Lending to refugees: How the wisdom of the crowd is proving banks wrong
When I opened the curtains of my hotel room, located in the trendy Hamra district of Beirut, I was faced with a stark reminder of the scale of the refugee crisis spilling over the border from neighboring Syria into Lebanon.
Unlike previous trips to Lebanon, it was not the constant honking and scooters zipping through the streets that caught my attention. Instead, I was drawn to the half-constructed building across from me, most units filled with Syrian refugees looking for some semblance of shelter ahead of what is usually a cold and wet winter in Beirut.
It was early November 2015, and for the refugees in the building across from my hotel, basic humanitarian assistance such as food and shelter was what they needed most. And that need remains today for many of the 68.5 million forcibly displaced people around the world.
But throughout this trip to Beirut, I was also struck by the many refugees I met who were eager to move beyond humanitarian assistance and were desperately trying to generate livelihoods for themselves and their families. This matched the reality I was seeing in my home-city at the time, Istanbul, where many of the Syrians I spoke to were well-educated or highly-skilled, but had sacrificed everything to escape the violence in Syria.
I realized that for many Syrian refugees, finding economic opportunities was now critical. The international development community as a whole was also coming to a similar conclusion — while emergency humanitarian assistance plays a key role, especially in addressing early needs, we must begin thinking about more sustainable solutions to the global refugee crisis.
At Kiva, we believe access to finance is one of these solutions, as it empowers refugees to start businesses, pay for urgent medical needs, or continue their education.
Despite this need, most financial institutions around the world are unwilling to serve refugees.
Refugees are often perceived as too risky to lend to because they may not have documented credit history, and have few fixed assets or limited collateral. The perceived flight risk, specifically around the uncertain nature of their residency and instability of their living conditions, also contributes to this reality.
This is where Kiva comes in. Since 2005, Kiva has facilitated $1.2 billion in lending to entrepreneurs through local Field Partners on the ground in the 85 countries where we operate. Our loans are crowdfunded by individuals around the world in increments starting as little as $25. This makes our capital risk tolerant and uniquely compassionate.
We set out to mobilize Kiva’s unique capital to help financial institutions overcome the perceived risks of lending to refugees and catalyze refugee lending around the world.
First, we began working with our Field Partners to use Kiva funding to develop or scale lending programs that provide loans to refugees and internally displaced peoples (IDPs). We then began finding new financial institutions interested in working in this space and brought them on as Field Partners. In 2016, we provided more than $1 million in loans to displaced populations.
In 2017, Kiva launched the World Refugee Fund (WRF) in an effort to formalize our effort to scale refugee lending on the Kiva platform. In addition to mobilizing the crowd, the WRF looks to raise institutional matching funds from the private sector, so that each $25 lent to a refugee on Kiva will be matched 1:1, doubling the impact.
Following the launch of the WRF in 2017, we more than tripled our impact from the previous year, providing $3.5 million in loans to almost 4,000 refugees and IDPs. In 2018, we hope to reach 8,000 displaced individuals with $7 million in loans. In addition to serving Syrian refugees in the Middle East, our lending has expanded to IDPs in Colombia, Burundian and Congolese refugees in Rwanda, and we will soon be working with Syrian refugees in Armenia.
But the World Refugee Fund is more than just lending, as we believe our work can lead to systems change. Today, on World Refugee Day, we are releasing our first Refugee Impact Report, which challenges the perception of refugees as “too risky.” Our findings show that refugees and IDP borrowers have a high repayment rate on par with non-refugee borrowers, proving that refugees can, and do, pay back loans.
Loans to refugees and IDPs have a repayment rate on Kiva of 96.6%
Loans to non-refugee populations have a repayment rate on Kiva of 96.8%
Another important lessons from 2 years of this work is that any comprehensive approach to addressing the global refugee crisis must focus not only on refugees, but on host communities as well. This is why we encourage efforts by Field Partners to bring refugees and host community members together through group loans, and are focused on scaling lending to host nationals in countries that have taken in large number of refugees, such as Lebanon, Jordan, and Turkey.
To truly improve the long-term wellbeing of refugees, we need to look at the whole picture of what is needed to rebuild their lives and create healthy communities. Our belief and hope is that sharing our experience will encourage other lenders to serve displaced populations. Demonstrating that refugees are viable microfinance clients is a crucial first step, and our long-term goal is to continue to serve as a proof of concept that will unlock capital at scale for refugees.
Today’s discourse often frames refugees as a burden; a population solely in need of aid. And while refugees certainly need the support of the international community, we need to shift the paradigm to one that understands that refugees also have the ability to be significant contributors to local economies and societies as a whole.
I saw how true this is first-hand throughout the time I spent living in Istanbul and traveling often to Lebanon and Jordan. And many others have seen it too, whether in developing countries, such as Rwanda, or in communities in developed countries, from Denmark to cities in the United States.
It will take a massive effort to see this become a reality for more refugees, one that will require NGOs, the private sector, and governments all to play key roles. But it is my belief that if we all come together, we can truly help refugees and displaced people build a brighter future for themselves and their families. At Kiva, we believe that the World Refugee Fund is an important part of the answer and we are excited to continue to grow our role in this global effort. Join us!