ServingRefugeePopulations:TheNextFinancialInclusionFrontier

GuidelinesforFinancialServiceProviders

VersionforPublicComment:July2016

“Financialinclusionshouldn’tbejustforcitizens—itshouldbeforall.”SonjaE.Kelly,Fellow,CFI

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TableofContents

IntroductiontotheGuidelines...........................................................................................2

Section1.RefugeesasaPotentialFSPMarketSegment....................................................31.1 OverallMarketSizeandCharacteristics.........................................................................31.2 Demandprofile:Refugees’NeedsforFinancialandRelatedServices.............................41.3 KeyDriversofFinancialExclusionforRefugees..............................................................6

1.3.1 PoliticalRiskandReputationalConcerns..........................................................................61.3.2 LegalBarriers....................................................................................................................71.3.3 Ignorance........................................................................................................................10

Section2.AFrameworkforFinancialInclusionofRefugees.............................................122.1 Step1:ConductaScopingStudy..................................................................................13

2.1.1 ExploreMarket-levelLevers...........................................................................................142.1.2 DiscussInstitutionalLevers.............................................................................................15

2.2 Step2:CreateaStrategicPlan......................................................................................162.2.1 Segment-specificLevers.................................................................................................17

2.3 Step3:MakeContactwithRefugees............................................................................172.4 Step4:SegmentPotentialClientstoDetermineWhomtoServe..................................182.5 Step5:ReviewandAdjustEligibilityandAppraisalCriteria..........................................202.6 Step6:ConductaPilotTestandCompileDatafortheBusinessCase...........................21

Section3.PotentialProfitabilityDrivers..........................................................................223.1 MarketingFinancialServicestoRefugees.....................................................................223.2 ProductsandServices:Sequence,Range,andMix.......................................................23

3.2.1 Non-financialServices....................................................................................................233.2.2 FinancialServices............................................................................................................263.2.3 LeverageRefugees’TransnationalNetworks.................................................................30

3.3 DeliveryChannelsandOperationsasProfitabilityDrivers............................................313.4 RiskManagement........................................................................................................333.5 Profitability—TheBusinessCaseforIncludingRefugees...............................................34

Annex1:BuildingtheBusinesscase:QuestionsfortheFeasibilityStudy.........................37

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IntroductiontotheGuidelinesByend2015,anunprecedented65millionpeoplearoundtheworldhavebeenforcedfromhome.Amongthemare21.3millionrefugees,ofwhom45%areintheproductiveagebracketandhalfarewomen.1Sixintenrefugeeshavebeenlivinginprotracteddisplacementsituationsformorethan10years,andtwo-thirdshaveself-settledinurbanareas.Alargesegmentoftheserefugeepopulationsappeartobeaseligibleforaccesstofinancialservicesasanyotherclientsegment,butfinancialserviceproviders(FSPs)havelargelyoverlookedrefugeesasaviableclientsegment.TheseguidelinesseektoexaminewhyrefugeepopulationsarefinanciallyexcludedandhowFSPscansuccessfullyreachandservethisuntappedfinancialmarketsegment.InSection1,wecompareemerging global research on the economic lives of refugee populations with common concernsexpressedbythefinancialserviceindustry,inordertoexplainwhyrefugeesarefinanciallyexcluded.InSection2,wepresentsixconcretestepsthatFSPscantakeinpreparationforservingrefugeeclientsinadditiontonationals.Finally,inSection3,wesummarizeemerginggoodpracticesfromFSPswhoareservingrefugees,toproviderecommendationsandtipsforFSPsastheybegintobuildthebusinesscaseforfinancialinclusionofrefugees.Thisisapreliminaryversionoftheguidelines,forwhichtheSPTFisseekinginputfromthebroaderglobalfinancialservicesindustry.Pleasesendfeedbacktoinfo@sptf.info.Whiletheguidelinesspecificallyintendtopresentrefugeepopulationsthroughthelensoffinancialservice providers as potential clients, they do not attempt to address all aspects of an FSP’sengagementwithanewclientsegment.Rather,theyfocusontheuniqueaspectsofservingrefugees,based on questions and concerns emerging from the research and interviews with experts andpractitioners. It is our hope that the guidelineswill increase interest among FSPs in servingmorerefugeestoexpandthisnewfrontieroffinancialinclusion.

1http://www.unhcr.org/global-trends-2015.html

Thisversionoftheguidelinesisbasedonacomprehensiveliteraturereview,interviewswithdozensofexpertsandpractitioners,a case studyoftherefugeeportfoliooftheFSPAlMajmoua inLebanon,aglobalwebinartosolicitinputandfeedbackoninitialfindings,andaworkshopinMoroccototestinitialfindings.TheguidelineswillbepresentedataglobalwebinarinJuly2016andataTrainingofTrainersworkshopinEuropeforFSPtechnicalassistanceprovidersinSeptember2016tosolicitfurtherfeedbackwith a view for a final version to be published by late 2016. See more at http://sptf.info/working-groups/refugee-microfinanceThisversionoftheguidelineswasdevelopedbyindependentconsultantLeneM.P.HansenfortheSocialPerformance Task Force (SPTF) under a UNHCR-funded project to advance the financial inclusion ofrefugees.TheConsultantgratefullyacknowledgeseveryonewhohascontributedtimeand insightstothe guidelines. Any omissions are the responsibility of the consultant and the views andrecommendationspresentedarethoseoftheconsultant,anddonotnecessarilyrepresenttheviewsofSPTForUNHCR.Editor:LeahWardle

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Section1.RefugeesasaPotentialFSPMarketSegment Refugees are forcibly displaced by conflict, persecution, or natural disasters that affect peopleindiscriminatelyofeconomicstatus.Today’srefugeesareasdiverseastheconflictsanddisastersthatdisplace them, but the media often paints a homogenous picture of asset-less, relief-dependentvictims in forlorncamps.Foravastmajorityof refugees,emerging researchdoesnot support thispicture.Inthissection,weexaminesomeofthegeneralcharacteristicsofrefugeesthatarepertinenttoFSPs,alongwiththekeyreasonswhyFSPsexcluderefugeesfromfinancialservices.1.1 OverallMarketSizeandCharacteristics Refugeesaredefinedaspeoplewho"owingtoawell-foundedfearofbeingpersecutedforreasonsofrace,religion,nationality,membershipofaparticularsocialgrouporpoliticalopinion,[are]outsidethe country of [their] nationality, and [are] unable to, or owing to such fear, unwilling to avail[themselves]oftheprotectionofthatcountry."2Thereare65millionpeopleinforceddisplacementatend2015,3ofwhom21.3millionpeopleareregisteredwithUNagenciesasrefugees.4Refugeescomefromasmallsetofgeographiesbutendupwidelydispersed.Seventy-fivepercenthavebeendisplacedfromonlysevencountries(Palestine,Syria,Afghanistan,Somalia,SudanSouth,SudanandtheDemocraticRepublicofCongo),buttheyhavefledto169countrieswitharound85%residingindevelopingcountries(seeFigure1).AlittleoverhalfofallrefugeesregisteredbyUNHCRareresidinginEuropeorsub-SaharanAfrica.5

Refugees are less transitorythan most people imagine.Fifty-sixpercentofallrefugeesare estimated tohavebeen inprotracted displacement6 formorethan10years.7Additionally, the majority ofrefugees donot live in camps.Contrary to popularperception, only about one-thirdof refugeescurrently livein managed camps. Even so,some refugee camps andsettlements (Dadaab andKakuma in Kenya; Gihembe inRwanda;andZataariinJordan,

forexample),havebecomelargeenoughthattheysustainenterprisesandvaluechainsforbothhosts

2The1951UnitedNationalConventionrelatingtotheStatusofRefugeesandits1967Protocol.Onehundredforty-eightStateshavesignedoneorbothofthesedocumentsasatApril2015.3“Displacement”referstopeoplewhoareforciblydisplacedasaresultofarmedconflicts,situationsofgeneralizedviolence,violationsofhumanrights,ornaturalorhuman-madedisasters.Thisincludesrefugees,internallydisplacedpeoples(IDPs)andother“personsofconcern”toUNHCR,suchasasylum-seekersandstatelesspeople.4UNHCRhas registered16.1million refugeeswhileUNRWAhas registered5.2millionPalestinian refugees (June2016),http://www.unhcr.org/figures-at-a-glance.html.5UNHCRGlobalTrends2015.,http://www.unhcr.org/global-trends-2015.html6UNHCRdefinesaprotractedsituationasoneinwhich25,000ormorerefugeesofthesamenationalityhavebeeninexileforfiveyearsormoreinagivencountry.Hence,itislikelythatmanymorerefugeeshavebeenexiledforlonger.7UNHCR:WorldatWar–GlobalTrendsofForcedDisplacementin2014.http://www.unhcr.org/556725e69.pdf

