Reimagining settlement communities: responding to the growing financial needs of Uganda’s refugees and their hosts

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By David Darkwa & Fred Ndiwalana.

Mama Nicole is what most academics would call a ‘Forcibly Displaced Person’ – a refugee. Three years ago, she fled her village in Northern Kivu in the Democratic Republic of Congo when fighting broke out between two armed groups. Upon arriving in Uganda, she chose to settle in Kampala where she felt safer mingling in the city and being proximate to good schools and reliable health care for her four children. Settling in, however, has not been easy. Today, she rents a two-room house in Katanga, one of the sprawling slums of Kampala.  Two of her children go to nearby schools and the other two have dropped out.

A single mother with no day job, she makes mandazi (a form of fried bread) which she sells from the front door of her rental. The mandazi business generates daily income that mainly caters for food for her family. In the evening, when the city law enforcement officers retire for the day, she walks from door to door trying to sell cheap jewellery. She is careful to keep a record of the profit she makes on each item: she records it every day and stows it away in an old tin, hidden inside an aged charcoal stove under her bed. Mama Nicole uses her savings to pay for house rent at the end of the month and settles her electricity and water bills with excess funds. She occasionally borrows extra money from her friend in the camp when her situation becomes dire. Her financial status is best described as excluded, with little or no access to formal credit, savings, insurance or investment instruments. The informal avenues available to her are largely risky, unreliable, and costly.

What does financial exclusion mean for the refugee?

Like everyone in the city, Mama Nicole must interact with money every day: she makes financial transactions such as buying food, paying rent, electricity bills, school fees and saves money on a regular basis. Unfortunately, like most forcibly displaced persons in the region, she has no bank account or access to formal financial services. Additionally, her mobile money line was recently blocked after the Uganda Communications Commission (UCC) identified fraudulent practices in SIM card registration by individuals using refugee registration documents. Without a bank account or registered SIM card, Mama Nicole is neither able to store money nor send or receive payments in a way that addresses her financial needs. She cannot get credit to expand her businesses or invest in insurance products to support the education of her children. According to the World Bank Global Findex (2017), she is one of the 1.7 billion adults globally, mostly women and poor households, who have no access to formal financial services. The upshot of this usually is a resort to informal coping mechanisms (like Mama Nicole’s old tin can stowed under her bed) which lack the security and robustness of a formal financial product or service. Mama Nicole is very much aware of the inherent risk in keeping her “rent money” under her bed every month and additionally feels overburdened with walking to different cash offices to queue up for hours in order to pay for utility bills. Alas, she believes her options are limited.

Having a bank account or being banked is usually a key step in becoming formally financially included. Financial inclusion however means much more. Refugees in Uganda, and other marginalized groups including micro, small and medium size businesses, must have access to useful and affordable financial products and services (payments, savings, credit and insurance) that match their lifestyle, mitigate the risks they face, and are delivered in a responsible and sustainable manner for inclusion to be meaningful. For instance, according to a recent research commissioned by FSD Africa and FSD Uganda and conducted by BFA Global and  on the refugee community in the West Nile and South-Western regions of Uganda, 52% of refugees are self-employed and earn a median income of UGX102,000 (about USD 28) per month.

A credit product that targets refugees and requires minimum monthly repayments anywhere between UGX80,000 and UGX100,000 clearly fails to take the average refugee’s financial circumstance into account and runs the risk of poor adoption or over indebting them. Similarly, with roughly 27% of respondents owning smartphones, the discerning fintech or bank will have to deliver key financial services to refugees on basic phones or legacy handsets if it expects to reach a critical mass of this population. This knowledge is important because it allows financial service providers to understand the market and position their products appropriately. Without these valuable insights, Financial Service Providers (FSPs) will design products amiss. Uganda has the largest refugee population in Africa (over 1.2 million), the third largest of any country in the world, and a very progressive policy that promotes integration. The abysmally low figures for financial inclusion among refugees underscore the fact that there is a massive opportunity for FSPs to simultaneously grab market share and improve the financial well being of refugees and host communities.

How does FSD Uganda come in?

