Refugees and finance: Out of sight, out of mind?

On June 20, 2016, Kiva launched the World Refugee Fund, which matches donations to refugees on World Refugee Day dollar-for-dollar. Traditional forms of finance are often out of reach for refugees, and as such supporting loans for this population is vital. Even so, a host of logistical, regulatory and psychological factors stand in the way of banks and small-scale institutions attempting to accommodate refugees with appropriate financial products.

In Jordan, Microfund for Women (MFW) has committed to serving Syrian refugees, who are predominantly settled on the country’s northern and northeastern borders. Of the 650,000 formally-registered refugees in Jordan, the United Nations Human Rights Council's (UNHCR) Zaatari Camp constitutes the population’s largest percentage, with numbers stabilizing around 80,000 as of early 2018.

In response to the ever-protracting Syrian Civil War, and the human toll of the conflict, MFW introduced a group lending product (تمويل جماعي) for at-risk Syrians and Jordanians in April 2016 in an effort to serve these groups while mitigating risk.

After a successful trial period offering these loans, the organization went on to launch a group lending product exclusive to Syrians that required no collateral and allowed for the 'graduation' of borrowers with strong repayment rates. This allowed Syrian borrowers to access ever larger lines of credit. As of 2018, graduated participants in the program can borrow up to 600 JOD, or about $845.
 
The research and development of refugee-focused financial services are cost intensive for organizations like MFW, which have to contend with regulatory and logistical challenges, such as complying with the Jordanian Know Your Customer (KYC) law. The KYC requires all refugees obtain documentation verifying their identity from the UNHCR before being eligible to apply for a loan from MFW.

It is estimated that only half of Jordan's 1.3 million Syrian refugees are enrolled with an official multilateral agency like the UNHCR. This means that microfinance organizations may have to liaise between multiple stakeholders to ensure KYC compliance, whether they be international aid organizations, grassroots NGOs or domestic government offices.

After acquiring an identity, a refugee’s path to formal financial services is still fraught with obstacles. Refugees in the Zaatari camp, for example, are outside the purview of MFW for two reasons: the organization’s loan officers are not authorized to enter the camp for either cash disbursement or collection, and the residents of Zaatari camp are often barred from acquiring permits that let them come and go freely. This is despite the Jordanian government’s loosening of restrictions on where Syrian nationals can work and live in response to calls from advocates and practitioners who support the adoption of integrationist policies.

An improvised refugee camp in Jordan's Mafraq Governante

Syrians are also still excluded from home ownership and engaging in some entrepreneurial endeavors, such as licensing businesses. It’s this later prohibition that limits MFW to financing home-based businesses, which tend to be small with modest growth trajectories. That, in part, explains why consumption loans, rather than business loans, constitute nearly 80% of MFW's refugee portfolio. Through a partnership with Housing Bank, refugees are able to cash loans they receive from MFW as checks, which allows for the circumnavigation of other banks that in the past were not honoring MFW checks due to suspicions of their validity.  

My experience as a Fellow in the field has confirmed many of these challenges. In one instance, the husband of a Syrian borrower detailed to me the local resentment surrounding his opening of a salon. When a neighbor confronted him over the legality of his business, a Jordanian friend stepped in and assumed dual responsibility over the lease and license.

In another instance, we drove about 20 minutes on a dirt road, 3 km from the Syrian border, to reach a makeshift camp of about 30 refugees, who had repurposed UNHCR and Save The Children tents for shelter. In exchange for agricultural labor, a Jordanian farmer provided the community some water and electricity. The lifestyle here floated somewhere between temporary and permanent, and the loan we were here to verify was intended to cover the expenses of opening a small goods store. The lack of stability and the camp's isolation obviously complicated access to finance.

At times, Kiva's borrower requirements prove to be a challenge for refugees as well. Many of the Syrian refugees in Jordan are deeply conservative, and Kiva’s requirement that borrower profiles be accompanied by photos is at odds with views held by borrowers regarding female modesty and religiosity, even despite the organization's option for borrowers to cover their faces or have them blurred. Identifying details of refugees on the internet is also an issue of great sensitivity, as many fear intervention by various political factions in Syria. And even the concept of sharing publicly the need for external funds, itself, can be perceived as embarrassing.

Although extending access for refugees to domestic financial systems is difficult, MFW is one pioneer in the field who is demonstrating its business viability. Syrian refugees have nearly identical default rates to those of Jordanians. Hopefully, the circulation of these results will inspire other banks and microfinance institutions to put refugees in sight and in mind.


About the author

Kerry Frank

Kerry Frank is a graduate of Johns Hopkins University with a BA in International Studies and a concentration in Middle Eastern Studies. In 2011, she enrolled as a study abroad student at the American University of Beirut, an experience that exposed her to the nuances of the region especially as peoples and governments alike navigated the Arab Spring. Subsequent to her graduation, she returned to Cairo to refine her capacities in Arabic through structured studies at a number of Institutes. In 2014, she joined HIP Consult and, its sister company, Mondato. Her projects spanned telecommunications infrastructure, economics, emerging finance and digitization - all centered around developing markets. As the Media Editor of Mondato, her contributions touched upon cryptocurrencies, financial inclusion, fintech, identity and regulation, in addition to trends within the digital finance ecosystem more generally. She is now excited to represent Kiva as a Fellow, and further build upon her background in consulting and media.  A Kiva Fellowship is an unrivaled opportunity to gain first hand-knowledge in the day-to-day challenges  and operations of microfinance institutions, which are the front-lines in materializing financial inclusion oriented policy.