1. Kenya 2. Uganda 3. Chad 4. Sudan

MENA 37%

Asia/Pacific18%

Africa 21%

Europe 20%

Americas 4%

Figure1.Regionshostingrefugees,2015

1. Ethiopia2. Kenya3. Uganda

1. Lebanon2. Iran3. Jordan

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andrefugees,8whobring innovations, (forexample, inartisanalmanufacturing)andmakeuseofawide ranging network of national and transnational contacts.9 This market potential has in turnattractedbothmobilenetworkoperatorsandafewFSPs.10Refugees are no different from national populations in that they increasingly use technology. InUganda,forexample,moreurbanrefugees(96%)thanthenationalaverage(45%)usemobilephones,whileintheruralrefugeesettlements,roughly70%useamobilephone11forkeepingintouch(e.g.,via REFUNITE12), for price checking (among farmers), getting training, receiving humanitarian aid,remittingfunds,andmakingpayments.Halfoftheworld’srefugeesareunder18yearsofageandrepresentahugepotentialworkforce.45%ofallrefugeesor9.5millionpeopleare intheproductiveagebracket,ofwhomhalfarewomen.13Evenifwededucttheconventional15%ofthepotentialrefugeemarketduetolackofneed,capacity,orinterest,thereremainsapotentialfinancialservicesmarketofatleast5.3millionworkingageadultsliving in protracteddisplacement in urban areas around theworld, and an additional estimated3millionadultslivingindenselypopulatedcamps. 1.2 Demandprofile:Refugees’NeedsforFinancialandRelatedServices Refugees are socio-economically diverse, and their financial needs evolve over time with theirdisplacement phase andmigratory plans.14 Needs and thus demand for financial services can bebroadly determined along the general spectrum presented in Table 1, but will also depend onvulnerabilitiesatarrivalinthehostcountry(e.g.,poorhealth),thelevelofintegration(acceptance),theirhumanandsocialcapital(e.g.,education,marketableskills,andfamiliaritywiththehostculture),financialinclusionintheircountryoforigin,and–especially–theirincomegeneratingcapacitiesandopportunities.Atleasthalfofallrefugeestodayhavebeendisplacedformorethantenyears.15Atminimum,some13.8millionpeoplefallintoPhase3or4inTable1below,whichmeansthattheirkeydemandsforfinancialandnon-financialservicedonotmarkedlydifferfromthecoreFSPclienteleofnationalpoor.AsmanyFSPswillbeawarefromservingparticularlypoornationalclients,materialpovertyisinitselfstressful,butitisthepsychologicalnatureofpovertythataffectsclients’usageoffinancialservices.Stressmakespeoplerisk-averse,andmorelikelytomakedecisionsthatbenefitthemsoonerratherthaninthelongterm.Thiscanlimithowmuchpeoplearewillingtoinvestinfuturebusiness,healthcare,andeducation.16

8HumanitarianInnovationProject(HIP):RefugeeEconomics–RethinkingPopularAssumptions,June2014andS.Lakhani:ForcedDisplacement:movingfrommanagingrisktofacilitatingopportunity.WorldBank,February2013.9 See e.g. Betts, L. Bloom & N.Weaver: Refugee Innovation – Humanitarian Innovation that starts with Communities,HumanitarianInnovationProject,OxfordUniversity,July2015.10Asdocumentedine.g.aHIP:RefugeeEconomics–RethinkingPopularAssumptions,op.cit.,forEastAfrica–temperedbythe reviewbyGSMA:DisasterResponse–MobileMoney for theDisplaced,December2014,andGlobalPartnership forFinancialInclusion(GPFI):TheUseofRemittancesandFinancialInclusion,September2015forWestAfrica.11HIP:RefugeeEconomics–RethinkingPopularAssumptions,op.cit.,p.30.12https://refunite.org/13UNHCR:GlobalTrends2015,op.cit.,statisticstable13.14AdaptedfromEuropeanCommission:FinancialServicesProvisionandPreventionofFinancialExclusion,May2008.15UNHCR:WorldatWar–GlobalTrendsForcedDisplacementin2014estimatedthattheaveragedurationofa‘displacementsituation’forrefugeepopulationsof25,000ormorefromonecountrywas17years.16J.Haushofer:“TheCycleofPovertyIsPsychological,NotJustFinancial”Science:Vol.344,Issue6186,23May2014,pp.862-867.

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Inaddition to thesepsychological constraints,poor refugees face the stressand traumaofhavingendured conflict or disaster at home, having had to flee across border(s), leaving everything andperhapsfamilybehind,andbeinginaforeignenvironmentwithlimitedassetsandsupportnetworks,andhencerefugeeclients’knowledgeandabilitytotakedecisionsintheshort,medium,orlongtermonusageof financialservicesmaybefurther impededthanFSPsareusedtoamongtheirnationalclients. Table1:Indicativefinancialsectorservicedemandsbydisplacementphases

DisplacementPhase KeyDeterminantsforDurationofStay

KeyFinancialNeeds(DemandProfile)

Phase1:ArrivalFocusonimmediatebasicneedsforprotection,shelter,food,medicalservices,andcommunicationstechnologytoreconnectwithfamily.

Degreeoftraumaexperiencedduringflight.

Survivalcashforhousing,food,medicalservices,andoftentorepaydebtincurredduringescape.

Phase2:InitialdisplacementFocusonaccesstohousing,education,learningthelanguage,work,orbusinessstart-up.

Receptivityofhostcommunity,assessmentofeconomicopportunities,human/socialcapital.Endgoaloftenreturnorresettlement.

Financialservices:Savings,remittancestofamilyincountryoforigin;micro-/consumercreditforfurniture,appliances,schoolfees,businessequipment;andhealthinsurance.Thisdemandcanremainlatentduetorealorperceivedfinancialexclusion.Non-Financialservices:Marketinformationandaccess,jobplacement/vocationaltraining,businessskills,lifeskillsandsocialinteractionwithhosts.

Phase3:Stable/protracteddisplacementFocusonmakinganincreasinglybetterliving.

Successoflivelihood(enterprise/job).Endgoaleitherintegrationorreturn/resettlement.

Financialservices:Savingsproducts,micro/consumercredit,mortgage/homeimprovementloans,businessloans,transactionalaccountsforcross-borderpaymentsandremittances,andhealthinsurance.Non-Financialservices:jobplacement,vocationalorbusinesstraining,linkagestothemarket/valuechains,social/businessinteractionwithhosts.

Phase4:PermanenceFocusresemblinghostpopulation,i.e.livelihoodbuildingtoensurethebestlifepossibleforselfandfamily.

Successoflivelihood(enterprise/job).Endgoaleitherintegrationorreturn/resettlement.

Ifintegrationisthegoal,financialservicedemandsbecomesmoresophisticatedandresemblethoseofhosts:savings,pensionplans,credit,insurance,andtransnationalservices(e.g.lineofcredit,remittances,insuranceforfamilyincountryoforigin).Ifreturn/resettlementisthegoal:Savingsforjourney,transferablecredithistory(certificate),transferablepensionschemes,anddeferredannuities.

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1.3 KeyDriversofFinancialExclusionforRefugees Emerging evidence suggests that a refugee community that is nationally and transnationallyintegratedcontributesinpositivewaystothenationaleconomy,iseconomicallydiverse,andisfarfromdependent on international aid.17 Refugees formpart of thewider systemsof consumption,production, and exchange, and seek out entrepreneurial livelihoods in the formal and informalsectors,18alongside–andincompetitionwith—thecoremicrofinanceclienteleoftheurbanandruralpoor. Both nationals and refugees face difficulties in finding adequate shelter, limited jobopportunities,increasingfoodprices,andprecariousaccesstolegalandsocialservicesandprotection.Refugeescouldbenefitfromfinancialinclusion,justlikenationals.Sowhydorefugeesremainlargelyunbanked?Emergingevidencesuggeststhreekeyreasonsthatrefugeesareexcludedfromfinancialservices:1. ReputationalRisk:Societalfearsandprejudicesreflectedinpublicpolicyandmediawhich

causeFSPconcernsabouttheirreputation2. LegalBarriers:Legalandregulatoryconstraints3. Ignorance:Lackofinformation,contact,andattention,ormisinformationaboutrefugees

thatfuelstheperceptionofrefugeesas“highrisk”clients 1.3.1 PoliticalRiskandReputationalConcernsNationalsocialpressures,domesticpoliticking,andfearsofscarcityaugmentedbymediareportscancreateanegativepoliticalenvironmentinwhichitrequirescouragetoargueforsocialandfinancialinclusionandintegration19andmakesitharderforFSPstoserverefugees.Hostgovernmentpoliciesplayasignificant role inrefugees’access to financialandotherservices.Several countrieswith long-standing refugeepopulations, includingKenya,Uganda,andColombia,havetakenimportantstepstoenactoradaptlegislationthatemphasizesgreaterrightsfordisplacedpeopleandmoreintegrationofdisplacedpopulationsintonationaldevelopmentplans.20However,mostotherhoststateshaveresistedsuchpolicychanges,inhibitedbyoneormoreofthefollowingfactors:• Concerns about national security and social cohesion, including concerns about upsetting an

ethnicorreligiousbalanceinthecountry.• Scarcity thinking that portrays refugees as unfairly competing with and/or taking jobs from

nationals,diverting importantdevelopment funds, receivingdisproportionalamountsofpublicfunds,overwhelmingpublicservices(e.g.,schoolsandhospitals),and/orexhaustingscarcenaturalresources(e.g.,land,water,andfirewood).

