The Future of Refugee Financial Inclusion

> Posted by Daniel Balson, Lead Specialist for Eurasia and MENA, the Smart Campaign

This is the fourth and final blog entry in a series exploring how financial services can be leveraged to assist refugee populations. This entry will consider the future of refugee financial services and what our sector can do to ensure that the future is an inclusive one that serves genuine needs and protects refugee rights.

Syrian refugees shop at a market with their bank card given by the Turkish Red Crescent.

It is worth asking whether the financial inclusion sector is at the forefront of the movement to financially include refugees. The humanitarian sector has long struggled to determine how to provide assistance during a crisis in a way that is sustainable, effective, and accountable. Recently, humanitarian organizations such as Oxfam and the International Finance Corporation (IFC) have begun considering whether it’s possible to use payments as an on-ramp for financial inclusion of refugees. Cash transfers have historically facilitated corruption and failed to make it into the hands of the people who needed it most. In-kind donations of goods such as tents, food, sleeping material and other items undermined local merchants who made their livelihoods selling these very goods. In response, the sector has begun experimenting with digital financial payments. In Afghanistan, for example, the World Food Program (WFP) has issued e-vouchers and mobile money to cover food aid. The first e-voucher pilot was carried out on a small user base of 603 recipients in Kabul for a three-month disbursement cycle from April to June 2014. The total value of e-vouchers disbursed was US$72,360. The program proved successful and the WFP launched several follow-on pilots across the country in the subsequent year.

By eliminating the need for central distribution points, e-vouchers helped insulate staff and beneficiaries from security risks. Biometric technology such as finger-print scanning and chip and pin technology helped the WFP overcome literacy challenges and safeguard client data. As a result, e-vouchers were more effective at protecting clients’ rights to privacy and helped deliver a more transparent and approachable payment product.

Lebanon has proved to be another test case for digital financial services and refugee populations. Lebanon has welcomed 1.2 million refugees within its borders, mostly from Syria, Iraq, and Palestine. As such, it is the country with the most refugees per capita in the world. Here too, digital financial services have played a pivotal role. By creating points of access with merchants and ATMs, aid organizations have developed a fully functioning distribution network, allowing refugees to use their pre-paid cards in more transactions than ever before.

With the success of these seemingly disconnected technology programs, humanitarian organizations have begun speaking to their financial sector counterparts to explore how these pilots could transition to an on-ramp for genuine financial inclusion. Whereas in the past, humanitarian organizations became adept at quickly installing basic, flexible, and effective financial networks to use in times of crisis, the new approach seems to be focused around developing a more lasting system that can continue to serve at risk populations long after reconstruction. For example, more and more humanitarian organizations are considering how payment networks can evolve into a system that facilitates savings, credit, and insurance.

What can donors do better?

To achieve results on this front, donors, aid agencies, and humanitarian organizations will have to take a critical look at prior approaches and incentives. For example, the sector may wish to reconsider whether old monitoring and evaluation paradigms are best suited to providing sustainable financial services to refugees. Previously, auditors assessing the efficacy of an intervention might have counted how much money was distributed and spent. However, if we are to work towards developing long-standing financial channels for refugees, it is imperative that we account for and encourage savings. Evaluators may be required to develop newer and more accurate metrics to determine whether pre-existing payment channels can grow to accommodate the diverse array of financial services refugees will require.

Additionally, donors and practitioners will need to learn to tell their story better. In doing so, they might consider what counts as a success and why it matters to governments, donors, practitioners, and to refugees themselves. New narratives would be most effective if boosted by emerging research on refugee financial services. For example, if the sector were to demonstrate that financially included refugees are more likely to return to their country of origin, it could use this data to make a stronger case before skeptical donors. Donors champion financial organizations like Al Majmoua in Lebanon and Microfund for Women in Jordan that experiment with financial services for refugees.  By highlighting successes, donors could use their considerable megaphone to reinforce the importance of such programs and demonstrate that they can deliver financial services for refugees in a sustainable and effective manner. Such publicity could be paired with a concerted focus on overcoming the perception of refugees as risky borrowers: donors could guarantee some portion of loans issued.

What can practitioners do better?

