Over the last few weeks more than a dozen people have been killed and thousands have been arrested in demonstrations across the country. These demonstrations have involved tens of thousands of people in the most significant public display of opposition that the government has seen in a decade. The magnitude of this unrest is significant, and global concern is growing.

Last weekend, The Washington Post <a href="https://www.washingtonpost.com/world/behind-irans-protests-anger-over-lost-life-savings-and-tightfisted-budgets/2018/01/06/64993a66-f23f-11e7-95e3-eff284e71c8d_story.html?utm_term=.9f754e22c0c5">highlighted</a> a solitary and representative video that has been fueling protests. In the video, sent over the popular messaging app Telegram, an older woman sits in her hospital bed and describes the loss of her entire savings and her inability to pay her medical expenses. She explains that three years ago, a poorly-regulated financial institution closed and she never recovered all the funds she had been keeping safe there. "Why has no one given my money back?" she cries.

Amid the protests, access to Telegram was suspended, with government officials suggesting the platform had bolstered civil unrest. But the stories still continued.

Massive numbers of Iranians say their savings have been lost because of the collapse of poorly regulated or fraudulent institutions. <a href="https://www.washingtonpost.com/world/behind-irans-protests-anger-over-lost-life-savings-and-tightfisted-budgets/2018/01/06/64993a66-f23f-11e7-95e3-eff284e71c8d_story.html?utm_term=.9f754e22c0c5">According to Suzanne Maloney</a> of the Brookings Institution, "Banks are shutting down without any kind of notice, and it’s creating a huge political and economic backlash at a local level.”

The backdrop to these protests is notable. The Iranian President's recent budget proposal decreases subsidies to the poor at a time when the spending power of Iranians is also declining. In the city where the protests began, Mashhad, eggs increased in price by <a href="https://www.nytimes.com/2017/12/28/world/middleeast/iranians-protest-rising-food-prices.html?_r=0">40 percent</a>, and other basic goods increased in cost as well. Poor <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/807-beyond-financial-inclusion-financial-health-as-a-global-framework">financial health</a> – not being able to meet day-to-day expenses, respond to emergencies, or take advantage of opportunities – has been shown to be a significant source of stress. It is no wonder that such strain has translated into anger and unrest in the country.

While we do not assess Iran as part of our publication, <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/global-microscope">The Global Microscope</a>, the methodology does recognize that clear regulation and the capacity to enforce such regulation are clear drivers of financial inclusion. If fraudulent or poorly regulated institutions are able to open and close without protecting and safeguarding consumer funds, how can customers trust the financial system? How can well-meaning and legitimate institutions hope to gain customers willing to engage with them?

The <a href="http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">client protection principles</a>, <a href="http://smartcampaign.org/certification">Smart Certification</a>, and the many tools developed by the <a href="http://smartcampaign.org/">Smart Campaign</a> offer a wealth of resources for inclusive finance stakeholders in any country, including Iran, to ensure that financial clients are being treated responsibly, which of course supports the long-term sustainability of financial institutions and markets.

While situations like these are complex and often have many causes, we hope that those working toward peace and understanding will consider the strength of the financial sector regulator and the framework for client protection in the country in addition to assessing buying power and price inflation.

We also hope that this might serve as an important case example for the importance of emphasizing quality financial products as a part of broader financial sector, economic, and social development.

Have you read?

<a href="https://cfi-blog.org/2016/10/26/new-report-highlights-gains-in-financial-inclusion-led-by-india-digitization-on-the-rise/">2016 Global Microscope Highlights Gains in Financial Inclusion, Led by India; Digitization on the Rise</a>

<a href="https://cfi-blog.org/2016/03/14/financial-inclusion-amid-haitis-political-crisis/">Financial Inclusion Amid Haiti's Political Crisis</a>

<a href="https://cfi-blog.org/2015/05/11/financial-stability-and-financial-inclusion-two-faces-of-the-same-coin/">Financial Stability and Financial Inclusion - Two Faces of the Same Coin</a>

&nbsp;

What Does Responsible Finance Have To Do With What Is Happening in Iran?

