Forced displacement and COVID-19: Why financial inclusion matters

By Dr. Alfred Hannig, Executive Director, AFI and Linnea Kreibohm, Senior Policy Officer, German Federal Ministry for Economic Cooperation and Development

Today, on World Refugee Day, we are reminded that the number of those forcibly displaced remains at a record high. Nearly 80 million stateless people, refugees, internally displaced persons (IDPs) and other forcibly displaced persons (FDPs) risk being forgotten as the world tackles the impacts of the COVID-19 global pandemic. Excluded from social protection systems, many are feeling the devastating effects of the crisis as they remain at the bottom of our economic pyramids, reminding us of intrinsic social and economic inequalities that have resurfaced despite policy actions to ‘leave no one behind’.

Out of the 216 countries affected by COVID-19, 134 host refugees and have reported local transmissions, and lockdowns affected refugee and IDP camps in at least eight countries.  FDPs who do not live in camps often reside in extremely cramped and overcrowded spaces in urban areas where effective physical distancing is almost impossible, and healthcare and social protection systems even more inaccessible.

With host countries already focused on alleviating the economic impact of COVID-19 on their own citizens, FDPs are in danger of being excluded from government safety nets and emergency plans. Without access to formal social protection, many are forced into the informal labor market to make ends meet. Forcibly displaced women face an even higher risk of exclusion due to prevailing gender and sociocultural norms. Refugee women, for example, are often barred from entering the formal labor market despite making up 25 percent of household heads.

There is a need to financially include and economically empower FDPs when implementing fiscal relief and stimulus packages for citizens. So far, the experience with COVID-19 has shown how important it is to provide legal pathways for FDPs to participate in the economy and to contribute to the host community’s socio-economic development.

Roadmap to the Sustainable and Responsible Financial Inclusion of FDPs

Financial inclusion is one of the immediate and effective policy options complementing efforts to enhance economic participation both during and in the lead up to economic crises of this magnitude. If FDPs had been provided the opportunity to access formal, particularly digital financial services – such as savings, payments including digitally transferred government or humanitarian cash assistance, remittances and credit – the current blow to their livelihoods and economic wellbeing from COVID-19 could have been mitigated. Building resilience through recovery with greater urgency and despite this crisis will advance financial inclusion for FDPs , but lay the ground work and prepare solutions for the next crisis.

The Roadmap to the Sustainable and Responsible Financial Inclusion of Forcibly Displaced Persons that we launched together with an Alliance of Partners at the 2019 UN High Commissioner for Refugees (UNHCR) Global Refugee Forum presents policy recommendations that financial policymakers and regulators can take to build bridges for the financial inclusion of FDPs. AFI, with support from BMZ, is collaborating with its members to implement the roadmap at the country level. Some can be applied to the COVID-19 context where we have seen that efficient payment systems and digital financial services (DFS) become invaluable in mitigating the impact of the secondary effects of the pandemic, sustaining essential economic activities and reaching the most vulnerable, including FDPs:

National Strategies and Regulation and International Standards
Financial regulators and policymakers can promote proportionate regulatory approaches can address the specific challenges of FDPs’ needs in line with global anti-money laundering and countering the financing of terrorism (AML/CFT) standards.

The Financial Action Task Force (FATF) released the COVID-19-related Money Laundering and Terrorist Financing – Risks and Policy Responses, which encourages the full use of the risk-based approach (RBA) to customer due diligence (CDD) in the face of COVID-19. RBA enables simplified CDD to be applied when there is lower AML/CFT risk, such as for government-to-person payments and humanitarian digital transfers.

To adhere to physical distancing rules implemented during the nationwide lockdown in Jordan that began on 18 March 2020, the Central Bank of Jordan amended regulation to enable e-KYC for FDPs to open mobile wallets. Refugees can now use their UNHCR identification cards to open mobile wallets remotely, from which they can make remittances and person-to-person transactions.

Consumer and Data Protection, Financial Literacy
The protection of FDPs as consumers is paramount when leveraging DFS. Consumer and data protection frameworks as well as financial literacy efforts should be tailored to address the unique concerns of FDPs, who, when excluded from society and formal systems, more vulnerable to discrimination, exploitation and fraud.

Online fraud has become commonplace during COVID-19, posing greater risks for FDPs lacking experience with using DFS and mobile wallets. Even before the pandemic, the National Bank of Rwanda (BNR) has emphasized targeting digital financial literacy programs to FDPs towards increasing their uptake of DFS. BNR has been collaborating with partners in refugee camps to raise awareness on financial consumer protection regulations and to encourage the adoption of digital payments. These can be replicated in the COVID-19 context and in adherence to physical distancing rules such as through leveraging online platforms and digital channels to implement digital financial literacy programs.

Bridging Humanitarian Response and Development Approaches
As part of measures to mitigate the economic impact of COVID-19, Da Afghanistan Bank is working with UNHCR to facilitate cash transfers through mobile wallets for FDPs in Afghanistan who lost their jobs because of the lockdown. Such cross-sectoral, inter-agency collaboration promotes inclusive policy and regulatory frameworks that can provide FDPs with the opportunity to use quality formal financial services and maximize the potential for self-reliance. Here, the role of the central bank is clear when accelerating new partnerships with important stakeholders who work closely with FDPs and understand their circumstances.

Leadership to ensure financial inclusion for all

As central banks have begun to include FDPs in their financial inclusion policies and regulations, AFI member institutions have demonstrated commendable leadership and empathy in striving to ensure full inclusion for all. It is our ambition to ensure that everyone counts, and no one is left behind. Even the most invisible segments of our populations who are undocumented, whose financial inclusion data is not recorded and who are deprioritized in times of crisis cannot continue to be financially excluded. The Roadmap provides a holistic framework of policy recommendations that financial policymakers and regulators can use to advance the financial inclusion of FDPs within their jurisdictions.