Last year on World Refugee Day, we highlighted that an important aspect of forced displacement is the challenge of providing fast, efficient, and sustainable delivery of financial services and products to Forcibly Displaced Persons (FDPs) who include refugees, Internally Displaced Persons (IDPs), and asylum seekers. One year later, this still holds true as the scale of the global forced displacement crisis has continued to expand and the financial inclusion challenges to FDPs remain considerable.
Financial inclusion provides FDPs with options to safely store money, send and receive money transfers, build up savings, and conduct everyday financial transactions that are vital for their economic well-being, health, and education. This contributes to FDPs being able to live with dignity and to have fair opportunity to realize their full potential, whilst participating economically in host communities.
However, the unique challenges of providing FDPs with financial services, particularly a lack of verifiable identification for accessing financial services, and the challenges for financial institutions to proportionately assess risk when providing services to FDPs, continue to impede the pace of progress in achieving the goal of increasing FDPs’ access to financial services that meet their needs. A particular challenge for national financial regulators and financial service providers to do more to financially include FDPs is the need to comply with international standards for Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT). These standards require appropriate customer due diligence (CDD) including: i) customer identification and verification; ii) obtaining information on the nature and purpose of the customer relationship as appropriate and on a risk basis; iii) conducting due diligence on the business relationship; and iv) monitoring financial transactions to identify and report suspicious ones.
Given that refugees often lack the means to establish a legal identity, and the challenges in conducting customer verification in order to satisfy CDD requirements, the costs associated with compliance in such scenarios can be prohibitive and discouraging. This greatly limits FDPs’ access to regulated financial services, with which they could otherwise become financially included and economically empowered. It also fosters a reliance on risky and often exploitative informal, unregulated providers.
Astonishingly this has not prevented financial regulators in emerging economies from taking significant steps to adopt innovative regulatory approaches in order to financially include FDPs. In the past year, several AFI members such as Bangladesh Bank and Da Afghanistan Bank have demonstrated commendable leadership by implementing regulatory reforms to enhance access to finance for FDPs living within their jurisdictions despite already facing other hurdles in economic development. This is in addition to efforts by members such as the Bank of Tanzania, Bank of Zambia, and the Central Bank of Jordan who have taken to the issue for several years now.
These proactive policy approaches being implemented by developing country financial regulators show what is possible even within the context of compliance with global standards and other constraints such as an underdeveloped financial infrastructure. These policy actions have furthermore been made possible through innovative partnerships established with actors from beyond the traditional financial inclusion sphere such as humanitarian agencies and AML-CFT stakeholders.
Time is of the essence. Indeed the complexities of forced displacement urgently calls for new ways of thinking and working to surmount the intricate challenges it brings. The artificial divide between the humanitarian and development sectors needs to be overcome so that an integrated, cross-sectoral, and holistic response can be implemented and sustained for the long-term. In this regard financial regulators play a critical role in devising durable and responsible policy solutions together with the wider community that has been dealing with forced displacement for many decades.
To mark World Refugee Day on 20 June, ongoing and future initiatives will be shared through a blog series, to shed light on the efforts of financial regulators in innovating responsibility sharing, partnerships, and policy actions to advance the financial inclusion of FDPs.