Low awareness of and trust in financial institutions

Both refugees and host community members may have a low level of trust in formal financial institutions, sometimes stemming from a history of bank collapses or loss of savings. Others may have limited exposure to formal financial services and low levels of financial literacy, which are essential for engaging productively with FSPs. They may rely on informal finance methods, like borrowing from friends and family.

Barriers to accessing financial services

Refugees and displaced persons often face difficulties in accessing formal financial systems owing to a lack of nationally recognized documentation, which is typically needed to open bank accounts. The robust documentation required for Know Your Customer (KYC) compliance acts as a significant barrier to accessing finance, especially when refugee IDs are not considered equivalent to national IDs.

Lack of tailored products and services

There is a gap in the availability of financial products and services tailored to the needs and financial realities of refugees, IDPs and host community members.

Operational challenges for FSPs

FSPs may lack experience in serving clients from forced-displacement backgrounds. FSPs frequently perceive refugees and individuals with limited capital as high-risk clients, fearing they lack the ability to repay loans or may pose a “flight risk”, owing to their temporary status. On top of that, they may not understand the practical barriers preventing refugees from accessing finance.

Access to refugee camps or settlements

FSPs often face difficulties in gaining authorization from governments to access refugee settlements and camps. Obtaining entry permits can be a time-consuming and complex process that limits their ability to offer services in these settings.

Sustainability of financial inclusion

There are concerns about the long-term profitability for FSPs of engaging in refugee and host community markets, as the transaction sizes may be small, even if the number of potential customers is large.

Mindset and dependence on aid

In post-conflict settings, populations may have become accustomed to grants and free services, which can create a culture in which individuals are seen as passive recipients of finance rather than active customers. This can make the transition to using investment, savings, loans and credit more challenging.