Use evidence to boost financial inclusion for world's refugees

As the world’s key actors in the financial services community converge to mark the Financial Inclusion Week 2023 that started on October 16, the more than 100 million displaced people continue to endure the weight of increasingly poor living conditions, exacerbated by conflicts, rising commodity prices and climate change.

Currently, there at least 5.1 million refugees and asylum seekers in the East, Horn of Africa, and Great Lakes Region with a significant number in urban areas. Uganda is home to 30.1 per cent of this population. Its capital, Kampala, hosts over 140,000 refugees, while Nairobi has nearly 100,000 refugees.

Refugees end up in urban areas in search of opportunities far from home but still face challenges accessing formal financial services. They are on the lookout for assistance and opportunities to not only rebuild their disrupted lives but also integrate effectively and contribute to the development of local economies.

Their limited financial inclusion stands in the way of their successful integration to facilitate their active participation in urban commercial value chains. By providing refugees with access to formal financial services, mutually reinforcing efforts by local and international actors can unlock their potential, foster self-reliance, and contribute to the overall stability and economic development of the region.

A recent assessment of the refugee lending landscape by the International Rescue Committee’s Re:BUiLD Programme in collaboration with Open Capital and key financial service providers documents a latent opportunity to catalye formal financing for the urban refugee population.

The insights and learning paper published from the assessment takes the lid off the current state of the refugee lending space. It offers to incentivise stakeholder groups such as financial service providers, corporations, and investors with evidence-based recommendations for the development of a model that would ensure urban refugees directly access capital.

While urban refugees are typically engaged in economic activities in their host communities and in need of more formal financial products and services, few financial institutions are serving their needs. Without significant access to such services, they lack avenues to conduct financial transactions or access capital to address their needs, let alone achieve self-reliance.

Broader research initiatives and consultations have found that financial institutions often perceive refugees as high-risk customers due to their uncertain legal status and limited financial resources.

Despite this and a host of other challenges around risk management in lending to refugees, some lenders are adapting to overcome these hurdles. Learning from lenders who have already started serving displaced communities and their host residents can support the process and provide evidence for those who are new to refugee lending.

To have all hands on this opportunity, it is crucial to foster collaboration between city and national governments, humanitarian organisations, financial institutions, and the private sector. All these sector players should come together and serve refugee communities, as they do other market segments, to better facilitate their integration in a dignified manner.

Tapping into existing models

Financial institutions can partner with INGOs and local community-based organizations to provide financial literacy training and capacity building for refugees and their hosts. We have seen promising results from this model. It is key to enhancing the understanding of financial products and services, promote responsible financial behaviour, and empower refugees and financial service providers to make informed decisions.

There is a glaring need for regional governments to work towards creating an enabling policy and regulatory environment for financial inclusion. Local governments should engage local community structures to sensitise and step up their support in the registration, verification and streamlining of refugee identification documentation processes to allow for easier access to licences, business permits and financial services. This way, more refugees can open bank accounts, access credit, and engage in economic activities.

Establishing microfinance institutions and community-based banking initiatives tailored to the needs of refugees can also provide them with affordable credit and savings options. These can plug into the established urban savings and loans associations that incorporate hosts and refugees, through which frameworks can be developed for flexible repayment and collateral requirements to accommodate their unique circumstances and needs.

It is time for all of us to realise that when refugees participate effectively in the formal financial system, they stimulate economic growth, and create employment opportunities. Financially empowered refugees can become entrepreneurs, investors, and contributors to the tax base, thus reducing their dependency on humanitarian aid. We have seen it work.

Just like Sir Alec Issigonis, who created the iconic Mini Cooper decades after being evacuated from Turkey during the Greek-Turkish War in 1922, refugees can do so much more. They are changemakers and dreamers, and they can better our communities.

This will be possible through utilising actionable evidence from research that demonstrates what works in from the strategic investments aimed at helping refugees attain self-reliance as part of durable solutions. Governments, financial institutions, and humanitarian organizations must work hand in hand to remove the barriers that hinder refugees’ access to financial services.

- The writer is the Re:BUiLD Programme Director at the International Rescue Committee