This was the question that a team of us at The Fletcher School at Tufts University set out to answer in our study “<a href="http://fletcher.tufts.edu/Institute-for-Human-Security/Research/Migration-Crisis-and-State-Fragility/Financial-Mobility-of-Refugees">The Financial Journey of Refugees</a>.” We studied the routes and financial challenges of more than 100 refugees in Greece, Jordan and Turkey, between July 2016 and April 2017. The refugees we interviewed had traveled from South Asia, Central Asia, the Middle East, East Africa and West Africa.

Regardless of their country of origin, with the exception of Syria, a refugee’s biggest expense was the cost of hiring a smuggler. Smuggling expenses ran about 85 percent of the total cost of the journey. The smuggler’s fee included important services: travel by air or overland, depending on the refugee’s budget, guide services across borders, payment of bribes at border crossings, and documentation falsification expenses. Smuggling prices varied widely by country of origin (some borders being porous, others sealed tight), by how deluxe a trip was (air versus ground), by numbers of borders crossed (affecting the number of falsified IDs required). To give an example, journeying overland from Afghanistan through Pakistan, Iran, and Turkey to Greece might cost $7,500 per person, a price that went up or down based on shifting rules and border crackdowns. Traveling from Eritrea to Greece might cost the same amount. Traveling from Syria to Turkey could cost as little as $500.

The price of the journey was one factor in a traveler’s safety – the higher the cost, the better the traveling modes, and the safer the travel. While what refugees paid their smuggler was important, how they paid them was equally important. Did the refugee pre-pay the kingpin smuggler in advance of the journey? Did she post-pay him after arriving safely in Greece or Germany? Did she pay leg by leg? All these strategies were in play and we outline them in our <a href="http://fletcher.tufts.edu/~/media/Fletcher/Microsites/Human%20Security/Final%20Journeys_Briefing%20Paper.pdf">report summary</a> and they are detailed by the refugees themselves in a <a href="http://fletcher.tufts.edu/~/media/Fletcher/Microsites/Human%20Security/Compendium%20Financial%20Journeys%20%20Publication.pdf">Compendium of Field Notes</a>. Below we describe two of many strategies.
<h3>Strategy 1: Guarantee Scheme via a Financial Third Party</h3>
Money agent networks, often informal, span from Pakistan to Germany, and around the world. These networks—dubbed Eastern Union by a Jordanian regulator—do far more than transfer funds from person A to person B. They will store funds for later disbursement or, if instructed, will shunt funds directly to smugglers. For example, a journeyer traveling overland from Kabul to Athens might visit a money agent in Kabul (a saraf) who will take her deposit for $7,500. When she arrives safely to her first waypoint, which could be in Zahedan, Iran, she texts a code to her saraf. The code, incidentally, would have been randomly generated by the saraf’s app before her departure and she would have memorized it. By sending the code, the refugee signals her safe arrival at the Zahedan waypoint. The saraf then forwards a predetermined sum to the kingpin smuggler, using a network of couriers and other money agents to get him his funds. The kingpin in turn deploys a combination of banks and money agents to make sure his local smugglers get paid.

There is no single way this system of guarantee works. It is customized, improvised upon, and individually negotiated by various actors. In some instances, there is no code. In others, there are several codes. In some instances, the kingpin smuggler chooses the saraf. In others, the refugee chooses the saraf. In Syria, the third party is often a shopkeeper who charges $50 to insure the journey. In Iran, the money agent charges a percentage (often 10 percent) of transactions.
<h3>Strategy 2: Crowdsourcing via Kin</h3>
Typically, crowdsourcing via kin is a pre-payment strategy, but not always. We interviewed refugees who were held hostage by smugglers at various points along their routes. When relatives—sometimes a circle of relatives both forward and backward along the route—paid up, the hostage refugee was released to be smuggled farther along her route.

Often crowdsourcing came in the form of pre-payments along various points in a route. For example, traveling from Eritrea to Greece, a journeyer might signal a relative in Khartoum to fund trip expenses. The relative in Khartoum would crowdsource funds from family members in multiple countries across Europe and North America. She might use Zain, a mobile money system, to collect the funds and hold them in Khartoum. She would then secure a smuggling network to help the Eritrean refugee cross to Sudan. The kingpin smuggler would be paid via a courier upon the refugee’s safe arrival in Khartoum. If the Eritrean refugee wanted to continue north to Turkey, Greece or Northern Europe, another round of crowdsourcing would begin. Again, the relative would make payment to the smuggler after the refugee’s safe arrival. In some cases, to ensure compensation, the smuggler will stay with the refugee in a safe house until he has received his payment via Western Union or an informal money agent.