&gt; Posted by Iftin Fatah, Investment Officer, Overseas Private Investment Corporation

The <a href="https://thegiin.org/knowledge/publication/annualsurvey2017">2017 Annual Impact Investor Survey from the GIIN</a> showed that respondents, which make up a diverse and active group of impact investors, committed more than $21 billion to impact investments in 2016 and planned to commit 17 percent more capital than that in 2017. Geographically, however, the Middle East and North Africa (MENA) only makes up 2 percent of assets under management.

Islamic finance is largely concentrated in three markets – Iran, Malaysia, and Saudi Arabia – but it spans nearly every part of the world, including MENA, Asia, and sub-Saharan Africa. For its part, Islamic finance has grown over the past two decades, with total assets reportedly totaling roughly <a href="http://sunnewsonline.com/islamic-finance-assets-leaps-to-2-trillion/">$2 trillion</a>. Despite this growth, Islamic finance still makes up a small share of the global financial market. These two areas of Islamic finance and impact investing are ripe for potential collaboration. Out of the 1.6 billion Muslims in the world, <a href="https://www.cgap.org/publications/trends-sharia-compliant-financial-inclusion">650 million</a> are living on less than 2 dollars a day.

For starters, for those who aren’t familiar, let’s quickly go over how Islamic finance works. Islamic finance is derived from principles rooted in the rulings of Sharia law. The key principles of Islamic finance include: prohibition of interest, profit and loss sharing, and prohibition of gharar (excessive uncertainty, deception and risk). At its core, Islamic finance is centered around mutual well-being for banks and clients. The most notable difference between Islamic finance and Western finance is that interest or riba is forbidden. Rather, banks sustain themselves by sharing in the risk of their financial services with clients, operating on a profit-loss basis. For example, one of the most common Islamic finance products is murabaha, which is a cost-plus-mark-up (non-interest-bearing) loan. Financers bear the cost of the loan, and instead of charging clients interest, clients are charged a mark-up. Accordingly, banks act as investors rather than creditors.

Globally there are largely untapped markets that show immense potential for Islamic finance, such as sub-Saharan Africa, which is the world’s fastest-growing population and has a large Muslim contingent. According to a 2015 Economist Intelligence Unit (EIU) report entitled <a href="https://www.eiuperspectives.economist.com/sites/default/files/MappingAfricasIslamicEconomy.pdf">Mapping Africa’s Islamic Economy</a>, to date, Islamic finance has a presence in 21 African countries. Perhaps counter-intuitively, the EIU report notes that while Sharia-compliant goods and services appeal to the values of Muslims, majority Muslim populations are not essential for a vibrant Islamic economy sector.

In the case of sub-Saharan Africa, one of the primary drivers of the region’s Islamic economy is the need for quality infrastructure. An inadequate supply of roads, railways and ports, and insufficient energy supplies and housing shortages are among the challenges facing the continent. Further, an urbanizing population will drive demand for even more infrastructure. Sukuk, Islamic bonds structured in such a way to generate returns to investors without infringing upon Islamic law, are of growing interest to governments trying to raise capital for such projects. For example, the Nigerian government, <a href="https://www.premiumtimesng.com/business/business-news/243336-nigeria-starts-sale-n100-billion-sukuk.html">recently announced</a> the sale of a N100 billion ($326 million) debt sovereign sukuk on the local market, meant to fund road infrastructure in the country.

The <a href="http://www.undp.org/content/undp/en/home.html">United Nations Development Programme</a> (UNDP) rightly recognizes the potential of this untapped market and in May 2017 collaborated with the <a href="http://www.irti.org/English/Pages/default.aspx">Islamic Research and Training Institute</a> (a member of the <a href="https://www.isdb-pilot.org/">Islamic Development Bank Group</a>) and the <a href="http://www.iicpsd.undp.org/">Istanbul International Center for Private Sector in Development</a> in producing a joint report entitled <a href="http://www.iicpsd.undp.org/content/dam/istanbul/docs/IslamicFinance_BroWEB.pdf">I for Impact</a>. The report focuses on recommendations for growing Islamic impact investing. Among these recommendations include creating an environment that promotes Islamic finance alongside the larger ecosystems of inclusive finance and responsible investing. Support should be offered to the creation and functioning of an effective capital market system for Islamic finance impact investing, including supporting existing and new actors in this space.

