricom’s famed M-Pesa mobile money service, some NGOs partnered with banks to disburse cash to ensure the broadest reach to those in need, as demanded by humanitarian principles. And too often, electronic payments simply do not have the requisite reach in countries affected by disaster, as in the case of Nepal, where humanitarian organizations are using alternative means to distribute assistance to earthquake survivors. 

Bridging the Gap 

Within USAID, OFDA, FFP, and the U.S. Global Development Lab’s Digital Finance team have come together to tackle these challenges, understanding that close collaboration between our offices is required so that humanitarian assistance is delivered safely, effectively, and with lasting benefits to affected individuals and communities. As a starting point, we are working to ensure USAID humanitarian assistance staff and partners are able to quickly assess the availability and reliability of digital payments in countries where we respond to crises. This knowledge will help relief organizations more easily adopt digital payments as a tool of humanitarian response as appropriate.

Beyond awareness building, we are thinking about how development investments can better support the growth of digital payment infrastructure in countries prone to crisis so that, when an emergency occurs, the systems are established and can be readily leveraged for swift, effective humanitarian response while also laying the groundwork to expand financial inclusion. This dynamic played out in the Philippines during the response to Typhoon Haiyan in 2013, where USAID’s SIMM program supported a multi-donor cash transfer effort by working with commercial e-payment providers to ensure their services could reach individuals who needed payments as soon as possible and with the appropriate safeguards. 

Finally, building on our work with capacity building and coordination in cash programming, we are asking ourselves how the humanitarian and development communities can be better prepared to use electronic cash programming at scale. Are there a set of pre-agreed protocols or best practices that, in the right context, may enable us to avoid duplicating efforts in setting up transfer systems and even help build longer-term resilience? Can we safely help “fast-track” humanitarian-aid recipients into the formal financial sector, if they so desire, after the cash assistance ends?  

We invite you to continue the discussion. What are we missing? How can USAID best promote appropriate digital financial services as a part of effective humanitarian assistance?  Please share your perspectives in the comments section!