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Mobile money is transforming financial inclusion for refugees

The largest refugee crisis in 20 years comes on the heels of technological innovation that has transformed the ways NGOs can deliver cash aid – and the ways in which 60 million refugees and internally displaced people are already managing their own money

Mobile money and digital currency could transform financial inclusion for refugees.

Aid agencies deliver more than $5 billion of emergency assistance per year. The concept of giving cash directly to refugees (rather than food or supplies) has been debated and tested since the 1980s. Three decades later, the mobile revolution has transformed how organizations can do that: electronic payments have become an increasingly common refugee assistance mechanism.

“The underlying tech behind much of this is simply peer-to-peer transfer technology based off of mobile phones,” explained Dan Kleinbaum, co-founder and chief operating officer of Beyonic, a tech firm facilitating mobile money payments in Kenya and Uganda; rapid demand is driving expansion to 25 more countries. “Pretty much anywhere you don’t have widespread access to bank accounts but [do have] very high penetration of mobile phones – I’m talking 50 percent to 90 percent – is a good recipe for mobile money and P2P transfers.”

A total of 75 percent of the world’s 7 billion mobile phone subscriptions are in developing countries and similarly high levels of usage are found among refugees. A research study in Uganda found that 89 percent of refugees in urban settings and 46 percent of refugees in rural settlements use mobile phones in their main income-generating activity.

When it comes to aid, refugees want to receive it the way they are already using cash.

Mobile money has been widely adopted by users because its process is identical to managing one’s mobile phone account. “Psychologically you’re already handing money to an agent, so it’s no different if that money becomes air time on my phone or it becomes e-cash I can send home to my village,” Kleinbaum said.

There are 255 mobile money services in 89 countries, according to the GSMA, a mobile money industry group. Besides Kenya’s M-Pesa, top providers are Rwanda’s mVisa; Tanzania’s Tigo Pesa; bKash in Bangladesh, created by the development organization BRAC; and Globe GCash in the Philippines.

The essential ingredient, besides a telecom with a P2P cash transfer mechanism, is a large enough network of agents throughout a country so that no matter where a cash recipient is located, she can find a place to cash out when needed.

For this reason, Kakuma refugee camps in Kenya are a viable place to introduce mobile money cash transfers for refugees.

The World Food Programme (WFP) has just launched the first ever electronic cash transfers in a Kenyan refugee camp. Digital cash can be used to buy food in local markets. Shopkeepers in the camp carry two phones; if a customer doesn’t have their own, they can use it to access their electronic funds. “It’s safer to transact on the phone compared to handling cash,” Mohammed Ishmail Abdallah, a refugee from Somalia and camp shopkeeper, told the WFP.

Refugees often are not thought of as savvy technology users. An Oxford University Humanitarian Innovation Project study, “Refugee Economics: Rethinking Popular Assumptions,” challenges this view.

“Refugees in the global south are often assumed to be largely technologically illiterate, or at least unsophisticated users of electronic equipment. In fact, refugees are users and, in some cases, creators of technology. They have higher levels of Internet use than the general population, use mobile phones extensively and frequently adapt their own appropriate technologies” (Refugee Economics: Rethinking Popular Assumptions).

Christine Duhaime, co-founder and executive director of the Digital Finance Institute (DFI), agrees. “Refugees are making payments happen when they’re on the move thanks to cellular phones,” said Duhaime. “They’re figuring out the tech, whether WhatsApp or Facebook or other methods. How do we use that same mobile mechanism to get value to them?”

DFI has launched its Banking on Refugees project to develop a cloud-based branchless bank focused on the unique needs of refugees. It will run a test pilot providing digital payment solutions in refugee camps, including e-wallets and prepaid cards with biometric identification for government agencies and NGOs.

“We have a chance to reinvent banking services,” Duhaime said. “The crisis in Syria requires creative solutions to reintegrate long-term refugees into financial services, and the difference is digital.”

Providing aid via digital currency is a clear strategy for the International Rescue Committee (IRC) as well.

“With refugees pouring into middle-income countries in the Middle East, we thought, why wouldn’t we work within the banking system?” said Barri Shorey, IRC Enterprise Development and Employment Technical Advisor. IRC programs in Jordan and Lebanon issue ATM cards to enable refugees to access their cash benefits. Refugees themselves requested ATM cards.

“There’s an element of dignity that comes along with actually having a bank card, being able to withdraw money at your leisure,” Shorey said.

IRC has helped prove out the concept – debated for the past three decades – that giving cash works well as an aid strategy. In 2014, they published the first ever scientifically rigorous evaluation of emergency cash distribution for refugees, in partnership with the University of Brasilia and Yale. The research found that refugees used the money for food as intended, and it boosted the local economy, creating $2 in local markets for every $1 of cash assistance.

Digital payments via ATM cards are not without challenges. Refugees in Lebanon found that ATMs were not restocked regularly, leaving them without cash after long walks. Women in Jordan became concerned for their safety using ATMs, so IRC has begun to offer cash transfers via the traditional Hawala brokers.

The local context determines which method is the most relevant, appropriate and flexible way for vulnerable populations to access cash. “In certain Nairobi slums, for instance, ATMs are far away, so mobile money’s much easier to access,” said Shorey. Globally, in addition to ATMs and Hawala, the IRC distributes cash via mobile money and prepaid cards that work at local stores.

IRC’s next step is creating global prepreparedness by establishing bank partnerships in disaster- and conflict-prone countries; this will allow rapid deployment of ATM cards, prepaid cards or mobile money within 72 hours of internal displacement or refugee arrival. “The more experience we in the humanitarian world get working within banking systems, the more effective our cash programs will be,” Shorey said.

Expanding adoption of mobile money and digital currency in normal conditions is also a prepreparedness strategy. “If people don’t have a habit of using mobile payments or debit cards, it’s very hard to launch those networks in an emergency situation,” Kleinbaum said.

“What we can do is get more and more people using these systems so the infrastructure and familiarity is in place when these situations arise.”

The path to formal financial inclusion isn’t straightforward. “What’s so different now is that people have found a way to do financial transactions without ever having to go to a bank,” Duhaime said.

Mobile money is enabling third-party companies and microfinance institutions (notably in Kenya) to layer financial products and services on top, such as mobile savings, mobile insurance and credit scores. “It’s going to be really interesting when you can go to a bank and show them your mobile money transaction history and take out a loan,” Kleinbaum said.

“I think people are starting to realize that it doesn’t matter if people have an account at a bank or whether they use their phone; it’s practically the same thing,” Kleinbaum said. “What’s key is having access to some type of secure affordable digital payment mechanism; the phone is just the distribution. And I think banks are missing out on realizing that it could be distribution for them.”

In the photo: A Syrian migrant looks at his mobile phone in the Kara Tepe refugee camp near the town of Mytilene on the southeastern Greek island of Lesbos, Greece. (AP/Visar Kryeziu)