To further these recommendations, UNDP and the IDB established the Global Islamic Finance and Impact Investing Platform (GIFIIP) in 2016. The GIFIIP serves as a hub for Islamic finance impact investing actors. The aim of the GIFIIP is to be a collaborative working space that: supports the development of Sharia-compliant impact investing tools; serves as a forum for knowledge-sharing, policy dialogue and advocacy; and functions as a marketplace for deal sourcing and matchmaking. The GIFIIP strives to position Islamic finance impact investing as one of the leading enablers of Sustainable Development Goals implementation around the world, through private sector engagement.

With their rigorous moral and social criteria and emphasis on business-society relations, the principles of Islamic finance and impact investing have many areas of overlap. Bridging the two sectors and leveraging their ideological similarities is a natural response to the growing challenges related to development financing, particularly in Muslim-majority countries. Islamic finance can be a strong and virtually untapped source to finance sustainable development in many areas around the world.

Have you read?

<a href="https://cfi-blog.org/2013/04/26/sharia-and-savings-islamic-microfinance/">Sharia and Savings: Islamic Microfinance</a>

<a href="https://cfi-blog.org/2013/01/15/continuing-the-conversation-on-inclusion-in-the-arab-world/" target="_blank" rel="noopener">Continuing the Conversation on Inclusion in the Arab World</a>

<a href="https://cfi-blog.org/2016/11/08/islamic-microfinance-advances-and-converges-with-fintech/">Islamic Finance Advances and Converges with Fintech</a>

Bridging Islamic Finance and Impact Investing

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

This post is part of a series examining the global phenomenon of de-risking and its impact on financial inclusion. To investigate this issue, CFI staff partnered with Credit Suisse Global Citizen Rissa Ofilada, a compliance lawyer based in the Philippines, to undertake a literature review and conduct interviews with key players in the conversation on de-risking.

NGOs, both large and small, are often on the front lines of humanitarian efforts, assisting people who are affected by conflict and terrorism. It is troubling that so many of these organizations’ efforts are hampered by de-risking. The funding and other forms of non-monetary aid that NGOs provide are directed towards addressing seemingly intractable problems – such as <a href="https://ftsbeta.unocha.org/content/fts-data-use-ocha-humanitarian-community">humanitarian conflict</a>, <a href="http://www.globalhumanitarianassistance.org/report/forced-displacement-poverty-and-financing-seven-facts-you-need-to-know/">forced displacement</a>, natural disaster, and violent extremism – and yet, the de-risking behavior of banks, brought on in response to anti-money laundering and combatting the financing of terrorism (AML/CFT) regulation, often makes it difficult for these organizations to function and serve those who are most in need.

Given the focus on disaster- and conflict-afflicted countries, whose populations are some of the most vulnerable in the world, it is perhaps not surprising that in designing comprehensive AML/CFT risk guidelines for NGOs, governments, financial service providers (FSPs), and regulating authorities have struggled to find the ideal balance between exercising rigorous due diligence and affording more flexibility in the treatment of organizations to reflect their individual capacity.

De-risking affects NGOs when: a) banks refuse to serve them; b) donors cut off funds to broad groups of organizations; and c) NGOs de-risk themselves by getting out of certain lines of operation. A 2014 <a href="http://www.cfg.org.uk/Policy/archive/~/media/Files/Policy/Banking/Briefing%20%20Impact%20of%20banks%20derisking%20activities%20on%20charities%20%20March%202015.pdf">survey</a> conducted by the U.K.-based Charity Finance Group (CFG) highlighted the obstacles that many charities and NGOs operating in “risky” environments face, and the specific financial products and services that are most adversely impacted as a result of de-risking. The most common problems cited by charities in the CFG survey included:  international transfers delayed or denied by banks or correspondent banks; requests for further information before proceeding with transactions; problems getting funds transferred to a partner or own bank account in a high risk country; funds frozen due to a bank's due diligence process; delays in opening bank accounts; accounts closed; and donations blocked.

