By Micol Pistelli, Senior Financial Inclusion Coordinator, UNHCR, and Mariam Jemila Zahari, Policy Analyst, AFI
Forcibly displaced persons (FDPs) must be incorporated into national financial inclusion strategies (NFISs), recognizing their special circumstances and legal status as an important, deliberate step towards fully inclusive financial sectors.
According to the United Nations High Commissioner for Refugees (UNHCR), there were 79.5 million FDPs at the end of 2019, of which 20.4 million were refugees. Despite their significant numbers, they remain largely excluded from NFISs. With limited access to and usage of formal financial services, FDPs are often unable to become financially self-reliant, access labour markets and contribute economically in their host communities.
Regulators and policymakers can change this. NFISs offer unique opportunities to implement effective policy and regulatory reforms that advance financial inclusion in tandem with other development goals, such as poverty reduction, financial stability and inclusive economic growth. As government-endorsed policies, NFISs are also a particularly important reference for financial service providers (FSPs) willing to extend their products and services to this population.
National financial inclusion strategies offer unique opportunities to implement effective policy and regulatory reforms that advance financial inclusion in tandem with other development goals, such as poverty reduction, financial stability and inclusive economic growth.
To date, three members of the Alliance for Financial Inclusion (AFI) – Central Bank of Jordan, National Bank of Rwanda and Bank of Tanzania – have included refugees in their NFISs. Furthermore, AFI is working with Banque Centrale de Mauritanie and Da Afghanistan Bank to incorporate refugees and internally displaced persons (IDPs) respectively into their NFISs.
To address the unique needs of FDPs through the provision of appropriate financial services and products, here are some key actions that countries can take in developing an NFIS:
1. Include FDPs in financial inclusion diagnostic studies
Comprehensive NFISs need reliable data to set targets and evaluate implementation progress and impact. Financial policymakers and regulators should therefore support financial inclusion diagnostic studies that look at the relationship between supply-side, demand-side and regulatory barriers for FDP financial inclusion. This will inform relevant national NFIS stakeholders of any existing challenges, opportunities and, most importantly, actions that need to be taken collectively.
A 2017 diagnostic study by the Central Bank of Jordan showed that the lowest levels of financial inclusion in the country were among its roughly 2.7 million refugees. The central bank then used these results to target refugees as a priority segment in Jordan’s NFIS for 2018-2020, along with the 40 percent lowest-income households, women and youth. The following actions were undertaken:
• Included both formal and informal refugees in the respondent sample of the national demand-side survey, totaling more than half of the non-Jordanians surveyed.
• Collected data on their use of deposits, savings, credit, payments and insurance products disaggregated by sex, age and geographical area.
• Set explicit targets for their financial inclusion within the strategy.
2. Foster collaboration with relevant stakeholders
With successful NFIS implementation depending on close stakeholder collaboration, regulators should use diagnostics to identify NFIS implementation stakeholders during the formulation phase, which can provide insight into necessary policy and regulatory reforms. These should include government agencies providing services to refugees (e.g. ministries of interior, social affairs and migration) and agencies working directly with refugees, such as UNHCR country offices and other United Nations (UN) agencies, international and national non-governmental organizations.
To that end, there must be a strong leadership and coordination structure that functions based on clear terms of reference for all stakeholders. The Roadmap to the Sustainable and Responsible Financial Inclusion of Forcibly Displaced Persons offers key policy recommendations for stakeholder groups involved in the financial inclusion of FDPs.
3. Provide guidance on tiered customer due diligence requirements
Financial policymakers and regulators should include FDPs in their national risk assessments or other sectoral risk assessments covering financial inclusion products. Adopting a risk-based approach (RBA) will help establish tiered Know-Your-Customer (KYC) and customer due diligence (CDD) requirements, which can be referenced in NFISs and simplified for lower-risk FDPs, in line with Financial Action Task Force recommendations. Several AFI members have already issued circulars for FSPs to ease the requirements for such FDPs living within their jurisdictions, enabling access to basic bank accounts and mobile or e-wallets.