Said one refugee: “It’s a collective system. All Eritreans understand each other on this.” The understanding is that she does not have to pay her relatives back, but she is expected to pay her debt forward: when someone else in her network tries to escape Eritrea, she is expected to do her part to financially support his or her expenses.

What do these strategies mean for providers of financial services? Clearly suppliers cannot legally, knowingly pay smugglers. But, perhaps there are other forms of financial assistance that are perfectly legal.

First, licit travel is often part of a route and could be better insured. For example, a refugee may be able to obtain a visa to a transit country and would like to secure legal travel there. But, because prior legs of the journey may be cobbled together through smugglers, the refugee cannot predict when they will reach the transit country. Insurance could help offset this uncertainty. Too often providers are skeptical that people need financial education to understand sophisticated insurance products. As long as the systems are familiar and offer value, refugees both literate and illiterate, will master them quickly. Second, providers believe that people don’t like to save, but, we found that saving for a purpose—journey preparation—is valuable. Surely, there are many legal ways to assist refugees to accumulate savings for journey purposes. And just as surely, clever suppliers could find ways for refugees to easily access those licit savings along their journey. Third, the ubiquity of informal agents could lead to service expansion. Can trusted informal money agents be co-opted and certified within a legal framework in much the same way that Uber has recruited its drivers?

Have you read?

<a href="https://cfi-blog.org/2017/03/09/the-digital-demands-of-the-displaced-dont-track-me-dont-expose-me-dont-cut-me-off/">The Digital Demands of the Displaced: Don't Track Me, Don't Expose Me, Don't Cut Me Off</a>

<a href="https://cfi-blog.org/2016/02/09/financial-inclusion-and-immigration-in-europe-disrupting-identity-norms/">Financial Inclusion and Immigration in Europe – Disrupting Identity Norms</a>

<a href="https://cfi-blog.org/2016/08/17/a-learners-license-to-master-the-rules-of-the-credit-road/">A Learner's License, To Master the Rules of the Credit Road</a>

Migration’s Middlemen and How to Pay Them

&gt; Posted by Brenda Santoro and Ahmed Dermish with Kim Wilson

In uncertain times do developed economies have the resiliency in their financial inclusion processes to withstand rapid change without risking systemic stability and consumer protection?

Modern, nationally integrated systems, high-capacity supervision, and flexible policymaking are helping Germany turn the refugee crisis into an economic opportunity.

The German Federal Financial Supervisory Authority, commonly known as BAFIN, this fall relaxed requirements for opening a bank account. The <a href="http://www.reuters.com/article/us-europe-migrants-germany-banking-idUSKCN0SM15120151028">new rules</a> allow accounts to be opened with a stamped document from an appropriate German authority, such as BAFIN, along with a picture and personal information. Transitional rules are in effect until the approval of the law, expected this year. A directive in the European Union, which will begin in September 2016, will require similar access to bank accounts across the EU.

Citizens of developed countries may not appreciate the role a bank account plays in providing access to basic financial services. A bank account is more than a place to secure our money – in nearly every country, it provides high social and economic value. When a bank says we are trustworthy, even for a simple bank account, doors open for many services we take for granted such as access to electronic payments, basic utilities, housing contracts, education or small business loans. This works because banks use a vetting process to ensure they know exactly who we are, often referencing a nationally issued document such as a passport or driver’s license. For us, the account becomes another form of identity. For the banks, it ensures the correct people have access to funds. With a passport and a bank account, the world is our oyster, an entrée into other services and for the bank, it is an entrée into cross-selling and more profits as they learn more about us.

However, many refugees (we focus here on refugees, not routine migrants) arrive in Germany without passports or other forms of identity. The Germans have found a work-around to provide basic identification, and thus bank accounts for this previously excluded population. <a href="https://ec.europa.eu/migrant-integration/news/germany-a-bank-account-for-everyone-residing-legally-in-the-country-including-refugees">Estimates</a> are that more than 500,000 people in Germany do not have access to a bank account. In contrast, many countries do not provide such simplified access to accounts. Government regulations require intensive background checks and proof of identity. Their interest is to avoid the possibility of money laundering and financial crime.

