July 28, 2017

Finland, Finance, and Fintech: How Governments and Organizations Are Helping Refugees

hand holding debit mastercard

According to the UN Refugee Agency, conflict and wars in the past few decades have forced 65.6 million people from their homes, especially the Syrian conflict in recent years. However, most Syrian refugees are not in camps but are in urban areas and fall outside of the traditional forms of government aid, so governments and humanitarian organizations are adapting to the rapidly changing realities with the help of technology. Syrian refugees are technologically savvy and it is not unusual for them to possess more than one cellphone and multiple SIM cards. In fact, an internet connection has become an essential tool for survival, almost as important as food and water. Here is a look at how the Finnish government, multilateral organizations, and international humanitarian aid agencies have blended finance and technological innovation to better serve refugees.

Using Fintech to Restore the Identity of Refugees in Finland

Refugees often lack proper identification documents, and traditional financial institutions have strict identification requirements to open bank accounts. This poses significant challenges for refugees in accessing financial services and social benefits in host countries.

To overcome this obstacle, the Finnish Immigration Services partnered with a Helsinki-based financial technology (fintech) startup called MONI in late 2015 to provide refugees with customizable mobile payment accounts and MONI prepaid MasterCards. Each account is tied to an individual identified using the Finnish Immigration Services’ digital identification system. The MONI account is accessible via smartphone and offers services akin to traditional bank accounts such as payments, top-ups/refills, and salary disbursements, and even features like remotely locking the prepaid MasterCard if stolen. With a MONI account, refugees are able to receive government benefits and salary payments, making it logistically easier for employers to hire refugees in Finland.

Furthermore, MONI has a circle of trust feature that documents any money that the user lends or borrows from friends, which helps to generate credit scores for refugees who are traditionally deemed to be unbankable because of their lack of credit history in their new countries. The creation of credit scores through digital money transactions on MONI will be pivotal in financial inclusion efforts for populations such as refugees that are currently excluded from the traditional banking system.

In upcoming years, MONI aims to create a model for automated tax collection from self-employed refugees and entrepreneurs through smart contracts on its platform. This automated process would lower tax collection costs for the Finnish government, allow entrepreneurial refugees to get to work faster, and encourage them to contribute fiscally to the Finnish state. This would help to better integrate refugees in a faster and more dignified manner, save public funds, and improve government efficiency.

Multilateral Organizations Explore Innovative Financing to Help Urban Refugees

As much as 90 percent of Syrian refugees are integrated into urban Jordan and Lebanon, and the World Bank is providing support to these middle-income countries for assistance in resettling refugees. The World Bank has partnered with the United Nations and Islamic Development Bank Group to kickstart the Middle East and North Africa (MENA) Concessional Financing Facility (CFF), an innovative financing initiative dedicated to creating opportunities for refugees in their host countries in the form of a soft loan with attractive rates for the borrowing country.

The CFF approved the first two projects totaling over $340 million in July 2016, which will provide work permits to 130,000 Syrian refugees. Additional funds were received in April 2017 and the CFF has now raised over $1 billion in grants for Jordan and Lebanon for disbursement over the next five years to support programs for refugees in areas such as health, education, infrastructure, and job creation. This support will help Jordan and Lebanon address the challenges posed by the large influx of Syrian refugees and better integrate them into local communities.

The Arrival of Digital Cash Programs

Many humanitarian aid organizations have shifted from traditional food aid programs to giving out cash through prepaid debit cards or mobile money. One such example is Mercy Corps, which operates a digital cash program in Syria for refugees. Upon arrival to Mercy Corps’ welcome centers, refugee families from Aleppo are given US$75 worth of Syrian pounds. Such programs have been proven to be very effective and are gaining in popularity in the humanitarian aid system. After all, nobody knows the needs of refugees better than themselves, and the cash allows them to buy whatever will be most helpful.

According to the Center for Global Development, only 6 percent of the world’s humanitarian aid was in the form of cash in 2016, but this number is expected to rise as more and more international aid agencies favor this mechanism over traditional development aid programs given its proven effectiveness in recent years. Mercy Corps plans for 25 percent of its aid to be in the form of cash by 2018, and the International Rescue Committee (IRC) plans to do so by 2020 as well. 

In a report published by the IRC, Syrian refugee families living in Lebanon who were given debit cards worth US$575 chose to spend their money on food, clothing, fuel oil for cooking, and repaying debt. This has resulted in fewer families sending their children out to work and more refugee children staying in school.

However, there are challenges that need to be addressed, especially related to difficulties in financial access for nonprofit organizations providing humanitarian aid. Many humanitarian organizations operate on the frontlines of conflict zones, in locations that financial institutions often deem to be at high risk for money laundering or terrorist financing. Delays and increasing costs in the transfer of funds are common problems for these humanitarian organizations, which is hampering the effectiveness of their programs.

The formal financial system often requests additional information to substantiate the transaction and meet compliance needs. The challenge with meeting these requests lies in the differences in information requested, since financial institutions have varying Customer Due Diligence policies and sometimes use different definitions. So, nonprofits, especially smaller organizations, experience great difficulties in fully complying with all requests. Some organizations have had to explore other avenues to transfer funds through alternative money transfer providers or simply carrying it in physical form as cash. However, these methods are riskier and organizations much prefer the formal financial system for added security and reliability.

The World Bank and the Association of Certified Anti-Money Laundering Specialists (ACAMS) have launched a series of roundtable meetings to address the issue and promote access to financial services for humanitarian aid organizations. According to the report on “Stakeholder Dialogue on De-risking” published by the World Bank and ACAMS, they are working to improve relations between nonprofits and financial institutions, enhance related regulatory and policy climates, and foster stronger relationships and coalitions for better information sharing and due diligence practices. The report also raised the possibility of forming partnerships between government and financial institutions to create a secure banking channel for humanitarian aid projects funded by governments to facilitate international transfers.

It is important to humanize the statistics and provide opportunities for the displaced to restore their dignity. The Finnish government’s attempt to do so through MONI’s fintech system is encouraging for asylum seekers in that country. The technology has and will enable current and future refugees to work and rebuild their lives. Similarly, the MENA Concessional Financing Facility, funded by multilateral organizations, provides much needed resources to help improve the social programs and economic opportunities for refugees. Humanitarian aid organizations are shifting towards digital cash programs to allow refugees to buy what they decide they need. Such efforts will ease the stress and obstacles that refugees encounter on their treacherous journeys and help them to better integrate into their host countries. However, many obstacles still lie ahead. Financial institutions must clamp down on money laundering and terrorist financing, but timely delivery of funds to provide aid to vulnerable populations must also become a priority. There is great need and opportunity to forge stronger ties between governments, financial institutions, and nonprofits to mitigate risks.

The views expressed in the Government Innovators Network blog are those of the individual author(s) and do not necessarily reflect those of the Ash Center for Democratic Governance and Innovation, the John F. Kennedy School of Government, or of Harvard University.

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