Guidance can also be provided on the use of alternative forms of functional identification in opening lower-risk accounts. UNHCR, along with many host governments, uses its digital identity system for the registration and identity (ID) management of asylum seekers and refugees. By March 2020, over nine million refugees in 72 countries had been biometrically enrolled in the system. Central Bank of Jordan accepts UNHCR ID cards as valid ID for refugees opening digital wallets via its national payment switch, Jordan Mobile Payments.
4. Leverage digital financial services while ensuring FDP data protection
Recently formulated NFISs typically list digital financial services (DFS) as a pillar or enabler of financial inclusion. Nevertheless, there is room for financial policymakers and regulators to better collaborate with relevant stakeholders to understand the specific data and protection needs of FDPs, who are often vulnerable and their information highly sensitive.
Recently, the UN Secretary-General launched a Roadmap on Digital Cooperation, which lays out eight action areas to connect, respect and protect all populations in the digital age. Establishing clear policies and actions is increasingly vital as new technologies, such as biometrics, are increasingly being used to scale up access to financial services for FDPs. It is imperative that NFISs provide vision and leadership on DFS policies, which must be robust in providing privacy and security for FDPs from the design stage.
Assisting governments and FSPs, UNHCR published relevant policy and guidance on protecting personal data, which are used in its Population Registration and Identity Management Ecosystem, including biometrics systems. In addition, the agency has a global strategy on connectivity for refugees, which can inform NFIS of the barriers and opportunities in extending DFS to FDPs.
5. Monitor progress and adjust as needed
While the monitoring and evaluation (M&E) of policy outcomes for FDPs is challenging since FDPs may not have fixed locations, this process should be included in NFIS data frameworks during pre-formulation and used in the formulation, implementation and M&E stages. Stakeholders must coordinate with FDP stakeholders to ensure periodic data collection to track progress in NFIS implementation. This could be conducted mid-way through NFIS implementation to determine if progress is on track. If targets are not being met within a stipulated timeframe, financial policymakers and regulators should consider reviewing the NFIS and its measures to ensure better performance.
In this regard, Jordan’s NFIS for 2018-2020 stands out for having several benchmark indicators on the financial inclusion of FDPs, setting nine percent as the compounded annual growth rate for refugee financial inclusion.
Taken together, these actions can ensure that FDPs are meaningfully included in NFISs. Financial policymakers and regulators have a crucial role to play in providing policy leadership and fostering new collaborative partnerships with relevant stakeholders towards reaching full financial inclusion and building economies that leave no one behind.
Financial policymakers and regulators have a crucial role to play in providing policy leadership and fostering new collaborative partnerships with relevant stakeholders towards reaching full financial inclusion and building economies that leave no one behind.
This article was originally published on the AFI blog.
About the authors
Micol Pistelli is Senior Financial Inclusion Coordinator at UNHCR. She began her career in international development in 2004, working at the Italian Ministry of Foreign Affairs and then with microfinance institutions in Egypt and Paraguay. Prior to joining UNHCR, she was the Director of Social Performance at MIX, where she helped creating reporting standards and benchmarks for the financial inclusion industry. Micol has published widely on topics related to development finance and has been on the board of a number of initiatives in the microfinance industry, as well as on the Faculty of the Master in Microfinance and Financial Inclusion at the Universidad Autonoma in Madrid.
Mariam Jemila Zahari is a policy analyst at the Alliance for Financial Inclusion (AFI), a network of central banks and ministries of finance, and other financial regulatory institutions from 88 developing and emerging economies who are advancing financial inclusion within their jurisdictions. She oversees the strategic implementation of AFI’s workstream for the financial inclusion of forcibly displaced persons including support to AFI member institutions to develop national roadmaps and implement policy changes to advance inclusion of FDPs.