In recent years, the global refugee crisis has reached unprecedented levels. Today, over 65 million people have been displaced from home, including both refugees and internally displaced peoples (IDPs). Six in 10 refugees are in exile for more than 10 years, often living in camps and settlements.
While immediate and urgent humanitarian assistance is vital for refugee communities, as situations become more protracted, the need to focus on longer-term solutions becomes increasingly important. These solutions include access to financial services, jobs and better livelihoods. However, most formal financial service providers (FSPs) and microfinance institutions (MFIs) are reluctant to work with refugees for fear of financial loss. As a result, refugees have severely limited access to credit and financial services.
Problem #1: Financial service providers won’t serve refugees and displaced peoples because doing so is perceived as too costly and risky
- Refugees are often considered a flight risk and therefore aren’t trusted by many FSPs to repay loans.
- In their new country of residence, refugees often have no credit history, few fixed assets and limited collateral, increasing the perception that they’re too risky to serve.
- Kiva’s crowdfunded, 0% and risk-tolerant capital provides our Field Partners with funding that is lower cost and assumes the risk of default. As a result, Kiva funding can help Field Partners offer products or reach populations which may be riskier and more costly. With the global refugee crisis continuing to grow, Kiva is in a unique position to help FSPs overcome their risk concerns and begin serving refugees.
- If Kiva and its partners are able to demonstrate through pilot projects that the actual risk of serving refugees is not as great as the perceived risk, others in the sector may follow suit.
Problem #2: Refugees face unique restrictions in their new countries
- Refugees have limited legal rights and face challenging governmental restrictions, which often prevent them from working, or narrow their employment options to specific sectors.
- Refugees often don’t meet eligibility requirements needed to open bank accounts or access loans from formal financial institutions, such as having proper identification papers in their new country.
- While serving refugees may not require FSPs to make wholesale changes to their products, adapting credit processes with applicable legal restrictions in mind is important in making existing credit products accessible for refugees. This may mean modifying eligibility requirements, such as finding alternative ways to verify the identify of clients.
Problem #3: Refugee populations are diverse. Individual needs and capacities often differ within a single refugee group
- Needs vary among refugees who have just resettled and those who are in more protracted settlement situations.
- There is a range of language and financial literacy skills among individual refugees.
- Refugees within a single group have different levels of business experience.
- FSPs should carefully segment the potential refugee population and adapt their outreach strategies and credit processes for specific subsegments. There is no one-size-fits-all product for serving refugees.
- FSPs should focus on refugee businesses that have the best chance of succeeding within the local competitive environment.
Problem #4: The influx of refugees and IDPs places a new burden on host countries and populations
- The majority of refugees flee to developing countries, whose local economies are often already weak. The flow of refugees into these countries can pose a new burden on host economies.
- Social animosity often is high between refugee populations and host communities. Refugees and IDPs may be seen as competing for the same jobs as local populations, commonly leading to a tense relationship between these groups. FSPs are often reluctant to work with refugees due to concerns over how their core clientele will perceive these efforts.
- FSPs should focus on refugee businesses that do not directly compete with existing local businesses. FSPs must be aware of social tensions between refugees and host populations. By designing products that address the economic and credit needs of host communities as well as refugees, FSPs can encourage social cohesion.
One partner’s innovative approach
Al Majmoua, in Lebanon, has developed a group loan product bringing Lebanese nationals and Syrian refugees together. Their efforts begin before the loan itself, as Al Majmoua holds social meetings and events focusing on non-financial services which include both groups. Al Majmoua then provides loans to mixed groups of Syrians and Lebanese, allowing for refugees to mix and work with Lebanese nationals, thus fostering social cohesion.
*Problems and solutions are based on Kiva’s experience working with Field Partners in refugee affected areas and are also informed by recent efforts by the Social Performance Task Force (SPTF) and the United Nations High Commissioner for Refugees (UNHCR).
What is success?
We want to see Kiva funding reach more refugees and IDPs, while also supporting those in host countries impacted by the refugee crisis. We define success as:
- Increased access to financial services for refugee populations: More microfinance practitioners utilizing Kiva’s risk-tolerant funding to serve refugees and IDPs.
- Demonstration effect: Establish a track record that refugees represents a viable market, leading to more FSP’s serving refugees.
- Integration into host communities: Increased collaboration between refugees and host communities, helping to foster social cohesion between the two groups and create space for refugee driven businesses in local economies.