The world's refugee camps are often home to displaced entrepreneurs who set up small enterprises, driving the business case for financial services. But getting providers to take notice is a tough call, exacerbated by problems of access and identity. James King reports.

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In Kenya’s remote north-western county of Turkana lies Kakuma. It is one of Africa’s oldest and largest refugee camps, a place that 180,000 people from across the region call home. Cycles of conflict and disaster have spurred so many to seek refuge among its sprawling streets and the numbers are growing. Today, troubles in South Sudan and Somalia have swollen Kakuma’s population to their highest levels in its 26-year history. New arrivals rub shoulders with residents of many years, or even decades, as they recover from punishing cross-border journeys.

But what they find in Kakuma camp is unexpected: a busy marketplace of refugee entrepreneurs that are starting up, running and building their own businesses. “I didn’t expect so much activity. And I was very interested in the business opportunities,” says Hamisi Lomingo, a softly spoken Congolese refugee who arrived in Kakuma in 2010. 

Mr Lomingo has since built a tailoring business that employs other refugees and boasts four sewing machines. The business helps him to support his wife and child, and even buy his favoured Congolese foods from the local market. Crucially, this experience is not isolated. The story behind Kakuma’s thriving economy is coloured by dynamic individuals driven to entrepreneurial activity. And it is slowly attracting the attention of Kenya’s private sector, which, for the most part, has remained absent from both the camp and the adjacent town of the same name.

Kenya's Hong Kong

Kakuma’s story has come to light off the back of a study conducted by the International Finance Corporation (IFC), the private sector arm of the World Bank Group. “We were approached by the UN High Commission for Refugees [UNHCR] to do this study and to look at what is happening in the camp and to understand the dynamic of economic activity in the area,” says Sérgio Pimenta, the IFC’s vice-president for the Middle East and Africa.

What the organisation discovered was striking: about 12% of refugees in the camp identify as business owners, while 73% reported having a regular income. The combined annual household consumption of Kakuma refugee camp and town is about $56m annually, a figure that excludes in-kind aid provided by humanitarian organisations. The camp’s business environment is so strong that refugees have taken to calling a particularly busy district ‘Hong Kong’, according to research from the IFC.

“You can see a number of activities happening in the camp. You have the humanitarian agencies supporting the refugees’ basic needs. You also have a large volume of business activity led by refugees in the camp as well as the host community. A lot of it is done through informal channels and the biggest surprise there was the scale of this activity,” says Mr Pimenta.

Economic interdependence 

Strong social and economic links have developed between the town of Kakuma and the refugee camp, to the point that the overlap has produced an interdependent economy. Residents of the town sell goods, including charcoal and livestock, to the refugees, while many local Turkana people are employed by refugees as guards or shopkeepers. Taken together, it is an economy of some scale in a county that is one of the least developed in Kenya.

“It’s a protracted refugee situation. People have been living there since 1992. The population has been fluctuating. Today, there are about 180,00 refugees. If you combine the camp and the town which has sprung up around it, it constitutes the nineth largest city in Kenya,” says Michel Botzung, the IFC’s manager for fragile and conflict situations in Africa.

Yet few private sector players have come close to tapping its potential. “I was surprised to see how little the private sector had engaged with this community but also with the host population. Microfinance institutions, banks and telecommunication groups, for instance, have a very limited presence in the area,” says Mr Botzung.

This is not for lack of demand. Most refugees, as well as Kakuma’s host community, are desperate for capital to support their businesses. In a county that has about 5000 registered businesses, close to 2000 are registered in Kakuma. The potential for financial service providers here is significant but at present only one bank, Equity Bank, has any kind of presence in Kakuma. Lack of access to finance, as a result, has stunted the potential of many businesses in the camp and the host community alike.

“If I could get a loan from [a private company] that money would help me to fund my business so that I could [make] enough profit to help my children through school. Having this money would help me a lot,” says Elim Ann Etukone, a local Turkana trader dealing in foodstuffs with both the camp and the local community.

High repayment rate

Figures provided by Equity Bank to the IFC in early 2018 indicate that 1000 loans have been granted to refugees in Kakuma since the lender first opened in the area in 2015. These loans have generated a repayment rate of between 90% and 95%, with loan values ranging in size from $50 to $1200. The lender’s engagement with Kakuma, and its activities elsewhere in the region, point to the growing potential of refugees as a customer segment for financial service providers.

The lessons from Kakuma are timely. Globally, the number of forcibly displaced people hit 68.5 million by the end of 2017, according to the UNHCR. Refugees fleeing as a result of conflict or persecution accounted for 25.4 million of this number. More worryingly, it is a crisis that shows no sign of abating; the number of newly displaced people reached 16.2 million in 2017. Humanitarian agencies and non-governmental organisations are being overwhelmed by the scale of this challenge.