• Ignoranceofthepotentialsocialandeconomiccontributionsthatrefugeescouldanddomake.21The media can augment these constraints to financial inclusion. Refugee populations are oftenportrayedinthemediaasaburdentotheirhostcountries.22Accordingly,publicdiscourseonrefugees

17HIP:RefugeeEconomics–RethinkingPopularAssumptions,op.cit.18ODI:Protracteddisplacement:Uncertainpathstoself-relianceinexile,HPGCommissionedreport,September2015.19StefanieLämmermannforEuropeanMicrofinanceNetwork:“FinancialExclusionandAccesstoCredit”,SocialWatch,2010,andODIProtracteddisplacement,op.cit.20ODI:Protracteddisplacement,op.cit. 21S.Lakhani,ForcedDisplacement,op.cit.22SeeearlyassessmentsoftheimpactonneighbouringcountriesoftheexodusofSyrianrefugeesin2012-14,e.g.WorldBank:LebanonEconomicandSocialImpactAssessmentoftheSyrianConflict,September2013–asopposedtothemorebalancedandnuancedanalysispresentedbytheWorldBankMENARegion:theImpactoftheSyrianConflictonLebaneseTradeinApril2015.

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isoftenhighlypoliticized,23andperceptionsofnegativeeconomicandsocialimpactabound.Refugeesarediscussedas“aidbeneficiaries,”astheytypicallysettleincountrieswherethehostpopulationisalreadyunderpolitical,economic,andsocialstress.Anxietiesoverscareresourcesfeedxenophobia,stereotypes,andmisconceptions,andreducetheopportunitiesforrefugeestofindlivelihoodsandintegrateintheirhostcommunity.IftheseattitudesarereflectedamongexistingclientsandstaffofFSPs,refugeesmayhavelittlechanceofaccessingfinancialservices.Fact-basedresearchisanantidotetothebarrierofpoliticalandreputationalrisk.Emergingresearchfromprotractedrefugeesituationsdemonstratesthatrefugeesmakeimportantcontributionstolocaleconomies as consumers, producers, employment-creators, and as providers of diverse humancapital.24Infact,themajorityofself-settledrefugeesinprotractedsituationshavetheirownstrategiesandprioritiesforachievingself-relianceandbuildinglivelihoods—theyexploitavailableopportunitiesandusetheirtransnationalnetworkstoensuretheirlivelihoodsandcontributetothehosteconomy.25Aidandprotectionagenciescanalsoplayasignificantroleinthepoliticalenvironmentforfinancialinclusion.Sometimestheycontributetoretainingtheviewofrefugeepopulationsasrequiringreliefassistanceto justifycontinuedfunding.26Butoverthepastfiveyears,manyaidorganizationshaveshiftedawayfromanaid-centricapproachandhaveinsteadsoughttounderstandtheoftensuccessfullivelihoodstrategiesofrefugees,andthesupporttheymayneedtosustaintheseinitiatives.Basedonthemixed lessons from past experiences and shrinking budgets, they are increasingly looking forprivatesectorpartnersacrossthewelldocumented“humanitarian-developmentdivide.”27Governments, development actors, and private sector entities, including FSPs, that acknowledgedisplacementasafixturewithintheircommunity,canhelpunderstandtheirmarkets,anddevelopspeedandagilityindesignandadaptationofexistingservicestointegraterefugees.Thisacceptanceand integrationof refugeesmightbring theaddedbenefit ofpreservinghumanitarian funding foracutenewcrises28andforthesegmentofrefugeepopulationsthatmayrequiresocialsafetynets.Inthepoliticaldebate,thefinancialservicesindustryhasarguedagainstscepticsofinclusionbefore–microfinancebeganallthoseyearsagobecausewearguedthepoorwerebankable.Inthebeginning,we thoughtwe knew a lotmore about the national poor thanwe have learned since, andmanystereotypeswerebrokeninthatprocess.Inconsideringtheexpansionoffinancialservicestorefugees,wemustrealizethatexistingclients,staff,localcommunities,nationalmedia,authoritiesandfundershold many engrained stereotypes as “truths.” Working with refugees means acknowledging andworkingtoovercomethesestereotypes.1.3.2 LegalBarriersLegalitybarrierscreateastrongdisincentivebothforrefugeestoapproachformalfinancialinstitutionsandforFSPstoservethem.Inadditiontomanyotherbarrierstofinancialinclusionthatrefugeessharewithpoorcitizens,theyareoftenconfrontedwiththeadditionalchallengesofuncertainlegalstatus,limitedrightstoworkortomove,andinadequateidentificationpapersanddocumentationofresidence.SomerefugeeslosetheirIDorpassportduringtheirescape,andtheymaynothaveeasyaccesstoregistration,orfearthatofficialregistrationwillincreasetheirriskofdetentionordeportation.EvenwithaUNHCRrefugee

23S.Lakhani:ForcedDisplacement,op.cit.24Seee.g.HIP:RefugeeEconomics–RethinkingPopularAssumptions,op.cit.25ODI:Protracteddisplacement:Uncertainpathstoself-relianceinexile,HPGCommissionedreport,September2015.26Ibid.27Ibid.28Ibid.

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registrationcard,localofficialsandemployersmightnotrecognizethepaperworkasvalidorsufficientforaccesstoformalemploymentorsocialbenefits.29Further,therightstoformalizeabusinessmaybe restricted,30 and because refugees often rent space inmultiple occupancy houses where rentincludesutilities,theyareunlikelytohavetheirnamesonautilitybillorleasethatcouldbeusedasproof of address. Inmany countries, creditworthiness requirements (proof of income or a credithistory for transactional bank accounts) further impede refugees’ chances of gaining access tofinancialservices.31Withoutaccesstomainstreamfinancialserviceproviders,refugeesaremorelikelytouseinformalmoneylendersorotherproviderswithhigherinterestrates,lesstransparency,andsubsequentlymorerisk.32Inaccordancewiththe1951ConventionrelatingtotheStatusofRefugeesandits1967Protocol,33whichconfirmrefugees’ freedomofmovementand their right towork, somehost countrieshavemodified their legislation and policy frameworks (including Peru, Philippines, Uganda, Kenya andColumbia), and as a result, havemaintained or increased their ranking in the recently publishedMicroscope Index (2015)of financial inclusion.34Manyother countries,however, retain restrictivepoliciesonfreedomofmovement,accesstoproductiveassets,temporaryresidency,andemploymentfordisplacedpeople.Injustafewcountries,FSPsarelegallydisallowedfromservingnon-citizensorrefugees.InNepal,forexample, a citizenship certificate is generally required to access microfinance services,35 whichexcludesrefugees fromBhutanorpoliticallysensitiveTibet.However,manycountriesmoresubtlydiscourageFSPsfromservingrefugees.Forexample,inYemen,theSocialFundforDevelopment(anapex lender for microfinance institutions) will only provide funds to FSPs that serve Yemeninationals.36 In other countries, regulated FSPs may automatically disqualify refugees if they lackidentityandresidencedocumentation,duetostrictKnow-Your-Customer(KYC)andCustomerDueDiligence(CDD)requirementsintroducedwithstricterAnti-MoneyLaunderingandCounterTerrorismFinancing(AML/CTF)regimesinmanycountriesafter2001.37Otheronerousrestrictionsincludethoseplaced on FSPs’ access to official refugee camps or on refugee’s access to work and businessownership,asenforced,forexample,inThailand,38Jordan,39andLebanon.40But lack of citizenship documentation, identity, or residence papers is not a problem specific torefugeepopulations;manyamong the core FSP clienteleofpoor citizenshave the sameproblem.Around the world, FSPs have found alternative ways of adequately verifying the identity of