Practitioners can find new ways to leverage digital services to address challenges refugees face. Myriad avenues are being explored; a few of the more promising ones are highlighted below:

  • Currently, refugees risk losing credit histories that they carefully built in their home countries – as well as credit histories they start from scratch and build in their host country. Credit score portability can help mitigate these challenges and encourage refugees to take up financial services in their host country as well as return to their home countries when it is safe, with the knowledge that their sound financial decision making will be recognized.
  • Refugees often arrive to their host countries with few fixed assets and limited collateral. Creditors can harness the power of crowdfunding to create digital stores of collateral for potential refugee clients, allowing them to get a foot in the door of the credit marketplace.
  • As refugees might arrive with limited documentation, they are often unable to demonstrate their creditworthiness. Alternative creditworthiness analysis tools offer one promising solution. By leveraging a refugee’s social media presence, contacts and networks, loan officers can get a sense of the client’s trustworthiness and diligence, allowing the provider to lower the interest rate on an otherwise prohibitively risky product.
  • Many refugees face political persecution in both their home country and their host country. As such, they are often reticent to divulge personal information necessary to secure a loan. Strong digital safeguards can help protect a refugee’s privacy, anonymize data and minimize risk to the client’s contacts back home.

Technology, of course, will not be a substitute for appropriate strategizing and good sense. Many of the core obstacles facing refugees’ financial inclusion can be best solved not through novel technical approaches but by reviewing and carefully internalizing lessons already uncovered by the sector. For example:

  • Mobile lending units allow the product to come to the client in cases where the client cannot come to the product. In Syria, UNRWA developed a small fleet of mobile lending units, allowing loan providers to reach clients in areas with few security threats but limited financial infrastructure.
  • Appropriate and flexible products can help an institution adapt to a rapidly changing situation. In Syria, UNRWA launched its BST (“Bastat”) product aimed specifically at street peddlers and designed to cope with their frequent displacement, in part through low repayment amounts. A separate product provides home reconstruction loans for Syrians. These highly tailored products help address real and pressing needs faced by Syrian victims of conflict. These strategies are an effective illustration of appropriate product design, the first of the Smart Campaign’s Client Protection Principles. You can learn more about how the Smart Campaign views this principle here.
  • Providing financial services to refugees is often a contentious proposition. In countries where resources are limited, politics are fraught and conflict is a recent memory, the public and the government are often skeptical when precious funds are redirected to temporary and foreign visitors. Recognizing this reality, institutions can minimize disruption by supporting activities that do not compete with the local economy. For example, in Lebanon, Al Majmoua has funded refugee families who make aghabani table cloths, a traditional Syrian textile in high demand throughout the Middle East.
  • Institutions serve refugees best when they focus on people. As we’ve seen in our Azerbaijan case study, one of the easiest and most effective ways financial institutions can learn about how to serve refugees and the internally displaced is to hire them. Refugee staff come with an intuitive feel for the clients and their culture and an eagerness to work and learn. Additionally, financial institutions have found success by creating joint refugee and host borrower groups to create interdependence and build bridges between individuals who might not normally associate with one another. Additionally, by offering financial products to women refugees specifically, institutions are more likely to assist an underserved market segment and less likely to be seen as intrusive.

What governments can do better:

Meaningful progress on providing financial services to refugees requires the assistance of governments. Elected and appointed officials set the rules of the market, determine the country’s overarching policy towards refugees, signal moral support for migrants’ rights, and channel public concerns. Their support is fundamental to ensuring that refugees and the internally displaced can access meaningful economic opportunities.

Government officials can begin by stimulating an honest dialogue about the political dimensions of refugee financial inclusion and steering the rhetoric away from a binary option. Rather than forcing the public to make an imagined choice between citizen rights and refugee assistance, governments could explore avenues for how refugees can be financially included while benefiting their host communities.

Recognizing that refugees are some of their most vulnerable populations, officials can enact rules that would ensure their protection. By encouraging formal institutions to enter the market before they are superseded by less reputable lenders, officials can prevent the emergence of a black market for credit and thwart abuses before they appear.

While financial inclusion practitioners know far more about what it takes to assist refugees today than ten or even five years ago, there is much more to learn. Are refugees with more access to capital more likely to return to their home country? What types of financial services offered to refugees have the greatest net-positive effect on their host communities? These and other questions require additional research. Governments have the resources and the moral suasion to commission and implement such studies and should be vocal about the need to learn more on this critical topic.

Have you read?

Financial Inclusion of Refugees: An Introduction

Financial Inclusion of Refugees: Azerbaijan Case Study

Financial Inclusion of Refugees: Al Majmoua in Lebanon

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