Because of these barriers, refugees fleeing to the EU are forced to utilize informal channels for moving cash. These channels can be expensive and insecure, putting cash-carrying refugees at extreme risk. Refugees are not only vulnerable but are prevented from establishing themselves financially.

Germany’s solution is intriguing and raises several questions. Has it found a workable alternative to normally restrictive regulations? With more flexible requirements, could innovative technologies further incent financial institutions to provide basic accounts to those with less than air-tight forms of identification? And might we hope that technologies, coupled with lighter government and banking restrictions, will scale banking and other services beyond the refugee population to the many others who are financially excluded? Perhaps we can imagine a time when technologies enabled by lighter regulation contributes to lowering the risk of false identity and illicit activities.

Managing the risk

Germany is a member of the G8 and considered a global leader in financial sector stability. What will the global community of financial sector standard-setters, such as The Bank for International Settlements (BIS) in Basel, Switzerland, say about Germany issuing these accounts?

Our opinion is that the standard setting bodies (SSBs) are probably neutral on this issue. Their main concern is market and systemic stability. So how would broadening access to accounts for refugees impact stability?  Refugees brought into the system, under newly relaxed rules, will represent a very limited percentage of the total number of accounts, with limited purchasing power. It’s doubtful that they could have systemic impact.

Let’s presume however that the SSBs are less concerned with stability and more concerned with illicit use of bank accounts. The Financial Action Task Force (FATF), BIS and the Committee on Payments and Markets Infrastructures (CPMI) have all settled on a risk-based approach to regulating financial services, particularly when trying to enable innovation that would lead to better financial service access. Governments must clarify how they will mitigate and manage the risk of illicit use. For less developed countries, lowering KYC (Know Your Customer) requirements effectively means acknowledging trade-offs between having a significant population outside the formal system and increasing the risk that the banking system will be used for illicit financing. Lower requirements also means that governments concerned with international security (particularly the U.S.) must determine how they will mitigate the risk of new financial services innovations. Do they quash innovation because they fear it will accelerate illicit activities or do they celebrate it because it will promote more access and improve the lives of the excluded?

Germany, it seems, does not see it this way. For Germany, there is no apparent trade-off. It can (and does!) monitor retail transactions. It has a modern, electronic banking system that enables effective risk management. It has robust supervisory practices. For Germany, only a tiny population poses any risk at all, and there is no reason to believe that broadening access to accounts for refugees will impact systemic stability.  And on the off-chance that it might, Germany has the systems and governance in place to manage the risk.

By making it easy for refugees to transact electronically, Germany can track the movements and livelihoods of a vulnerable population. If you need a basic account to get housing, then the government of Germany not only has control over your funds, they will know where you live and how you transact. From the political perspective of those who fear terrorists entering the country, bringing refugees into the financial system is an elegant way of tracking potential “threats”.

BAFIN’s novel approach explicitly addresses concerns raised by banks regarding anti-money laundering regulations. Regulators assert that providing accounts to refugees in fact combats money laundering as it prevents uncontrolled flows of cash.  Account holders can be vetted and tracked for movement of funds, whereas in a pure cash economy an individual utilizing hidden channels for movement of funds cannot be effectively tracked.

Obviously, there should be a benefit to refugees. Many have liquidated their savings and may be traveling with hundreds or thousands of euro, in cash, on their person. Syria in particular is a sophisticated country with an educated population that has money. Syrian refugees need bank accounts for their own security. Imagine how perilous a refugee camp is without the additional effort required to protect your life savings.

Germany can manage the risk. Refugees need the service. It’s a win-win, and the SSB’s don’t have much reason for concern.

Looking beyond BAFIN

The refugee crisis is not only a “German” problem. Nearly all EU nations are impacted. Can we expect a contagion effect as Germany’s enlightened view cascades across these other markets?

It’s unlikely. Germany has demonstrated a unique political will to have compassion with the refugees. Relaxing the rules suits the needs of the current administration, and given Germany’s sophisticated administrative structures and financial clout, it also has the systems in place to justify its inclusive political positioning.

In contrast, many of the Balkan and East EU states do not have the systems or political will, and their history demonstrates a less welcoming approach to refugees crossing from North Africa. Britain, France, Austria, and Benelux could potentially adopt a similar measure to Germany. They all have substantial immigrant populations and are relatively more centrist. We doubt they will follow closely behind Germany, but perhaps if the program shows success, they may do so. France recently has been making moves to alleviate the situation in the migrant camps in Calais. With winter upon them, all the Northern European countries have an incentive to take a more active approach to integrating refugees. Sweden and perhaps Norway have the systems and possibly political will, but they are often seen as outliers (unfortunately), so it’s hard to say what their influence on other countries might be.

