CURING FINANCIAL INCLUSION THROUGH DIGITIZATION FOR DISPLACED POPULATIONS
A lot of misconceptions are disseminated around refugee populations. One of them, particularly persistent, is the idea that they constitute a transitory group, when evidences show that a large number of refugees actually settle, albeit for varying period of times, in host countries. Addressing the so-called refugee crisis, then, demands that we first understand their actual needs and look for ways to empower them. One promising avenue for such empowerment is to be found in the sector of financial inclusion.
This position paper was written while discussing current development issues with Convergences
According to a recent study by Mc Kinsey, the worlds unbanked adult population is above 2.5 billion people. More and more fintechs are looking for solutions that offer cost-effective and secure services to this population. Governments and institutions are aware that this issue is critical for development and thus try to also take actions in this direction.
In emerging countries, mobile banking, and more generally branchless banking solutions are developing, which demonstrates an interesting shift away from traditional economic development. One of the reasons behind this is that traditional Banks find it cost prohibitive to establish operations in areas where people have low incomes and all the more in politically or socially unstable regions. The populations have generally relied on a cash or barter-based system but this leaves both merchants and customers vulnerable to theft.
Some governments are opting for demonetization to increase financial inclusion and fight inflation and shadow economy; in India for instance, digital banking is becoming essential to ensure the populations with low incomes can still process payments since smaller bills have been pulled from circulation and retired. It also has obvious security advantages, ensuring people don’t have to carry large amounts of cash with them, and allows for better traceability of government subsidies and aid.
This inclusion and traceability are even more essential for displaced populations that face violent financial insecurity: easy access digitalized transactions can accelerate social integration in unstable groups and secure a minimal level of allowance.
This is why disruptive digitalized financial services, like mobile money or branchless banking, are game changers in the industry. In order to be successful, a network of agents must be established, each equipped with secure hardware to handle sensitive information and perform banking transactions. A challenge is to make those devices as easy to use as possible, even in remote places where connectivity can be unstable. Local merchants can be incentivized to become agents, as, in addition to bringing a needed service to their local community, it represents an additional source of revenue.
Digital finance has a great advantage that it is fast moving. Adoption rates are usually very high, and even if the initial infrastructure costs can be quite important, and mustn’t be underestimated, marginal costs are minimal. For large population groups, when infrastructure is weak, it’s a very effective bet.
Famoco has been working with the WFP innovation accelerator since 2015 to deploy an innovative solution that digitalizes and secures voucher distribution to refugees in over 30 countries; contributing to the ambitious United Nations Global Goal of Zero Hunger.
It consists of personalized cards and dedicated merchant readers. Each smartcard stores beneficiary entitlements and biometric data to ensure that it can only be used by the person to whom it’s been issued. The smartcard works like an e-wallet which beneficiaries can use at all local merchants for a wide variety of produce. Allowances are renewed during every distribution cycle, leaving the beneficiary free to use it as and when they require, as an alternative currency, rather than all in one go at the beginning of the month/week as with a more traditional voucher approach.
This form of aid distribution works online and offline (extremely valuable considering the remote locations where the system operates) and it also offers real-time monitoring and tracking of beneficiary figures, redemptions, and reconciliations. Feedback from the field is very positive and as of today, between 8 and 10 million beneficiaries are registered in the program worldwide.
Beneficiaries report that this new approach has been beneficial not only for their diets (bringing more diversity in the products they had access to) but also, and most importantly, on an interpersonal level; being able to go to different merchants diversifies interactions and builds a sense of community. Merchants are now able to offer a wider variety of goods that support local farmers and economies.
This use case can be replicated quite easily to match other financial services like cash transfers or loans since it digitalizes cash flows. Microcredit institutions can thus improve liquidity on loans, better track the activities and accelerate recovery through dematerialized processes.
Government agencies, NGOs, and local companies have a strong role to play to deploy these services along with new financial companies. They act as an accelerator (when aid is distributed through these networks and wallets), as official reassurance, and can help to ensure quicker deployments or to eliminate the obstacles to investment. It is quite a different paradigm for development agencies and they’ll have to review their traditional models: they will not only support short-term, urgent or infrastructure projects. They’ll support new actors in Fintech to help finance projects and enable a profound social change. They’ll have to guarantee it is done in the population’s best interest and preserve transparency and equity in project deployments.
Watch our use case with the WFP Innovation Accelerator in El Salvador