The CFG also identified a number of characteristics of such “problem locations” that seem to increase the difficultly of accessing financial services for the charities surveyed:
<ol>
 	<li>Area where there is no formal banking structure (e.g., Somalia);</li>
 	<li>Country where regulation is hyper-vigilant (e.g., the U.S.);</li>
 	<li>Country on a sanctions list (e.g., Iran, North Korea);</li>
 	<li>Country in a state of conflict (e.g., Syria, Ukraine);</li>
 	<li>Country where proscribed or terrorist groups are known to operate (e.g., Afghanistan);</li>
 	<li>Country in close proximity to, and typically serving as an access corridor to a region of instability (e.g., Jordan, by providing access to Syria).</li>
</ol>
Some observers worry that the lack of clarification from regulating bodies on the interpretation of AML/CFT legislation with respect to NGOs has created a <a href="https://www.irinnews.org/analysis/2014/12/31">two-tiered system</a> whereby larger and more capable organizations easily navigate the labyrinth of governmental and financial actors and regulations, while smaller organizations with fewer resources face a more existential crisis as they have great difficulty implementing compliance controls that are both vague and burdensome. Conversely, a top AML official at Wells Fargo <a href="http://www.globalcenter.org/publications/understanding-bank-de-risking-and-its-effects-on-financial-inclusion-2/">expressed a similar sentiment</a> on a perverse impact of de-risking on smaller FSPs which might not have enough capacity to adequately implement AML/CFT regulations, and which might not be as proactive in de-risking, closing their doors to certain client types:  “[t]he ironic result of de-risking is re-risking … you are sending [higher-risk customers] to banks that probably can't handle it.”

In the current policy environment, it is understandable if AML/CFT compliance specialists convince their clients to de-risk by exiting certain business segments or ceasing operations in “risky” countries. However, as one executive from a charitable organization <a href="http://files.acams.org/pdfs/2016/Derisking-Final.pdf">put it bleakly</a>, “[t]he impact of de-risking is real and strong. In trying to prevent money laundering and terrorism finance, restrictions on sending money are resulting in the death of persons, particularly victims of terrorism.”

Have you read?

<a href="https://cfi-blog.org/2016/10/05/does-global-de-risking-create-financial-abandonment-the-background-you-need-to-know/">Does Global De-Risking Create “Financial Abandonment”? The Background You Need to Know</a>

<a href="https://cfi-blog.org/2016/09/29/de-risking-why-should-you-care/">De-Risking: Why You Should Care?</a>

<a href="https://cfi-blog.org/2016/10/13/who-is-to-blame-for-global-de-risking-the-united-states/">Who Is to Blame for Global De-Risking? The United States?</a>

&nbsp;

&nbsp;

Does De-Risking Hinder NGOs and Humanitarian Relief?

&gt; Posted by Jeffrey Riecke, Communications Assistant, CFI
<a href="http://www.middle-east-online.com/english/?id=54291"><img class="alignright wp-image-7789" style="border:0" title="Iran currency" src="http://centerforfinancialinclusionblog.files.wordpress.com/2012/09/iran-currency.jpg" alt="" width="230" /></a>Iran's currency value fell last week, decreasing from 24,000 to 26,400 rials, in relation to the U.S. dollar. Unfortunately, few Iranians had this important information. Mobile phones, websites, and store-front displays all experienced some form of censorship. In the case of mobile phones, messages containing the word “dollar,” in either Farsi or English, were not delivered. On January 10 this year, similar censoring of phone messages occurred in coincidence with a decrease in the rial’s value.
If governments can so easily exert politically-motivated control over mobile phone systems, what does this mean for mobile banking and the mobile money movement?
For more on this story in Iran, read the <a href="http://www.middle-east-online.com/english/">Middle East Online</a>’s article “<a href="http://www.middle-east-online.com/english/?id=54291">SMS containing ‘dollar’ suppressed in Iran</a>.”
Image Credit: <a href="http://www.middle-east-online.com/english/?id=54291">Middle East Online</a>
Have you read?
<a href="http://cfi-blog.org/2012/08/22/community-banking-through-peer-credit-scoring/">Community Banking through Peer Credit Scoring</a>
<a href="http://cfi-blog.org/2012/07/25/can-we-make-savings-a-little-bit-more-interesting-for-people-please/">"Can we make savings a little more interesting for people, please?"</a>
<a href="http://cfi-blog.org/2012/07/11/theres-an-app-for-that-the-potential-and-pitfalls-of-mobile-phone-banking/">There's an App for That: The Potential and Pitfalls of Mobile Phone Banking</a>

Iran, Islamic Rep.

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What Does Responsible Finance Have To Do With What Is Happening in Iran?

Bridging Islamic Finance and Impact Investing

Migration’s Middlemen and How to Pay Them

Does De-Risking Hinder NGOs and Humanitarian Relief?

Censorship and the Mobile Money Movement