The attacks in Paris and threats in Brussels add an additional dimension to the challenges facing the EU and refugees despite the fact that the Paris attackers were legally residing in the EU. There is more and more pressure to ask questions first and open borders later.

It is unlikely that Germany’s approach towards undocumented refugees will spread. This is unfortunate. We have an opportunity to think more creatively about how we create and manage identity verification, and how our systems can be leveraged to provide opportunities to those without conventional documentation. Governments have a role to play in tempering the fears of the population by using existing systems to demonstrate risk management, turning the unknown into opportunity.

Brenda Santoro is an international financial services executive and graduate of the Fletcher School, Tufts University (any opinions expressed are her own). Ahmed Dermish is a Global Technical Specialist at the United Nations Capital Development Fund. Kim Wilson is Lecturer in International Business and Human Security at the Fletcher School, Tufts University.

Have you read?

<a href="http://cfi-blog.org/2014/02/07/financial-inclusion-for-whom-considering-immigration-and-citizenship/">Financial Inclusion... For Whom? Considering Immigration and Citizenship</a>

<a href="http://cfi-blog.org/2014/05/23/not-just-migrants-but-their-families-too/">Not Just Migrants, but Their Families Too</a>

<a href="http://cfi-blog.org/2015/09/04/combating-refugee-hunger-via-inclusive-finance/">Combating Refugee Hunger via Inclusive Finance</a>

Financial Inclusion and Immigration in Europe – Disrupting Identity Norms

&gt; Posted by Center Staff

<a href="https://www.flickr.com/photos/10816734@N03/2347597243/"><img class="aligncenter wp-image-17572" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/03/2347597243_9002f1fa86_o.jpg" alt="" width="616" height="414" /></a>Happy International Women’s Day! We hope you were able to partake in the worldwide celebration yesterday. If you missed out on the action, not to fear. Plenty of activities are still underway. And of course, acknowledging the achievements of women and advancing the movement for gender equality are practices best executed every day.

To spotlight the importance of financial inclusion for women, here’s a snapshot of recent research in this area. To follow are ways that you can join groups, including the United Nations and Grameen Foundation in getting involved.

In honor of International Women’s Day, last week Gallup <a href="http://www.gallup.com/poll/181790/nearly-billion-women-worldwide-struggling-suffering.aspx?utm_source=WWWV7HP&amp;utm_medium=topic&amp;utm_campaign=tiles">shared</a> global statistics on how women view their lives – graded on a 10-point scale from suffering to struggling to thriving. About a quarter of all women questioned view themselves as thriving, while the rest chose either struggling or suffering. The two areas cited most often as important for improving their lives were jobs and personal safety. While the latter is a shocking finding, this post starts with jobs, though ultimately we will see connections to personal safety as well. Global estimates pin men as almost twice as likely as women to be in full-time formal employment. In Mexico, for example, less than 50 percent of women are part of the labor force, compared to 85 percent of men.

New statistics from the NGO Action Aid <a href="http://nextbillion.net/newspost.aspx?newsid=8978">indicate</a> that gender inequality in labor markets costs developing countries about US$ 9 trillion each year, including both the pay gap and the employment gap. For a sense of scale, US$ 9 trillion is more than the combined GDPs of Britain, France, and Germany.

This said, gender equality in the economy is gaining momentum. <a href="http://www.bcg.com/media/pressreleasedetails.aspx?id=tcm:12-144605">Research</a> from the Boston Consulting Group, which identifies women as the world’s largest and fastest growing market, forecasted that between 2013 and 2018 US$ 6 trillion in additional earned income among women would be added to the global economy.

According to the Global Findex, women are <a href="http://siteresources.worldbank.org/EXTGLOBALFIN/Resources/8519638-1332259343991/N9gender.pdf">20 percent</a> less likely to be formally banked than men, and 17 percent less likely to have taken out a loan from a formal institution. Women make up the majority of the 2.5 billion unbanked individuals around the world. (Keep your eyes open next month as the Global Findex releases updated data.) A massive missed opportunity for all, women invest 90 percent of their incomes in their families, compared to 30 to 40 percent in the case of men. Additionally, recent research from Innovations for Poverty Action showed that in the Philippines when women gained access to savings accounts they in turn gained more household decision-making power.