“The global number of refugees has been increasing in the past 10 years, not decreasing. Therefore, addressing their needs is a challenge that grows,” says Daryl Collins, chief executive of BFA, a consultancy based in Kenya, India, Colombia and the US that focuses on financial inclusion in emerging markets.

“Moreover, the length of time that refugees are spending in a host country is growing, which means that refugees themselves are establishing livelihoods, to the best that they can, in host countries. These two facts argue for private companies to now see them as viable potential clients,” says Ms Collins.

Those on the frontline of the refugee crisis are pushing for the private sector to engage. Reframing perceptions of refugees – from passive receivers of aid to that of an active and entrepreneurial class of people – is at the heart of these efforts. In doing so, a formidable business case has been developed. This applies, to varying degrees, to refugees located in and outside of camps.

Potential growth market

A study conducted by BFA in Rwanda, but commissioned by FSD Africa, a financial sector development programme funded by UK Aid, determined that about 90% of refugee households in the country earned an income above RwFr25,000 ($29) per month. This is the average figure for a Rwandan bank account holder. Based on these numbers, the study estimated that expanding financial services to Rwandan refugees would grow the market for financial services by about 44,000 people.

“By using a combination of livelihood surveys and BFA’s own pro-forma business case models, we have found that about 90% of Rwanda’s refugees are viable potential clients for financial services, because they have livelihood profiles that support the need for a range of financial services – not just loans, but also savings, payments and remittances in and out of the host country,” says Ms Collins.

Encouragingly, markets that develop within and around refugee camps can effectively be ‘super-charged’ by aid and humanitarian agencies delivering cash transfers in the place of goods or supplies. These cash transfers scale up economic activity in refugee camps by a considerable margin. The BFA study found that the median monthly income in Rwandan refugee camps is 2.5 times higher in camps that receive cash transfers against those that do not.

“A couple of years ago the [humanitarian] industry realised that distributing cash directly to refugees, rather than goods, was a faster and more effective ways of providing relief. The International Rescue Committee has been at the forefront of that as well as helping to build the business case,” says Barri Shorey, deputy director of economic recovery and the development technical unit at the International Rescue Committee.

If cash transfers can stimulate the local economy in this way, it provides a greater incentive for the private sector to get involved. Nevertheless, these numbers in isolation have been insufficient to attract the involvement of financial service providers. In response, frontline agencies have been taking financial institutions into the refugee camps to allow them to gauge the scale of the opportunity.

“We approach the private sector in a few different ways. The first interaction is about awakening curiosity: we present the data and the business case. But that isn’t enough. So in Rwanda and Uganda, we took bank decision-makers, fintechs and other financial institutions from behind their desks into the camps. They needed to see and feel the refugee business case,” says Joe Huxley, director of strategy and advocacy at FSD Africa.

Unearthing innovation

In tandem, FSD Africa has been supporting financial sector engagement through ‘design sprints’ and innovation competitions. Towards the end of 2017, the organisation brought five financial services firms to Gihembe refugee camp in Rwanda to test and design product ideas on the target market. Building on this success, an innovation competition was run a few months later in which five institutions were awarded £10,000, or about $12,750, for their most promising refugee finance products.

These products are being tested over three to four months in 2018, at which point up to three institutions will receive an additional £150,000 to deploy their products, at scale, later in the year. FSD Africa is pursuing a similar strategy in Uganda and the Democratic Republic of the Congo.

“We are trying to translate interest and excitement from financial institutions into profitable products and services that are useful to Rwandan refugees. We’re in the early days of this experiment and expect it will be another six months before we have a better idea. But in terms of the bigger picture, we suspect there might a business case for the most pioneering institutions,” says Mr Huxley.

Similarly, back in Kakuma, the humanitarian agencies and non-governmental organisations have been partnering with Equity Bank to spread the risk of engaging with an unknown market by co-lending on facilities to refugees. So while, at a minimum, the interest of some financial services providers is growing, their perceptions of risk remain high and it is taking active partnerships with humanitarian and aid agencies to translate that interest into meaningful engagement.

Access and ID difficulty

Indeed, tapping into refugee markets will not be straightforward for financial services providers. Though an awareness gap around the extent to which refugees are economically active does exist, other challenges remain. For one, the fragmentation of the refugee problem across different jurisdictions means that every market throws up a unique set of hurdles that must be overcome. In Rwanda, for instance, this takes the form of physical access to refugee camps.

“Beyond engaging the private sector, the biggest issue for us right now is smooth access to camps. The government of Rwanda is tightening up who it lets in refugee camps and when. About a year ago, it was easy for us to gain access with a bit of paperwork. Now it is much more difficult,” says Mr Huxley.

“Something has happened recently to make the government be more controlled about who they let in and out of these camps. This is important. The demand among private firms to target refugee clients may quickly dampen in the face of paperwork and other bottlenecks,” he adds.