29A.SylvesterforWomen’sRefugeeCommission:BeyondMakingEndsMeet:UrbanRefugeesandMicrofinance,SanfordSchoolofPublicPolicy,DukeUniversity,April2011.30Forexample,AfghanrefugeesinPakistanandSyrianrefugeesinLebanonmustregistertheircompaniesthroughnationalpartnersorsponsors.ODI:Protracteddisplacement,op.cit.31 Information Centre about Asylum and Refugees: Financial Inclusion amongst New Migrants in Northern Ireland: ALiteratureReview,June2009.32 Information Centre about Asylum and Refugees: Financial Inclusion amongst New Migrants in Northern Ireland: ALiteratureReview,June2009.33The1951ConventionRelatingtotheStatusofRefugeesandit1967Protocolhttp://www.unhcr.org/about-us/background/4ec262df9/1951-convention-relating-status-refugees-its-1967-protocol.html34EconomistIntelligenceUnit:GlobalMicroscope2015-Theenablingenvironmentforfinancialinclusion.https://centerforfinancialinclusionblog.files.wordpress.com/2015/12/eiu_microscope_2015_web.pdf35ANSAB:NepalMicrofinanceCaseStudy,December2004.36TheSocialFundforDevelopmentprovidesseedcapital,grantandBDSto“intermediaryfinancialinstitutions[thathave]tomakesurethatthosethatborrowmoneyareYemenicitizens,areoflegalage,haveanincome-generatingenterprise[…].http://www.sfd-yemen.org/category/937CenterforFinancialInclusionandACCION:FinancialInclusion…ForWhom?op.cit.38HIP/RefugeeStudiesCenter:Refugeelivelihoodsandtheprivatesector:Ugandancasestudy,WorkingPaperSeriesno.86,November2012.39InterviewwithTamweelcom12October2015.40SPTFFieldstudyofAlMajmoua,November2015.

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undocumentedclientsthatworkintheinformalsector.ThefewFSPsthatcurrentlyserverefugeeshave overcome legal challenges, typically by seeking prior approvals and support from nationalauthorities41orlocalgovernmentandmunicipalactors,whilesolicitingadvocacysupportfromUNHCRvis-à-visnationalpolicymakers.Someregulatorsandadvocacyeffortsarehelpingto lower legalitybarriers,including:• In 2013, the Financial Action Task Force (FATF) recognized financial exclusion as a money-

launderingriskandissuednewguidancetoenablecountriestoreduceAML/CFTrequirements,allowing FSPs to simplify their documentation for customer segments assessed to have lowerrisks.42 Many countries have already implemented special risk-based AML/CFT treatment formicrofinanceandothersmall-valuefinancialtransactions,includingPakistan,43Indonesia,44andSouthAfrica.45

• Uganda,Tanzania,andKenyaaccept letters fromthe localauthority in ruralvillages (“peasantpassports”)asanalternativeforFSPclientswhodonothaveanofficialidentitycard,andinEgypt,UNHCRandWorldFoodProgramme (WFP)negotiatedwith thegovernment toaccept theUNrefugee registration card as sufficient identity documentation to meet KYC requirements forFSPs.46

• GermanyhasreducedKYCrequirementstoallowFSPstoservenewmigrantsandrefugees,47andtheEuropeanCommission’sCommitteeonEmploymentandSocialAffairshasrecommendedthatFSPssupportedbytheEuropeanProgressMicrofinanceFacility(EPMF)should“viewrefugeesandasylumseekersasatargetgroup.”48

In addition, technology used in digital financial inclusion provides innovative tools, including newidentification and verificationmeasures (e.g., biometrics, smart cards) to create user profiles thatsupportmoreeffectiveidentityverification,fraudpreventionandsupportrisk-basedmonitoringoftransactions.49Whilethesetechnologiesdoopennewriskareasrelatedtotheneedforthirdpartiesto verify account holders and remote account opening,50 they also offer opportunities for datagatheringandanalytics,whichhelptoassessthecreditriskposedbyuserswhohavenoformalcreditrecords.It is not only external regulatory policies on legality that prevent FSPs from serving refugees. Thefinancialservicesindustryhaslongacceptedthenormthatproofofcitizenship,identity,andresidencyreducesrisk.Suchdocumentationismeanttoensurethatanaccountowneroraborrowercanbefoundincaseofaproblem,anditimpliesthatlegalcontractslikeloanagreementscanbeenforcedthroughthenationaljusticesystem.51Withtheindustry’sprimaryfocusonnationalclients,manyFSPs

41AsFirstMicrofinanceBankinTajikistandidpriortoasmallpilotprojecttoserveAfghanrefugeesin2012,seehttp://unhcr.kz/eng/news-of-the-region/news/1839/42http://www.fatf-gafi.org/media/fatf/documents/reports/AML_CFT_Measures_and_Financial_Inclusion_2013.pdf43WithsimplerCDDrequirementsforlowvalueaccounts,thenumberofbranchlessbankingaccountsinPakistangrew63%in one year to 2.96 million in September 2013. http://blog.microsave.net/do-the-new-regulations-in-indonesia-foster-growth-of-branchless-banking-well-almost/44NewregulationsintroducedsimplerCDDrequirements,allowingacustomerwithanyphotoidentitycardissuedbythegovernment or a reference letter from local community leader to open a basic savings account.http://www.kpmg.com/ID/en/IssuesAndInsights/ArticlesPublications/Documents/Financial%20Inclusion%20in%20Indonesia.pdf45WorldBank/CGAP:AML/CFTRegulation:ImplicationsforFinancialServiceProvidersthatServeLow-incomePeople,2005.46GSMA:DisasterResponse:MobileMoneyfortheDisplaced,December2014.47http://www.trust.org/item/20151028102756-pbj3k/?source=leadCarouselbasedonLetter:“Übergangs-regelunghinsichtlichderzulässigenLegitimationsdokumentegem.§4Absatz4Nr.1GwG‘fromtheFederalFinancialSupervisoryAuthorityofGermany(BaFIN)tobanksof21August201548http://www.europarl.europa.eu/oeil/popups/summary.do?id=1411959&t=d&l=en49GPFI:GlobalStandardSettingBodiesandFinancialInclusion–TheEvolvingLandscape.ConsultationDocument,November201550CGAP:AGuidetoRegulationandSupervisionofMicrofinance-ConsensusGuidelines,October2012.51CenterforFinancialInclusionandACCION:FinancialInclusion…ForWhom?Op.cit.

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haveincludedrequirementsforanationalIDintheireligibilitycriteria,withoutaddingtheflexibilityofsubstitutedocumentation.Thisisnotoftenadeliberateactofdiscrimination,ratheramatterofnotviewingnon-nationalsaspotentialclientsandthusnotconsideringalternativestoconventionaleligibilityrequirements. 1.3.3 IgnoranceMany FSPs are unfamiliar with their country’s refugee populations, and are uninformed as aconsequence.Refugeesaretypicallynotveryvisibleintheirhostcountrymarketplace,andtheyarerarelyfamiliarwithlocalFSPs.Somerefugeesmayhavealowleveloffinancialeducation,othersmaypreferalternative(informal) financialserviceprovidersthattheyknowandtrust.Refugeesmaybeconcerned with keeping their personal information safe from authorities, or they may distrustmainstreamFSPsduetopoorexperiencesfromhome.Refugeepopulationswillrarelyinitiatecontactwith host country FSPs, often because they assume that theywill not be eligible customers, theyexpectdiscriminationduetopastexperiences,orsimplybecausetheydonotspeakthehostcountrylanguageconfidentlyanddonotbelieveFSPshaveinterpreters.52Theywouldoftenberight.

Thislackofcontact,information,andfamiliaritywith refugees has left most FSPs to makedecisionsbasedonverylimitedinformationandcommon myths, notably that refuges are a“very high risk” market segment, eitherbecause they are in the country temporarily,aretheresponsibilityofhumanitarianagencies,do not have access to markets/are notaccessibletoFSPs,and/oraretoopoorortooaid-dependent to repay loans. However, thisview is not supported by findings emergingfrommorerecentresearchfocusedonrefugeesaseconomicactors.53Rather, research documents that refugeesengage in income generation at all stages ofdisplacement, and that time and marketopportunities influence the degree to whichtheyachievesustainablelivelihoods(seeBox1forexamples).Contrarytothemythofasset-less,isolatedandaiddependentrefugees,veryfewactuallyrelyfully on aid, which is often unavailable(especially for urban self-settled refugees),insufficient or unreliable. Instead, refugeesincorporate available aid into their complexsurvival and livelihood strategies.54 Refugeeswith greater skills and education, language,

ethnic,culturalandsocialties,andnationalandtransnationaleconomiclinkstendtoenjoygreaterself-sufficiency.

52InformationCentreaboutAsylumandRefugees,2009,op.cit.53NotablytheseriesofstudiesofrefugeeeconomiesinEastAfricapublishedbyRefugeeStudiesCentreandUniversityofOxfordaspartoftheHumanitarianInnovationProjectin2012-14.ExamplesinBox1aretakenfromthissource.54HIP:RefugeeEconomics–RethinkingPopularAssumptions,op.cit

Box1:ResearchonRefugeeLivelihoods• Forsomerefugeesthatarevulnerableat

arrival, thedurationofexilemayfurtherdeplete their resources for self-relianceand they will require social safety nets.Others, such as the longer-exiled SomalirefugeesintheDadaabcampinKenyaareappreciably better off and far moreengaged in livelihoodactivitiesthannewarrivals.