On digital financial inclusion, last week GSMA released new figures on mobile phone ownership and use among women. It was found that <a href="http://www.vanguardngr.com/2015/03/over-1-7b-women-in-emerging-markets-do-not-own-mobile-phone-gsma-report/">1.7 billion</a> women (59 percent globally) don’t own a mobile phone, and that on average women on are 14 percent less likely to own a phone than men. These figures vary significantly by region – in South Asia, for instance, women are 38 percent less likely to own a mobile phone. Barriers identified from the customer perspective are cost; network quality and coverage; security and harassment via mobile; operator or agent trust; and literacy and confidence issues. GSMA indicates that social norms and disparities in education and income also affect gender parity in phone ownership and use. From the thousands of women interviewed as part of GSMA’s research, respondents overwhelmingly reported that they believed mobile phones would save them time, help them stay in touch with their networks, and make them feel safer. Parity in phone ownership represents a US$ 170 billion market opportunity for the mobile industry by 2020.

Savings-led microfinance interventions can help <a href="https://sswr.confex.com/sswr/2015/webprogram/Paper22658.html">reduce</a> sexual risk, new research released earlier this year finds. A recent study based in Ulaanbaatar, Mongolia tested whether HIV prevention programs would reduce sexual risk among sex workers when combined with savings-led microfinance. The randomized control trial (RCT) found that those in savings-based microfinance reduced the number of paying sexual partners by 22 percent more than the other group.

In a recent South African study, the combination of microfinance and gender training <a href="http://strive.lshtm.ac.uk/projects/maisha-microfinance-and-gender-training-reduce-violence-against-women">reduced</a> participants’ incidences of intimate partner violence (a driver of HIV) by 55 percent. Participation in the program also led to reduced household levels of poverty and increased reported condom use. The study is currently being replicated as an RCT in Tanzania to ascertain the respective impacts of the training and the financial services, as well how results will change if male partners are included in trainings.

There are lots of ways to get involved and help further financial inclusion for women. Start on the International Women’s Day <a href="http://www.internationalwomensday.com/">website</a> which lists events, a newsfeed, resources, and more.

The United Nations (UN), commemorating the 20 year anniversary of the landmark Beijing Declaration and Platform for Action, is acknowledging the progress in the past two decades and calling attention to the serious gaps that remain. You can get involved in #Beijing20 as outlined on its <a href="http://beijing20.unwomen.org/en/get-involved">campaign website</a>, using social media toolkits, quizzes, essay competitions, and film festivals.

Targeting governments, yesterday the UN launched “<a href="http://www.unwomen.org/en/news/in-focus/international-womens-day#sthash.fSs7r8bg.dpuf">Planet 50-50 by 2030: Step It Up for Gender Equality</a>”, which asks governments to make national commitments to address the barriers that hold women and girls back from realizing their potential.

Within the microfinance community, Grameen Foundation is hosting the <a href="https://www.classy.org/events/250-challenge-2015/e43767">$2.50 Challenge</a>, where participants experience what it’s like to live like one of the women who make up 70 percent of the world’s poor. Women’s World Banking organized the <a href="http://www.womensworldbanking.org/events/attend-an-event/making-happen-women-international-womens-day-campaign/">Making It Happen for Women</a> campaign, which enables people around the world to share how they’re working to advance women’s empowerment.

Image credit: <a href="https://www.flickr.com/photos/10816734@N03/2347597243/" target="_blank" rel="noopener noreferrer">World Bank</a>

Have you read?

<a href="http://cfi-blog.org/2014/09/15/savings-groups-mobile-phones-and-a-new-solution-for-rural-women/" target="_blank" rel="noopener noreferrer">Savings Groups, Mobile Phones, and a New Solution for Rural Women</a>

<a href="http://cfi-blog.org/2014/01/08/why-the-gender-dummy-doesnt-speak-explaining-the-gender-gap-in-financial-inclusion/" target="_blank" rel="noopener noreferrer">Why the Gender Dummy Doesn't Speak: Explaining the Gender Gap in Financial Inclusion</a>

<a href="http://cfi-blog.org/2014/09/11/more-women-on-boards-how-do-we-get-there/" target="_blank" rel="noopener noreferrer">More Women on Boards: How Do We Get There?</a>

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Migration’s Middlemen and How to Pay Them

Financial Inclusion and Immigration in Europe – Disrupting Identity Norms

Every Day, Working Towards Financial Inclusion for Women