Refugees and financial freedom: Not yet uhuru
By Joseph Sanjula Lutwama and Brenda Banura
The state of refugee’s financial inclusion
This year’s World Refugee Day theme is finding freedom. An enormous aspect of freedom is financial independence. Access to formal financial services goes a long way in facilitating financial independence given its potential in supporting one to generate more income.
But it is not yet uhuru, for refugee communities in Uganda going by the recent findings from a survey of refugee communities in Uganda commissioned by the Financial Sector Deepening Uganda (FSD Uganda). According to this survey, six out of every ten refugees keep their money at home. About half of the refugee community saves with informal savings groups. Less than two out of every ten refugees save with either a formal bank or Savings and Credit Cooperative Organisation (SACCO). This informality among the refugee communities not only puts their financial investments at risk but also limits their ability to maximise their potential to tap into economic opportunities.
FSD Uganda’s endline report for the Financial Inclusion for Refugees (FI4R) project reports that not more than two out of every ten refugees have access to formal financial services. The rest either keep their money at home or with village saving groups. It also reports that about a third of the refugees (29%) use mobile money.
While the village loans and savings groups are convenient and easily accessible, they are not regulated, putting their hard-earned savings at great risk of theft and all manner of misconduct.
A case for formality
Since they are regulated, formal financial institutions provide more customer safeguards, and their deeper pools of capital enable businesses, and individual customers to create a path for steady growth and development.
Unlike community-based informal savings and loan groups which are largely socially driven, and heavily reliant on informal social community networks, formal financial institutions are not constrained by capital, and human capabilities to support their customers on their journey of growth. There are more opportunities for growing to scale for customers of formal financial institutions as they can leverage the different networks and the diverse product portfolios these institutions provide.
A path to formal identification
It is therefore critical to support the refugee communities to chart a path towards formality to enable them to tap into the immense opportunities the formal sector provides. This starts with acquiring a secure, verifiable, and recognised identification. For a long time, the refugee community has struggled with the challenge of identification with no standardised form of identification for a refugee. Identification is the first entry point into the formal sector as formal institutions are only comfortable dealing with people they can identify and hold accountable. Considering that refugees are always on the move, the identity risk becomes even more critical as one is not certain that the person, they are dealing with will not have moved to another location the next day.
The office of the prime minister and the United Nations High Commission for Refugees who are responsible for the welfare of the refugee community in Uganda, have since zeroed down on a uniform identification for refugees in Uganda. They have gone further to provide formal financial institutions with access to the database of refugees in Uganda making it easier to verify and authenticate the identities of refugee customers. This has greatly enhanced the opportunities for accessing formal financial services in the refugee community.
Digitisation to unlock formal financing opportunities
Technology will also play a critical role in the formalisation of refugee communities. The high levels of access to mobile phones provide an immense opportunity to leverage the mobile telecommunications infrastructure to link the informal savings and loan groups to formal financial institutions. This creates a link to the formal financial system whilst maintaining the social fabric of the community groups.
As part of the Financial Inclusion for Refugees intervention, FSD Uganda and FSD Africa partnered with Rural Finance Initiative (RUFI) to digitise informal community savings groups. This enabled the savings groups to not only guarantee the safety of members’ savings on a more secure mobile digital platform than the metal boxes previously used but also increased access to formal financial savings through the group account with Centenary Bank.
Over the three-year partnership with RUFI, over 100 community savings and credit groups were digitised, and close to 2,000 members were able to receive formal credit.
Agent banking: bringing formal financial services closer to the refugees
Previously, refugees had to travel long distances to access financial services from formal financial institution branches, usually located far from the refugee settlements. However, the emergence of agency banking has made it possible to bring the services of formal financial institutions closer to the refugee communities.
While implementing the intervention, FSD Uganda and FSD Africa were able to test the efficacy of rolling out bank agents within the refugee communities and their impact on access to formal financial services. This was in partnership with Equity Bank which set up over 200 bank agents within the refugee communities. Over the three-year period of the partnership, Equity Bank enrolled a total of 108,391 refugee households on the Agency Banking Platform.
Over the same period, the bank made over 1 million digital payments to these households to a tune of over Ushs 120 million (USD 32,000). Much more headway was made with digital merchant payments reporting over Ushs 3 billion (USD 800,000) transacted through the Equity Bank digital platform.
Not Yet uhuru
Despite a clear demonstration of a need for formal financial services within the refugee communities, a lot more has to be done for the refugees to maximise the opportunities that come with formal financial services.
The agency banking points are largely utilised to receive cash transfers from the World Food Programme (WFP), which is not sustainable because development assistance is unpredictable. This was demonstrated by a reduction in the amount of cash transfers WFP was advancing the refugees in 2020, the amount could be reduced further.
The refugee communities need to be supported to engage in more formal economic activities that will generate more sustainable employment opportunities and income streams which will ultimately translate into higher levels of effective demand for a diversity of financial services from savings, credit, investments, and insurance to name but a few.
Further, digitisation continues to be a challenge due to the high levels of digital illiteracy among the refugee communities which lengthens the duration of the adoption of digital products. The cost of digitisation and digital transactions remains high which is further worsened by irregular network connectivity in the rural areas where refugees predominately reside.