• With the benefit of strong social capital(education, international employmentnetworks, etc.) and the UNRWA safetynets,livelihoodsofPalestinianrefugeesinJordan and Lebanon have stabilized andafterthreegenerationsbroadlyresemblethoseofhostpopulations,i.e.onlyaboutaquarterliveinpoverty.

• Research in Uganda has documented awiderangeofrefugeeeconomicprofiles,tiered from surviving to managing tothriving. Similarly, in urban areas ofKenya, stronger self-sufficiency wasidentified among some refugeecommunities,andwasattributedtotheirpossession of social capital, in particulareducation, languageskills,andeconomicnetworks.

Source:ODIRefugeeeconomies,op.cit.

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Flight risk is an oftmentioned concern among FSPswhen considering refugees.With over half ofrefugees living in protracted displacement situations, however, the vast majority are moregeographicallystablethanistypicallyassumed.55Whilerefugeesdofrequentlyshiftresidence—duetohighcostofliving,safetyconcerns,deportation,return,orresettlement—wearelearningthatthemobilityofrefugeesisassociatedfirstandforemostwitheconomicopportunity.Asentrepreneurs,refugeesexploitfamily,business,andtransnationalnetworkstotrade,andtheirlivelihoodstrategiesformpartofwider,in-kindandcash-basedeconomicsystemsthatinvolvebothhostcommunitiesandtheir communityoforigin.56Additionally,many refugeesusemovementaspartof theireconomicstrategies,asdocumentedbythecross-bordermovementsofAfghanrefugeestoandfromPakistan;theSomali tradenetworks linking refugeesettlements in ruralUgandaandcamps inKenya to thecapitalcities;andtheEritreanrefugeesregisteredinUgandawhotraveltoSouthSudanforwork.57Acoredeterminantforgeographicstabilityseemstobethesuccessofachosenlivelihoodstrategy;withoutmanyothertiesbindingarefugeetoonearea,s/hemightconsidermovingelsewhereifs/herunsoutofoptionstoputfoodonthefamilytable.Asecondarydriverofgeographicstabilityissocialties—astrongnetwork(family,friends,andcommunity)inanareaappearstobeadisincentivefor“flight.”Thesedriversofrefugeemovementandstabilityarenotdissimilarfromthoseofnationalsanditdoesnotappearthatrefugeesareinherentlymorepronetoabscondmentthannationalclients.Rather, increasedopportunity for successful livelihoods throughaccess to financial serviceswouldincrease stability–understood as consistent return to places of business. This is anecdotallydocumented in somemicrofinance projects that include refugees, which also indicate that socialcapitalandstrongerrootsinanareacanactuallybebuiltthroughsavingsand/orcreditgroups.58Despitethewidespreadriskperception,thefinancialservices industryhardlyknowsenoughaboutrefugees todeduce that theyarea“flight risk.”The“vastmajority [ofmicrofinance interventions]havebeensmall-scaleinterventionsundertakenbyhumanitarianagenciesordual-mandatedagenciesworkingwithuncertainandshort-timehorizonhumanitarianfunding.”59Mosthavebeenattempted“quick-wins,” poorly planned and short-term add-ons of micro-credit components to livelihoodprojectsimplementedinrefugeecamps,andmanyresultedinhigharrearsandlargelyundocumentedimpactpriortoclosure.60Lookingbeyondtheheadlinesoftheveryfewexamplesof“flightrisk”amongrefugeeborrowers,61wefindsignificantdesignanddeliveryweaknesses,62whichcouldaswellexplaintherefugees’decisiontoleavewithoutrepayingtheirdebt.

55At theendof2014, two-thirdsof theUNHCRregistered refugeeshadbeen inexile forover tenyears. If theUNRWAregisteredPalestinianrefugeesarefactoredin,56%ofallglobalrefugeesasatend2015livein‘protracteddisplacement’.SeeUNHCR:GlobalTrends,2015,op.cit.,p.20.56HIP:RefugeeEconomics–RethinkingPopularAssumptions,op.cit.57HIP:RefugeelivelihoodsinKampala,NakivaleandKyangwali,October2013.58E.g.AlMajmoua’smixed-nationality loangroupsincludingSyrianrefugeesinLebanonandBancoFINCA’svillagebanksincludingColombianrefugeesinEcuador.ForthelatterseeM.Fielding:MicrofinancePartnerships–ABridgeforRefugees,MasterThesesfromUniversityofSanFrancisco,December2011.59ODI:Protracteddisplacement,op.cit.,p.28.60Seeamoredetailedpresentationofthewell-knownlessonslearnedfromearlymicrofinanceinterventionsforrefugeesinK.Jacobsen:Microfinanceinprotractedrefugeesituations:LessonsfromtheAlchemyProject,TuftUniversity,2004andM.Azorbo:NewIssuesinRefugeeResearch:MicrofinanceandRefugees–LessonsLearnedfromUNHCR’sexperience,UNHCRPolicyDevelopmentandEvaluationService,ResearchPaperNo.199,January2011.61ThemostoftenquotedexampleisfromasettlementinwesternZambia,wherehalfoftherefugeesprovidedwithgroup-guaranteedcreditthroughacamploancommitteesupportedbyaBritishhumanitarianNGOrepatriatedtoAngolaafterthepeacedeclarationin2002withoutsettlingoutstandingbalances–insharpcontrasttoAngolanborrowersinasistercampservedbythesameNGObutwithstrongermanagement.SeeForcedMigrationReviewNo.20:“Sustainable livelihoods:SeedsofSuccess?”,May2004,pp.10-11.62Seee.g.K.Jacobsen:Microfinanceinprotractedrefugeesituations,op.cit.

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Indeed,fromthesmallgroupofFSPsthatcurrentlyserverefugees,theoverwhelmingfeedbackisnotabout increased actual credit risk. These FSPs report portfolio at risk (PAR) ratios among refugeeclients that are at parwith, better, or negligibly higher than for their overall portfolios. They do,however,emphasizetheimportanceofappropriatesegmentationandeffectiveriskmitigation,whilereportingfiercelyloyalrefugeeclientsgratefulforbeinggivenachance.In conclusion, while refugees face additional barriers to financial inclusion as compared to theirnationalpeers,theirpotentialasaviablemarketsegmentdoesnotdiffersignificantlyfromnationals,intermstheirentrepreneurialpotential,economicstrategies,ordemandforfinancialservices.Whilemuchresearchisstillneeded,anewpictureisemergingofalargesegmentofrefugeesasresourcefuland presumably bankable economic agents, who already form part of the informal economy asconsumers, traders,producersandemployersandwhoseadditionaltrans-nationalnetworksmightactuallyaugmenttheirpotentialsuccessasFSPclients.

FSPs could benefit from engaging in this new frontier of financial inclusion through client-centricmarket research to better understand refugee populations and identify among them the clientsegments they can best serve. Enabling access by refugees to existing products and servicesmaycreatealargerandmorediverseportfolioresultingingreaterfinancialself-sufficiency.Intheprocess,FSPscouldhelprefugeesbuildadditionalsocialcapitalandputdownstrongerlocalrootstocontributemoretothelocalhosteconomy.TheseoutcomescontributetoachievinganFSP’ssocialgoals,suchasincreasingclientinclusion,economicempowerment,integration,andsocialcohesion.FSPsshouldnotunderestimate the reputational benefits andenhanced staffmorale that can result from sucheffortstobepartofthesolutiontoaglobalproblem.

Section2.AFrameworkforFinancialInclusionofRefugees Thissectionlaysoutsiximportantstepsintheprocessofpreparingfor the inclusion of refugees in the portfolio as a new clientsegment (seeBox 2). These steps do not differmuch from theprocess that should normally be applied for expansion into anynew client segment. However, refugee populations are typicallylessknownandpotentiallymorecontentiousthanothersegments,somoreupfrontinformationisneeded,andFSPsmustbepreparedto explore and debunk myths and preconceived ideas in andaroundtheirorganizationintheprocess.Therefore,preparationscan take longer than for other client segments and a patientapproachisneeded.Below,wewillexploreeachstepindetail.Theseguidelinesarestructuredinaframework(seeFigure2)thatcaneventuallybeusedbyFSPstobuild a business case for expanding services to refugees. FSP decision-makers (owners, Board,investors) will ultimately want to see a business case to justify the potential investment andoperationaladjustmentsnecessarytoincluderefugees.TheywillwanttounderstandwhethertheirinclusionwillgeneratesufficientadditionalbenefitstotheFSPintermsofitsfinancialandsocialgoals,evenwhen compared to other potential growth plans. Aswe explore the framework, we do notpurporttotackleallaspectsofclientsegmentexpansion.Rather,wewillfocusonemerginglearningfrom the field, to provide recommendations, tips, and ideas that are specific to the expansion offinancialservicestorefugeepopulations.