Above all, however, it is the issue of identification that is preventing refugees from accessing formal financial services. The lack of official identification means that few are able to enter the formal economy. Though refugee IDs are issued to new arrivals, after some time, most private sector service providers are often less than willing to take the risk of engaging with them. The result is that refugees are effectively locked out of the system.

“The problem that cross-border refugees have is not having good IDs.  They might not have had an ID in their host country. Even an ID that says ‘refugee’ on it looks completely different to a local ID in a host country. And there isn’t enough clarity around whether financial service providers can legally provide services to these groups. So they take the more conservative route on not serving refugees because they don’t want to cross the regulator,” says BFA’s Ms Collins.

To get around this challenge, refugees either forego financial services, borrow identity documents or buy or rent fake IDs. In other cases, they pay locals or agents in host countries to process cash transfers on their behalf. “But these coping strategies are a last resort. Refugees would prefer legitimate IDs as they feel vulnerable every time they use a borrowed or fake one,” says Kim Wilson, a lecturer in international business and human security at the Fletcher School at Tufts University in the US.

In a sign of how grave this difficulty has become, the UN Global Compact on Migration, which is due to be ratified in December 2018, has included identity as a standalone issue. The need for an answer to the challenge of identity is deepening. And once more, the private sector may provide the answers. “The private sector could play a meaningful role in developing and issuing widely accepted IDs for refugees,” says Ms Wilson.

Work is already under way to find a solution. The Omidyar Network, an investment firm that targets both for- and non-profit organisations, has identified ‘digital identity’ as one of the six building blocks that can deliver prosperous and stable societies. “A good ID empowers people to participate in the digital economy while also protecting individuals’ rights to privacy, security and user control,” says Thea Anderson, director of digital identity at the Omidyar Network.

A question of identity

Through its investments and global partnerships, the Omidyar Network is tackling one of the biggest obstacles around refugee IDs – that of interoperability. In essence, this is the difficulty facing a refugee or migrant when every service provider or agency they encounter requires a different form of identification. Developing a foundational and interoperable form of ID would enable refugees to access a far wider suite of services and opportunities. But to achieve this, regional and global co-operation from various stakeholders is needed.

“We want governance structures that allow the interoperability and portability of digital IDs across multiple markets,” says Ms Anderson. “There are a variety of stakeholders working to address somewhat different aspects of a similar problem but often in silos. Identity is an issue that needs to be solved at scale. For this to happen, actors must work in a more collaborative and consensus-building way,” she adds.

Reaching this endpoint will take time and will demand an effective intersection between technology and regulation. In the meantime, other private sector actors are looking at the steps that can be taken on the ground. Increasingly, issues of refugee financing are attracting the attention of fintechs and start-ups who have been sold on the business case. Leaf Global Fintech, a Nashville-based business, is a case in point.

Co-founded by Nat Robinson and Tori Samples, both of whom had prior experience working with refugees in Africa and the US, Leaf aims to address the refugee challenge virtually. The company, which is focusing on Rwanda and the Democratic Republic of the Congo, partners with local banks and mobile money operators to ensure the safe passage of funds for a refugee crossing the border between two jurisdictions. It achieves this by using blockchain technology. 

Ms Samples says: “There’s a lot of hype around blockchain. We are using it to facilitate cross-border transfers rather than storing any value on it.”  For example, a user in the Democratic Republic of the Congo can open an account with Leaf via SMS, cross the border to Rwanda and receive their savings through a partner institution. In doing so, the company is addressing one of the key impediments facing mobile money networks in the region.

“Mobile phone penetration across east Africa is high. Mobile money accounts are growing much faster than bank accounts. That’s also an avenue that we are looking to tap into. But the issue with mobile money is that it doesn’t cross borders. The issue with that is that it’s offered through national telcos,” says Mr Robinson.

From small beginnings

For now, Leaf will focus on the main border crossing between the Democratic Republic of the Congo and Rwanda. But, over the longer term, there are plans to take the business to a global level. “We envision a global model but we have to get the foundation right. Rwanda is pro-business, pro-tech, and pro-blockchain. It’s the perfect fit,” says Ms Samples.

Looking ahead, the ability to connect refugees with financial services providers will be a vital component in addressing a rising global challenge. Entrepreneurial and driven, refugees are, in many ways, an ideal target market. When banks and other financial institutions begin to push this agenda further, by partnering with other institutions around challenges such as identification, then there is a real possibility that for refugees and businesses alike something positive could come out of a disastrous situation.

“This is really the frontier of financial inclusion and we think it’s a risk worth taking. If it works in the financial industry, there’s no reason it couldn’t work in energy, healthcare and education. It could change the way aid is delivered to some of those most in need,” says FSD Africa’s Mr Huxley.


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