The new government has recently launched a series of funding programs for the poor and vulnerable to prepare for increase in the prices of subsidized fuel.

The programs are now being integrated into a long-term social safety net system, including the Prosperous Family Card (KKS), Indonesia Smart Card (KIP) and Indonesia Health Card (KIS).

Following the launch of the programs last week, the government has distributed 600 KKS, 235 KIP and 2,775 KIS to 600 families. The government expects the KKS to reach 17.2 million families, KIP to help 24 million students and KIS to support 88.1 million people, with an estimated total disbursement of
Rp 6.2 trillion.

Unlike previous poverty alleviation and social protection programs (Table 1), which distributed cash directly, the new programs involve non-cash transactions, using mobile money and electronic funds.

The non-cash government support programs are also expected to accelerate the implementation of the Digital Financial Service (LKD) in Indonesia to step up financial inclusion in the country. As a pilot project in October 2014, Bank Indonesia and the government tested conditional cash transfers (BLTB) as part of the Family of Hope Program (PKH) using electronic money through agents in Greater Jakarta, West Java, East Java and East Nusa Tenggara.

Adapting to non-cash support is certainly an innovative move by the government, which will be supported in the initial funding distribution by three telecommunications providers and four banks. Indonesia can learn from programs in other emerging economies, such as the Philippines'€™ Smart Money and Kenya'€™s M-PESA, which successfully applied similar systems in 2000 and 2007, respectively. Smart Money is a prepaid debit card that allows its holder to make purchases and receive domestic payments and remittance from overseas. It has around 50.9 million subscribers to date. M-PESA, an electronic payment system with a small-scale deposit account that can be accessed through mobile phones, now has about 19 million users. Besides these two countries, electronic payment systems are also widely used in Brazil, Venezuela, Ghana and Uganda.

Electronic money and payment systems can be an initial step toward financial services products. From the supply side, retail payments can be an efficient and extensive factor that can enable the expansion of formal financial services to the unbanked society (for example, using e-money for the KRL commuter line, Transjakarta buses or highway tolls).

From the demand side, beneficiaries will gain access to different types of financial services, instead of the informal alternatives that they currently use because of a lack of information (for example, the Tabung-anku product for basic saving that carries no service charge). The electronic payment system also enables customers who are relatively new to financial services to trust the financial services and the institutions that manage them, an important factor in financial inclusion.

Several benefits can be reaped by applying electronic payment to the distribution of poverty alleviation funds. It reduces risk, as cash payments are vulnerable to abuse and corruption. It increases efficiency, transparency and accountability in funding distribution.

Program beneficiaries also won'€™t need to queue at the post office for cash payments; the funds can be withdrawn whenever they are needed, or used electronically. The most crucial point, though, is that this represents a gateway for the poor and vulnerable to participate in financial services. It will help to draw poor communities closer to the formal financial sector, as the program can be developed into basic savings, health and life insurance, micro financing or loans for informal and small enterprises, pension funds and remittance for Indonesian workers abroad.

However, the program needs groundwork to be sorted out. Program socialization and education are essential to inform recipients of how the programs work, especially because the poor and vulnerable tend to be less educated.

Infrastructure, especially the telecommunications industry, must adapt to these changes fast, as the system needs reliable communication services and SIM card availability. Banking agents also needs to be prepared to handle different kinds of basic transactions, yet remain reachable to beneficiaries.

As the programs are still in their early days, they will need adjustment along the way, as the system is being adapted and developed to fit the needs of society.

An IFC study in 2012 detailed three types of business models from the main player'€™s perspective: bank-centric, mobile network operator-centric and collaborative.

While the two main agents in electronic money business developments are bank and telecom operators, both parties need to see the advantages in combining their strengths to create and deliver mobile financial services that suit their models, and that also serve the poor and vulnerable.

Meanwhile, Bank Indonesia has issued regulations regarding electronic money through digital financial services, which provide legal certainty and consumer protection.

Electronic money can become the origin of saving culture in the future, even though it involves only a small amount, and an entry point of introduction to financial products, whether as a means of deposit, transfer or bill payment. However, we are still anticipating the regulation from the Financial Services Authority (OJK) on branchless banking that hopefully will give better guidance, especially for agent banking, and make government distribution programs more efficient.

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The writer is a senior manager at Mandiri Institute, an independent research think tank affiliated to Bank Mandiri, focusing on public policy and the financial and banking sector

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