Box2.SixPreparatoryStepsforIncludingRefugeeClients1.Conductascopingstudy2.Createastrategicplan3.Makecontact4.Segmentpotentialclients5.Adjusteligibilityandappraisalcriteria6.Conductapilottest

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Figure2:ATentativeBusinessCaseFrameworkforInclusionofRefugees

FromotheremergingstatesofpracticewhichhaveinspiredtheseGuidelines,63wehavelearnedthatacompellingbusinesscaseneedstoexploreleversrelatedtotheexternalmarketinwhichtheFSPoperates, and the internal institutional drivers and capacities that may provide comparativeadvantagesinthemarketplace.Thetimehorizonforinvestmentstobearfruitandtheopportunitycostofnot includingrefugeesshouldalsobeclarified.Thebusinesscaseshouldbedeterminedbyfurtherleversidentifiedduringclientsegmentresearchandappraisal,tobuildupfamiliaritywiththenewclientsegment.ThebusinesscasewillultimatelyrelyonanFSP’sabilitytobalancethecostsandrevenuesinvolved,includingprofitabilitydriverssuchasmarketing,productdesignandmix,deliverychannels,operations,andriskmanagement. 2.1 Step1:ConductaScopingStudy Starttheexploratoryjourneyintoexpandingthefrontiersofinclusionwithanopen-endedandopen-mindedboarddiscussiononwhyyourFSPdoes/doesnotserverefugee(orIDPormigrant)populationsinthecountry.AskwhatthepotentialbenefitsandriskswouldbeandwhatadditionalinformationyourFSPwouldneedtodecideonastrategyofexpandedinclusion.Theprocessofuncoveringandconfrontingunspoken stereotypeswithin and around theorganization can in itself be an eventfuljourneytowards‘walkingthetalk’ofinclusiveandresponsiblefinance,andcanhelpimplementsocialperformancemanagement(SPM)64inpractice.While FSPs with a strong social mission and experience in serving marginalized national clientsegmentsmightquicklyacceptthefeasibilityofexpandingservicestorefugees,therewill likelybemanyquestionsraisedrelatedtomarketsize,bankabilityandcreditrisk,profitability,andreputationforwhichanswersarenotreadilyavailable.Itmightbehelpfultousetheframeworkproposedhereinordertosystematizethesequestionsandgatherneededinformation.

63SeeinparticularCGAP:TheBusinessCaseforYouthSavings:AFramework.FocusNoteno.96,July2014,fromwhichthebusinesscaseframeworkproposedhereisadapted.64Seehttp://sptf.info/get-started/what-is-spm

Strategic planning, pilot phase

Scoping/ feasibility phase

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Makeitapointtocompileallthequestionsandconcernsforwhichyoudonothaveanupfrontanswer,andincorporatetheseintoascopingorfeasibilitystudy.Thestudyshouldfocusonthetoptwolevelsoftheframework(seeFigure3),namelythemarketandtheinstitutionalleversforengagement. Figure3:FocusoftheScopingStudy

2.1.1 ExploreMarket-levelLeversConsideratleastthefollowingquestions(andseeAnnex1formore):• Isthereaviablepotentialmarketsizeandscopeinourcurrent/futureoperatingareas?• Howcompetitiveistheenvironment?• Whatarethekeylegal,policy,andregulatoryparametersandconstraintstotakeintoaccount?SourcinginformationonthemarketleversmightrequirecontactwithagenciesthatarenewtoyourFSP. To get an initial sense of the socio-economic profile of refugees in a given area, youmightapproachtheUNHCRcountryoffice,InternationalOrganisationforMigration(IOM)orinternationalandnationalNGOsworkingdirectlywithrefugees.Enquireaboutthenumberandconcentrationofrefugees(segmentdensity)ingeographiclocationsthatyourFSPcanreach.To understand how the policy framework and regulations in a specific country may facilitate orhamper the inclusion of refugees, contact the national regulator (e.g., theMinistry of Finance orCentral Bank) aswell as the government agencies in chargeof serviceprovision to refugees (e.g.,ministriesof socialaffairs, interioror insomecountriesspecificministries formigration).ConsidercontactingthelocalauthoritiesintheFSPareasofoperation–municipalitiesordistrictauthoritiesareoftenresponsibleforservicedeliverytorefugeesandwillhaveimportantdataonlocations,numbers,andtypesofservicesalreadyprovidedtorefugees—aswellasdemandgaps.Asyoureachouttotheseagencies,lookforpotentialpartnershipswithexistingplatformsorinitiativessuchasMigrantsOrganise intheUK,65Terred’Asile inFranceandTunisia,66or theConsortiumforRefugeesandMigrantsinSouthAfrica.67UNorganizationsmayalsohaveestablishedplatformssuchaslivelihoodclustergroupsatthenationallevel,68whichwillhavedataandinformationtoshare.TheUNDevelopmentProgram(UNDP)isthegloballeadonUN’searlyrecoveryandlivelihoodclusters,andcanalsobeagoodfirstpointofcontactforFSPs.

65http://www.migrantsorganise.org/66http://www.france-terre-asile.org/67http://www.cormsa.org.za/68Seehttps://www.humanitarianresponse.info/en/clusters/early-recovery

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2.1.2 DiscussInstitutionalLeversAnFSP’sinternalmotivations,characteristics,andstrengthsallinfluencewhetherandwhenabusinesscasemayexistforservingrefugees,relativetootherproductlinesandclientsegments.Consideratleastthefollowingquestions(andseeAnnex1formore):• Howstrongofadriverisoursocialmissionand/orcorporatesocialresponsibility?• Whatistheinstitution’scapacityandinfrastructuretoallocateresourcestoincludingrefugees?• Overwhattimehorizondoweexpect(orrequire)profitabilityfromincludingrefugees?• Whataretheopportunitycostsofincludingrefugeeasopposedtoinvestingresourcesintoother

ventures?Basedonthemarketinformationobtainedfromtheprotectionordevelopmentagenciesinyourarea(seesection2.1.1),considerhowwellyourFSP’sinfrastructure(branchnetwork,agents)ispositionedtoservethegeographieswhererefugeesarelocated.CanyourFSPeffectivelyreachtheseareas?Doesitrequireinvestmentinadditionalmeansoftransportforstaff?Innewdistributionchannels?Alsoconsiderwhatitwouldtaketoprepareyouroperations,systems,andcurrentstafftoserverefugees.Developingastrategyforoutreachandmarketing,adjustingeligibilityandappraisalcriteria(includingin the MIS), and working with new partner organizations can require substantial managementattention, staff time (and in somecases,new staff appropriate to the refugeemarket), andotherresources.IsyourFSPwillingtodevotethenecessaryresourcestothetask?Additionally,considerthelevelofpossibleinternalresistance.Recallthatinclusionofrefugeescanbeasensitiveissue,anditwillbeimportanttoorienttheentireorganizationtoamoreinclusiveportfolio.Specifically,departmentssuchasmarketing,informationtechnology,finance,andoperationsneedtobebroughtintotheprocessearlyon,inordertobuildbuy-inandsupportacrossdepartments.69Itisvital to ask staff at all levels, aswell as existing clients, what they think about the idea. Allocateexperiencedfieldstaffandusefocusgroupstodiscusstheissuesandmakesuretonoteconcerns.Thegoalistocreateastrategythatallstakeholders,especiallystaffandexisting(national)clients,canbuyinto.Thesocialand/orstrategicmission,reinforcedbystrongsupportfromtheFSPleadershipiscriticalfordeterminingabusinesscase,becauseithelpstojustifyupfrontinvestmentsandensurethepatienceofthemanagementandboard.70ThepioneeringFSPsontherefugeeinclusionfrontieremphasizetheimportanceofaclearstrategyforinclusionof“allpoorinthecountry”(indifferentofnationality),andtheneedforvisionaryleadershiptosupportsuchastrategy.Inadditiontomanagementandboardconversations,askexisting funders/investors/shareholderswhether theyare interested in thenewventure.What is their expected timehorizon for increased financial revenue? During themarketscopingyoumayhaveuncoveredopportunitiesfornewfundingfromprotectionagenciesorothers.While this may be an incentive to proceed, consider the size and time horizon of such fundingcompared to the estimated investment and the time it will take your FSP to plan and pilot theexpansion.Theinitialreviewoffeasibilityshouldgiveyouasenseofthepotentialbenefitsandrisksofexpandingtheinclusivefinancefrontiertorefugees.Atthispointintheprocess,youshouldbeabletoanswerthefollowingquestions:• Howlargeisthepotentialnewclientsegment,andhowdotheydifferfromyourexistingclients?• Whatare themain legal, informational, andproceduralbarriers toexpanding inclusion to this

clientsegmentbyyourFSP,andcanthesebeovercome?