Financial Sector Deepening (FSD) Uganda, an independent not for profit that is part of the wider FSD Network, is a strong proponent of a deep, broad and inclusive financial system in Uganda. It achieves this vision through partnerships with market and government actors and focuses on marginalised groups such as refugees, low-income individuals (particularly women), Micro, Small and Medium Enterprises (MSMEs) and youth. A key aspect of FSD Uganda’s work is focused on increasing both access and usage of financial services through focused interventions. Financial Inclusion for Refugees (FI4R) is one such intervention.

Since 2017, FSD Uganda has engaged local FSPs to highlight the commercial and developmental opportunities of serving refugees. The culmination of these efforts was in 2018 when FSD Uganda conducted an innovation competition which saw 32 FSPs submitting concepts that targeted the refugee community with nuanced offerings. Three FSPs, namely Rural Finance Initiative (RUFI), Vision Fund Uganda (VFU) and Equity Bank Uganda Limited (EBUL), were eventually selected to receive technical assistance and grants over a 24-month period to pilot and scale their products. It is these products that will enable refugees like Mama Nicole to open bank accounts, access credit through savings groups and bootstrap their businesses through asset loans and financial education.

FI4R aims to do three things:

  1. First, it will demonstrate that refugees are an economically viable market for FSPs and other providers. A keen observation made prior to the launch of the refugee challenge was the limited appreciation of refugees as a potential market by the banks and other non-traditional financial providers. This was largely tied to both the low risk appetite of supply side actors and gaps in understanding how refugees and host communities manage their financial lives outside of humanitarian aid. By engaging a mix of financial service providers in this multi-year effort, FSD Uganda and FSD Africa are signalling that a market approach is possible and that with a thoughtful blend of customer-centric products, adaptive product economics and partnerships can co-create products that work for the forcibly displaced and the communities that host them.
  2. Second, it will contribute to reducing the vulnerability of 40,000 low-income refugees and hosts within the project period in the West Nile region of Uganda. By directly supporting RUFI, VFU and EBUL with a combination of grants and technical assistance, FI4R will enable a variety of credit, savings and investment products to be developed and marketed to refugees and host communities and their businesses, accompanied with requisite financial education programmes. EBUL will work with humanitarian aid agencies to provide refugees with full-fledged savings accounts to receive incoming cash transfers and also pilot an innovative credit product for merchants and agents; VFU and RUFI will both work with savings groups as the anchor and catalyse an increase in their collective funds by infusing additional capital based on their debt capacity and digital credit scores. RUFI will additionally provide savings groups with a digital savings solution to reduce their exposure to the risk of storing funds in cashboxes.
  3. Third, FI4R will showcase the financial life of the refugee and host dwellers through a series of nuanced financial diaries. It will target customers of the project’s implementing partners, highlighting the different sources of income for refugees, the uses of their finances and the financial products and services they use. This is expected to shed more clarity on the needs, preferences and habits of refugees and host communities to FSPs, government, donors and other stakeholders and enable them to tailor products or policy that are fit for purpose for this excluded group.

What can we expect going forward?

The problems enumerated above – the limited appreciation of the market potential of refugees, the high vulnerability of refugees to financial shocks, and the enigmatic nature of refugees’ financial flows – are what FSD Uganda and FSD Africa, in collaboration with BFA Global, are trying to solve. Mama Nicole and her community can expect some phase shifts in their community over the next two years: they will experience first-hand innovative financial services designed for individuals and for their informal groups, they can expect to get access to credit for their young enterprises and they will receive hands-on training on how to manage the finances of their households and enterprises.

In the end, two things are expected to happen: knowledge and demand for financial services will grow among refugees and their host communities, and the appetite of both traditional and non-traditional FSPs in Uganda will be stoked, leading to a crowding in of additional market players. These two market conditions are critical requirements to ensure that the grand objectives of FI4R are achieved. They will also ensure that sustainable impact – the kind that the FSD network advocates and stands for – is realized within the refugee and host community. And this is the kind of market change required to make the Ugandan financial sector work sustainably for the refugee.


David Darkwa is the Manager – Competitive Strategies at FSD Uganda & Fred Ndiwalana is a Financial Inclusion Consultant

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