How the financial sector can better serve refugees and the displaced

Holiday Concept/shutterstock.com

In early 2023, when eight 8-year-old Daniel was interviewed about his forced migration from his home in Caracas, Venezuela, to Lima, Peru, he shared the memory of bringing along his favorite toy—a stuffed dinosaur. Unfortunately, he lost his toy mid-journey. Now he believes his dinosaur has “gone home” and is waiting for him “to come back.”¹^{, 2}

This is how Daniel framed his new reality as a migrant who is now a transient being, forever “in a travel that never ends.”³ Children like Daniel comprise 40% of the world’s refugees and forcibly displaced persons (FDPs).⁴

Source: Image by “Exit Tales au Cartoon Forum—Mariana Cadenas”⁵

As per the United Nations High Commissioner for Refugees (UNHCR), there are over 123 million people worldwide who have been forcibly displaced due to persecution, conflict, violence or human rights violations.⁶ Of these, approximately 31 million to 38 million are classified specifically as refugees, with the remainder being internally displaced or in other categories of displacement. This figure has more than doubled since 2015 when UNHCR recorded 16.1 million refugees around the world.⁷

In light of recent world events, natural calamities and international conflicts, these numbers will only continue to increase as many flee their home countries for safety. Given this exploding global refugee crisis, host countries must challenge their inclination to draw upon singular narratives on “why refugees flee” and raise their capacity to understand refugee experiences and better serve these vulnerable populations. The financial sector specifically is equipped to empower refugees and FDPs by providing financial services and capital essential for social and economic mobilization. However, we must overcome systemic barriers in creating financial inclusion while safeguarding our anti-money laundering/counter-terrorist financing (AML/CTF) regimes.

Barriers unique to refugee and FDPs:

Lack of identification: Many refugees lack government-issued IDs required for know your customer (KYC) and AML compliance, making it difficult to open bank accounts or access formal financial services.⁸
Legal and regulatory hurdles: Complex or restrictive regulations around identity verification, customer due diligence and documentation can exclude refugees from the formal financial sector.⁹
Perception of higher compliance expense: The private sector perceives FDPs as an unprofitable market segment, associating them with higher compliance expenses due to AML regulations and viewing them as having a high risk of mobility.¹⁰
Limited financial literacy: Refugees may face language barriers and lack familiarity with local banking systems, which can lead to misconceptions about and mistrust of financial services and discourage refugees from accessing financial services such as mobile money.
Risk perception and reliance on informal money transfer systems: Limited access to formal financial institutions (FIs) often compels refugees to use informal money transfer systems like hawala, a method especially common among migrants from the Middle East, North Africa and South Asia. As hawala operates outside formal regulatory oversight, there are concerns about its lack of transparency and the potential for misuse in illicit activities, including terrorist financing.¹¹
Physical and digital barriers: Limited access to bank branches, digital infrastructure or mobile money in camps or public housing further restricts financial inclusion.

These same barriers present opportunities to enhance financial access for a growing market segment while strengthening compliance programs. Let us discuss some opportunities for the financial sector, regulators, supervisors and policymakers.

1. Adapt identification and regulatory requirements

Many displaced persons lack standard government-issued IDs, which are typically required for opening accounts and accessing services. FIs could implement flexible, risk-based KYC procedures, such as accepting alternative forms of identification (e.g., UNHCR or other humanitarian documents) to lower barriers to entry. Regulators and supervisors play a pivotal role in empowering FIs to introduce relaxed KYC procedures.

Case study: In April 2022, the European Banking Authority (EBA) issued a detailed statement to guide FIs to provide financial access to Ukrainian refugees while limiting unwarranted de-risking. When onboarding customers for a basic account, the EBA recommended that FIs accept “alternative, independent documentation” to substantiate that a prospective customer is a refugee from Ukraine.¹²

2. Tailored products and services

FIs could develop a range of financial services that address the diverse needs of displaced persons, considering factors like length of displacement, capital available, as well as stage of business development. This includes basic savings and transaction accounts, microloans, microinsurance and remittance services. They can offer products that are accessible, affordable and easy to use, with features such as low or no minimum balances and simplified documentation requirements.

Case study: In August 2011, Mexico introduced a tiered system for opening deposit accounts at FIs (as shown in Table 1). This approach uses risk-based requirements for opening low-value accounts. The key innovation is the creation of multiple levels of simplified accounts, where requirements become more stringent as transaction limits and access to banking channels (e.g., mobile banking access) are expanded.¹³^{, 14} This regulation mandated institutions to allow cash deposits, electronic funds transfers and checks to be made on all types of accounts. This led to a transformative shift in the Mexican banking industry. Between 2011 and 2013, 9.1 million new accounts were opened, allowing FIs the flexibility to participate in the distribution of government payments and introduce many new products designed around payment instruments that favor vulnerable individuals.¹⁵

Table 1: Mexico’s tiered scheme for opening account deposits

Source: CGAP¹⁶ and Banxico¹⁷

3. Build financial literacy and capability

Provide financial education and capacity-building programs tailored to the languages, cultures and literacy levels of displaced populations. This empowers them to use financial products confidently and effectively.

Case study: To serve 1.5 million refugees from South Sudan, the Democratic Republic of Congo, Burundi, Rwanda and Uganda created a toolkit curriculum tailored to meet the financial needs and realities of refugees. The Bank of Uganda coordinated the development of the Strategy for Financial Literacy in Uganda (2019-2024), which explicitly references refugees as a special interest group for targeted training in financial literacy programs.¹⁸ The tools employed to assist refugees in this training are shown in Graphics 1 and 2.

Graphic 1: Training delivery methods

Source: Uganda Learning Evidence Accountability and Research Network¹⁹

Graphic 2: Financial literacy training tools used during trainings in the Uganda refugee response

Source: Uganda Learning Evidence Accountability and Research Network²⁰

4. Leverage digital and mobile solutions

Expand access to digital financial services, such as mobile banking and digital wallets, which can overcome physical barriers and reduce the need for traditional documentation. These solutions are particularly valuable in camp or remote settings.

Case study: During the COVID-19 pandemic, the Central Bank of Jordan provided digital mobile registration through an online platform to provide accessibility and support social distancing. The platform was also made accessible to refugees.²¹

5. Collaborate with humanitarian and development organizations

Partner with organizations like UNHCR, the International Labour Organization and nongovernmental organizations to better understand the needs of displaced populations, co-design appropriate products and reach clients through trusted channels.

Case study: The government of Sierra Leone partnered with the United Nations Capital Development Fund, the United Nations Development Programme and Kiva Protocol, a nonprofit, to provide a digital identification system based on blockchain technology. This system allows citizens to register their biometrics, such as fingerprints, which are then linked to their national identification number. This digital ID can be shared with other FIs when needed. Individuals can prove their identity quickly and securely when opening accounts even if they previously lacked formal identification. The protocol also records formal and informal financial transactions, such as loans from banks or credit with local shopkeepers to allow users to build a credit history.²²

Conclusion

Meeting the financial needs of FDPs is essential for achieving lasting solutions to the global displacement crisis. For countries hosting significant refugee populations, integrating FDPs into national financial inclusion strategies should be a top priority. Defending access to financial services amid what appears to be an endless humanitarian catastrophe is the great imperative of our time. It is also an opportunity for the financial sector to be a catalyst in achieving the UN 2030 Agenda for Sustainable Development.

Jinisha Bhatt, CAMS, founder, Canada Anti-Human Trafficking Consortium, independent compliance consultant, connect@fighthumantrafficking.ca,