69http://www.fi2020progressreport.org/addressing-customer-needs/70CGAP:TheBusinessCaseforYouthSavings,op.cit.

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• Whatisyourcorerationale(valueproposition)forexpandinginclusiontorefugees?• Whatarethemaincostsandbenefits?• Whatarethemainconcernsamongyourkeystakeholdersthatastrategyshouldaddress?Withinformedanswerstothesequestions,aboard(withmanagementandowners/investors)shouldbeabletodecidewhetherornottoproceedtotheplanningphase.Iftheconclusionisthatfurtherengagementisfeasible,youarereadytotakethenextstep.Ifitisnot,atleastyouwillhaveansweredthequestionof“whynot?”forthetimebeing. 2.2 Step2:CreateaStrategicPlan Leadership has decided that serving refugees is potentially feasible. Now, management shoulddevelopaplanforanin-depthlookatthenewclientsegmentandatthedriversofcostsandrevenues(seeFigure4)thatarelikelytoinfluencetheeventualbusinesscase.71Figure4:ResearchingtheClientSegmentandtheFSP’sResponseCapacity

Atthistime,itisagoodideatoidentifya“champion”insidetheFSPwhoisultimatelyresponsibleforgettingthestrategicplanningprocesstothefinishline.Ensurethechampionisaffordedthenecessaryresources,includingtimeawayfromothertasks,todevelopthestrategy.ThechampioncouldbetheheadoftheSPMcommittee,stafffromtheresearchanddevelopmentdepartment,oranexecutiveboardmember.Regardlessofwhoischosen,theywillneedconsistentandongoingboardsupportandencouragement,andtheabilitytocallcross-departmentmeetingsonaregularbasis,inordertobringandkeepeveryoneonboard.Throughout the process, make sure to keep all stakeholders fully informed – including staff andexistingclients.Theyneedtoseetheirconcernsbeingheardandaddressed.Usenewsletters,staffmeetings,clientforumsandfeedbackfromexternalstakeholders,includingfundersandinvestorstoincreasebuy-in.Asthestrategydevelops,shareitwithlocalandnationalauthoritiesasrelevanttogarnersupportandapprovalsifneeded,andshareyourplanswithprotectionagencies(forexamplethrougha livelihoodclustergroup, if itexists), toestablishpotential linkages toadditional fundingand/orprovidersofnon-financialservices.As your strategy becomes public knowledge, expect increased visibility and potential offers ofadditionalsupport,aswellascritiquesfromstakeholdergroupsthatyoumaynothaveincludedfromthestart.Makesuretohaveacommunicationstrategythatcanaddresssuch increasedattention,suchasanFAQsheet,aflyeroraletterexplainingwhereyouareintheprocess,andaddnewcontactstothedisseminationlist.

71AsemergingknowledgeonrefugeepopulationsingeneralhasbeenpresentedinSection1,andastheclientsegmentanalysiswilldifferineachcountryandbespecifictoeachFSP,wecombinethesetwolevelsofanalysisinthissectionoftheguidelines.

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2.2.1 Segment-specificLeversThe inclusion of any new client segment requires careful and client-centric market research. Todevelopastrategyforinclusionofrefugees,in-depthclientmarketresearchisnecessary,becausetheinformationgap–andthelevelofprejudice–istypicallyhigher.Thekeyquestiontoconsideris:• Whichclientsub-segment(s)ofrefugeesshouldyourFSPtarget?TheanswertothisquestionwillvarybetweenmarketsandamongFSPs.Theoverallpotentialmarketinformationobtained in the feasibilitystudywill informtheanalysis,aswill the type,mission,andprofileoftheFSPandthecharacteristicsofitscurrentclientele.Asforanyclientsegmentexpansion,includeadeeperanalysisof themarketandbusinesscompetition in thedifferent localitieswhererefugeesareactive,includingexistingandpotentialvaluechains,andtheirviabilityforexistingandnewenterprises.Inparticular,assesstheavailabilityofreliefandothergrant-based(“free”)services,which may have created a high level of dependency or even entitlement among some refugeesegments,whichcouldimpactthecreditculture.BeforeyourFSPcanbeginthesegmentresearch,youmustfirstfindpotentialclients.2.3 Step3:MakeContactwithRefugees FindingrefugeesintheFSPmarketcanbeachallenge.Whendisplaced,peopletendtoseekoutthenearestormostlikelyplaceofassistance.Hence,refugees’firstpointofcontactinanewlocationisoften a protection agency (government/UN/INGOs), family, friends, or community associations.Duringthisstep,usethecontactsestablishedinthescopingphase—includingauthorities,UNHCRandprotectionagencies—toseekoutgroupsofrefugees.Inaddition,theIOM,72diasporaassociationsandmigrantcommunityorganizationsornetworksaregoodplacesto initiatethecontact,especially inenvironmentswhererefugeesareprimarilyself-settled.FSPscanalsolookforrefugeesinthevaluechainswheretheymayhaveanadvantage.Likeanyotherentrepreneur,refugeesseekingtoearnalivingintheinformaleconomywillevaluatetheirownskillsandexperienceandlookformarketgaps.Suchopportunitiesoftenincludegoodsorservicethatareindemandathomebutmissing in thehost environment, suchas ethnic food stores, restaurants,grocers,music/eventservices,andremittanceproviders.Make your FSP more visible as a potential service provider by meeting and posting informationmaterialsinappropriatelanguagesatUNHCRoffices,municipalsocialdevelopmentcenters,schools,healthclinics,placesofworship,andstoresthatserverefugeepopulations(e.g.,supermarketsandothermerchantsaccepting refugeee-vouchersor cards).Alsoconsiderusingonlineplatformsandsocial media, which are widely used by refugees. For example, theWelcome to Europe platformW2Eu73orService Info inLebanon,which isanewpilotwebsitethatrefugeesusetofindandrateresourcesthathelpeasethetransitiontolifeinanewcountry.74

72IOMisoftencontractedbygovernmentstoprovidepre-departureinformationandarrangementsforresettlingrefugeesin addition to theirworkwith thewidermigrant communities, so theymaybothhave valuable informationon refugeepopulationsaswellasbeagoodplacetodisseminateinformationtoremainingrefugees.73http://w2eu.info/74https://en.reset.org/blog/web-platform-provides-service-info-syrian-refugees-lebanon-09142015

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Considerhostingasocialevent75tobringtogetherexistingclientsandrefugees,orparticipateincommunityeventshostedbyotherorganizations.Refugeesareoftensociallyisolatedandvalueopportunitiesforinteractionwiththeirnewneighbors.Initialsocialorinformationmeetingscanwork well as a first filter and a point of interaction tocollectdataoninterestinandpriorandcurrentusageoffinancial and non-financial products and services.Consider conducting such meetings jointly for similarsocio-economic segments of new national and refugeeclientstofostersocialrelationships, reducecompetitionconcerns among existing clients, and thus facilitatesubsequent group formation for savings- or group-guaranteedloanproducts.Connectingwiththemigrantcommunitiesandespeciallytheir financial service providers can yield importantinformation on usage of financial services by non-nationals, including refugees. Contact mobile networkoperators and remittance service providers (whetherformalorinformal)toexplainyourintentandaskaboutdemand.Indoingso,youmayalsofindopportunitiesforclosercooperationoragentlinkages(seeBox3).Ifrefugeesinyourareaareencamped,itisoftennecessarytogetpermissionfromnationalandcampauthoritiesprior toaccess,andthe levelofaccessmayberestricted,alongwiththemovementofrefugeesinandoutofthecamp.However,asEquityBankinKenyahasdiscovered,76itisoftenworththeefforttoexploreencampedclientsegments,asmanycampshavetheirowninformaleconomiesdrivenbyrefugeesthemselves(oftenwithcloseandconsistenttradetiestohostcountrynationals),whocouldbenefitfrommorestructuredfinancialservices.Requestmeetingswithcampmerchants,

suppliers, and retailers tobetter understand thelivelihood options andeconomic strategies thatappear tobe successful inandaroundthecamp(seeBox 4). Remember toenquire about trade andother economic networksto the surroundingmarkets.

2.4 Step4:SegmentPotentialClientstoDetermineWhomtoServe Segmentationreferstodividingaclientbaseintogroupswithsimilarcharacteristics.Segmentationisimportantforallclientsegmentsandisabsolutelyvitalforidentifyingrefugeeclientswiththebestchanceofsuccessfullyusingyourfinancialservices.Segmentationshouldbemanagedinternally;FSPscurrentlyservingrefugeesagreethatclientselectionandappraisal(i.e.segmentation)mustnotbe 75Seeexampleat:http://www.emnbelgium.be/news/open-door-day-migrant-entrepreneurs76EquityBanknowoperatestwobranchesinKakumaandDadaabrefugeecampsrespectively,servingsome15,000refugeeclientswithtransactionalsavingsaccounts,individualandgrouploans.

