A Refugee-Centric Approach to Sustaining Humanitarian Aid
The refugee population has tripled from 43.3 million in 2009 to 117 million in 2023. While the nature of these crises varies, the average duration of protracted displacement is increasing. According to UNHCR, the humanitarian aid funding gap has reached $700 million, compelling organizations like Mercy Corps to seek more sustainable interventions.
Mercy Corps has been dedicated to understanding the financial needs of refugees and promoting a Refugee-Centric approach to serve this often-neglected market segment. With support from the French Development Agency, we’ve collaborated with financial service providers (FSPs) to promote a blended approach, integrating both financial and non-financial services.
It has become clear that further progress in refugee support requires efforts to address not only access to survival cash (housing, food, medical services and often to repay debt incurred during escape) but also the key financing needs that occurs during the other displacement phases. This includes promoting sustainable market-led solutions to meeting the complex and growing needs during initial, protracted and permanent displacement of refugees.
Mercy Corps 2024 edition State of the Uganda Refugee Finance Sector report highlighted the importance of deepening work on refugee-centric approaches to understand refugees’ prior economic participation (experience, education, networks), their social characteristics (age, gender) and the reasons for their migration (conflict, climate change, persecution, economic factors). The phases of a refugee’s displacement are central to aligning the needs of the displaced population with appropriate financial offerings. This involves providing tailored financial products and non-financial services. Additionally, there’s a need to develop enhanced approaches for delivering financial services and to lay the groundwork for understanding how best to address emerging issues among financially excluded segments of the refugee population. Policymakers also need to adapt to the rise of financial technology to better serve these communities.
Access to finance remains a central and pressing need for refugees, as it’s one of the most sought-after products by the displaced population to boost their income and assets.
What is refugee finance?
The collective provision of financial and non-financial services to meet the varied and complex economic needs of the displaced population is known as refugee finance. This includes provision of credit to meet the daily needs of the displaced, provide start-up capital for income generating activities and increase refugees’ asset base. It also includes critical financial services such as remittances, payments, savings, and insurance as well as non-financial services, such as market information and access, vocational training and business development services, which refugees require to lead productive lives.
Putting refugees at the center
Although there is an improved uptake of formal financial services by the refugees, most of these financial products are not regularly used. This shows that refugees do not find value in these products, and financial service providers (FSPs) concomitantly cannot generate adequate value to make their business cases succeed. Mercy Corps hypothesis is that (i) a lack of granular understanding of refugees results in inappropriately designed (and thus, unused) financial products and services, (ii) where the design of financial products can be improved due to a focus on understanding refugees, FSPs do not implement these improvements largely because the concept of refugee-centricity is not embedded in these institutions (and their processes), and (iii) FSPs have yet to produce solutions that leverage the opportunity that digital channels offer to enhance the value proposition, improve the customer experience, and scale the delivery model - all of which are important factors to improve the business case for refugees.
Through our “State of Uganda Refugee finance report” Edition 2024, we have tried to explain the determinants of refugee’s financial inclusion on Demand, Supply and Policy side.
On the demand side, it is important for financial service providers to understand the prior economic participation of refugees, reasons for migration, their location (rural, urban), displacement phase, human and social capital and income generating capacities. All those determinants are essential to design appropriate financial products aligned with the daily financial needs of the refugees and to bundle those products with non-financial service to increase the capacity of the refugees with financial and digital literacy.
On the supply side, the determinants of refugee’s financial inclusion focus primarily on financial service providers (FSPs). The thesis is (i) that financial products usage and uptake will improve, and thus business models will improve, when FSPs ensure that the financial products and services speak to refugee needs, and their use adds value to their lives, and (ii) financial products that are well designed and tailored to refugees needs can be scaled when delivered through Alternative Delivery Channels.
With many refugees living in protracted displacement, with no short-term plans to return home, the introduction of long-term solutions that address refugee livelihood, self-reliance and economic development gaps are critical. Financial inclusion must move beyond the objective of access to financial services to one of sustained usage.
What is next?
Mercy Corps’ work on Refugee Finance has shown that to offer refugees a diverse range of appropriate and useful financial services and products, Financial Service Providers need more encouragement. They should focus on the unique needs of refugees at each phase of displacement and develop new products that are both (i) commercially sustainable and (ii) better suited to the way refugees manage their finances.
We will continue to explore promising technological and product innovations, including USSD, biometric verification, digital field automation, and account ledger digitization. These innovations are designed to simplify Know-Your-Customer (KYC) requirements, deliver financial offerings at a lower cost, and provide insights into promoting refugee finance specifically for women.
Finally, we are working on our 2025 Edition. Stay tuned!
