Boosting refugee-led businesses will mean better lives

By Mariam Jemila Zahari, AFI Policy Specialist

Around the world, conflict and climate-induced disasters are uprooting more and more families and communities. The UNHCR Global Trends Report 2024 says the total number of forcibly displaced people (FDPs) worldwide stands at an eye-watering 117 million, 37.6 million of which are refugees. What can we do about it? From a financial inclusion standpoint, raising awareness among stakeholders, building financial policymakers’ and regulators’ capacity to address refugees’ needs, and implementing country-level policy changes can help refugees live dignified lives, obtain financial health, and contribute to their host economies.

However, financial inclusion can only improve the lives of refugees if they have freedom of movement and access to work. In the absence of these rights, refugees shy away from accessing the formal financial system and from embracing business opportunities. Uganda’s Refugee Policy for instance allows refugees to move freely, work legally, own property, and access healthcare and education.

A new AFI report examines how financial policymakers and regulators can enhance access to finance for refugee- and other FDP-led micro, small and medium enterprises (MSMEs), making four key recommendations:

1. Embrace alternative credit scoring methodologies

Refugees lack solid credit histories. They arrive in host countries empty-handed – often without identification – which generally precludes them from accessing the financing they need for their MSMEs. To address this, financial policymakers and regulators can evaluate and expand credit scoring methodologies (such as behavioral credit scoring models). Tala – a mobile lending platform operating in Kenya – uses an AI-powered model to assess creditworthiness for refugees with limited financial history.

2. Involve all relevant national stakeholders

Countries with refugee-friendly policies (such as legal access to work and the right to move freely) have solid coordination structures that bring together multiple stakeholders, including ministries, regulators, humanitarian partners, and the private sector. This holistic approach to policy development allows stakeholders to understand and address the unique challenges faced by refugee-led MSMEs like access to finance. SBS Peru, for instance, created the Consultative Committee for the Financial Inclusion of Refugee and Migrant Populations, as part of its national financial inclusion strategy (NFIS).

3. Demonstrate the business case for financing refugee-led MSMEs

FSPs can be skeptical or uninformed about the profitability and viability of financing refugee-led businesses.  Financial policymakers and regulators can help by:

• providing information, data, tools, and methodologies needed to better understand the refugee market
• including refugees in money laundering, terrorism financing, proliferation financing (ML/TF/PF) risk assessments and sharing the information with FSPs
• organizing capacity-building workshops to help FSPs adapt their financial services and products to this market

4. Include refugees in financial inclusion policies and strategies

Currently, very few countries include refugee-led MSMEs in their national financial inclusion policies or strategies. Equally, refugees are generally not included in national MSME-level surveys. The National Bank of Rwanda, Bank of Zambia, and SBS Peru have already committed to collecting data on FDP-led MSMEs in future national financial inclusion surveys. If we want refugee-led MSMEs to thrive through financial services that meet their needs, we must include them in our policies.

Helping refugees to access financial services is a good start, but it’s not enough. As policymakers and regulators, we need to embrace the potential of refugee-led businesses. This is key to helping refugees contribute to our economies, become economically self-reliant, and improve their lives and livelihoods.