Box3:Who(else)remitsmoney?Migrants–andbyextensionrefugees- use informal remittance providers(“Hawala” or “Hundi” operators)operating frommobilephone shops,travel agencies and groceries.Compared to FSPs and registeredMoney Transfer Operators (MTOs)these unregistered transfers arerelatively anonymous, fast andinexpensive. Remittances are alsosentbymailandhand-carriedacrossborders by themigrants themselvesorfriends,family,oratrustedagent.Migrants’ associations, churches,mosques and other religiousorganizations also play a role inremittancetransfers.Source: A. Kosse and R. Vermeulen:Migrant’s choice of Remittancechannel, ECB Working Paper 1683,June,2014.

Box4:CampmarketsareoftenvibrantTheKakumarefugeecampinKenyaishometoover177,000refugees,mainlyfromSouthSudan,Somalia,andEthiopia.Despiterestrictionsonmovementanda constrainingbusiness environmentwith limitedemployment opportunities, the camp hosts a vibrant economy thatserves both refugee and host communities. The services industry isparticularlyrobust, includingthesaleofgroceries, food, clothes,andelectronics,aswellashotelandrestaurantmanagement.Source:SamuelHall:AMarketAssessmentandvaluechainanalysisinKakumaRefugeeCamp,Kenya,May2016.

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outsourcedtoauthoritiesorhumanitarian/protectionagencies,astheytendtoselectorreferonlythemostvulnerable,whileFSPsingeneralcanbestservetheworkingorentrepreneurialpoor.Useasegmentationmatrixtoidentifywhomamongtheidentifiedrefugeecommunitiesyoucanbestserve.Whensegmentingdifferentcommunitiesorgroupsofrefugees,consideratleastthefollowingsegmentationcriteria.Foreachcriterion,decideonparametersthatwouldqualify/disqualifyclientsfrominclusionbyyourFSP,suchas:• Migrationplan,whichincludesthearrivaldateandexpecteddurationofstay.• Languageskillsandlocalmarketfamiliarity.• Socio-economic wealth group (as compared to neighbors, whether in the host community or

camp),including:o Materialwealth(assetsandincomeversushouseholdexpenses);o Financial education (literacy) level, and financial service experience and preferences,

includingpriorandcurrentusageofbankaccounts,remittances,payments,savingsandotherproducts;and

o Currentandpriorbusinessexperience(includingfromtheircountryoforigin),businessplans,andrepaymentcapacity.Theseaspectscanalsobedeterminedatalaterstage,aspartofaloanapplicationandappraisalprocess.

FSPscansegmentrefugeepopulationsintheirareasintosocio-economicsegmentsusingelementsoftheGraduationModel,77ormoreconventionalwealth rankingorpovertyassessment tools.Whenusing poverty tools, however, be sure to include ameasure of financial exclusion (e.g., prior andcurrentaccesstoandusageoffinancialservices)assomerefugeesmaynotqualifyasmateriallypoor,butarestillfinanciallyexcluded.ThesegmentationprocessshouldenableyourFSPtodeterminewhichclientsub-segmentswouldbeabetterfitforyourproducts.Deselectsub-segmentsthatyoudonotthinkyoucanservewell,suchasthemostvulnerable,78thoselackingentrepreneurialpotential,orthosewhosemigrationplanistomovewithinashorttimeframe,forexample.Whilethismayseemlike“exclusion”tosome,itismoreimportanttochooseclientsegmentsthatyoucanservewell,thantobeall-inclusiveandserveclientspoorlyorloseyourinvestment.When determining the preferred client segments, factor in the level of xenophobia in your localenvironment.Ifyouareoperatinginanenvironmentthatishostiletorefugees,thenyourFSPmaywanttostartby includingsub-segmentsofrefugeesthatareperceivedtobe lessofacompetitivethreattothenationalpopulationandtoexistingclients.Often,womenandyoutharelessthreatening.Youmightalsostartbyfinancingbusinessesthatdonotdirectlycompeteincorenationalvaluechains.AlMajmoua in Lebanon took this approach, financing home-basedproduction of SyrianaghabaniembroideryandSyrianbreadbyfemalerefugees.79Asnationalclientsbecomemoreaccustomedtorefugee clients, your FSP can more toward giving equal access to all services for eligible clients,regardlessofrefugeestatusornationality.Afteridentifyingtheclientsub-segmentsthatyouaremostlikelytoservewell,itistimeforareviewofthefrontofficepaperworktodetermineifitis“refugee-ready.”

77SeeCGAP:ReachingthePoorest:LessonsfromtheGraduationModel,FocusNoteno.69,March,2011.78SeeWomen’sRefugeeCommission:DawnintheCity-GuidanceforAchievingUrbanRefugeeSelf-Reliance,October,2011.79SPTF:ServingRefugeePopulationsinLebanon-LessonsLearnedfromaNewFrontier.ACaseStudyofAlMajmouainLebanon,December2015.

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2.5 Step5:ReviewandAdjustEligibilityandAppraisalCriteria Atthistimeinthepreparationprocess,itisworthwhiletoreviewtheeligibilityandselectioncriteriaanddocumentationrequirementsthatarereflectedinmanuals,application,appraisal,andapprovalforms,especiallyforcreditproducts.Typically,anFSPdoesnotneedtomakedrasticrevisionstotheexistingeligibilitycriteriausedfornationalclients,butitmaybenecessarytomakeminoradjustmentsinordertoensurethatthenewclientsegmentwillactuallybeeligibleforyourservices.Smallchangesineligibilitycriteriacanmakeahugedifference,asthechangefrom“weserveallLebanese”to“weserveallpoorinLebanon”wasforAlMajmoua’sabilitytoincluderefugeesasclients.Youmayneedtoaddeligibilityfiltersthatexcluderefugeesyoucannotservewell(e.g.,theclientmustplantoremain in the localcommunity forat least12months),oryoumayneedtodropor revisecriteria,oratleastlookforalternatives.Lookespeciallycloselyatthelistsofdocumentationrequiredfor clients, for example, if your FSP requires specific identification documents and/or proof ofresidence/address,thismayautomaticallyexcludemostoftherefugeesyouwanttoserve.Tofindalternativestotraditionalidentificationand proof of residence documents, ask yourregulator which alternatives are acceptablewithin existing KYC rules. These could includeUNorUNHCRregistrationcards,consularIDs,80orIDsissuedbylocalauthorities.Also,consideralternative address verification methods,including physical visits, confirmations ofresidency from local authorities, landlords, orvillage/clan/religious leaders, or a digitalsolution, as presented in Box 5. Then, whileretainingthegeneralrequirementsofpersonalidentificationandgeographicpointofcontact,add “or other acceptable substitutedocumentation”toyoureligibilitycriteria.Checkyourmanualsandapplicationformsforrequirementsrelatedtotheconventionalconceptof“stability”usedformanyyearsinmicrofinance.81Globally,almostallFSPclientshavebecomemoremobile,andtheindustryislearning82thatpeopledonotneedtobestationaryinorderforfinancialservicestowork.WhileFSPswillneedaconfirmedgeographicalcontactpointforeachclient,itisnotnecessary that the client is there all the time. Consider revising your appraisal documents using“locationconsistency”(regularreturntotheplaceofcontact)asamoreappropriatecriterion,anddefinehowregularlytheclientneedstofrequenttheplaceofcontact.Themovementofclientscanbetrackedbytraderstheyregularlydobusinesswith,byschoolsorhealthclinics,orviamobilephoneactivity.Pioneersindigitalfinancial inclusionaredevelopingapplicationstocreatecustomer-approveduserprofiles thatallowFSPs toestablishpotentialbankability (creditscores).Considerusing thesenewtechnologicalalternatives,whichreplacethetraditionalcreditcriterionof ‘localroots’withahuge 80LiketheMexican“MatrículaConsular”issuedbyconsulatesandwidelyacceptedintheUSAasofficialidentification,seeGPFI,op.cit.81CGAP:SupportingMicrofinanceinConflict-affectedareas,DonorBriefNo.21,December,2004.82 For example from theworkofMercyCorps amongpastoralists in theHornofAfrica, as presented at the 2015 SEEPConference,seehttp://www.seepnetwork.org/2015-session-descriptions--full--pages-20788.php#FS1

Box5:OvercomingtheIDconstraintIn Zambia, FINCA offers biometrically linkedaccounts.ClientsareregisteredataFINCAbranchbyproviding a digital scan of their fingerprint. Then,when they make transactions at a branch or anagent outlet, they sign into their accounts byscanningtheir fingerprint.Thissimple,technology-enabled solution makes financial services easilyaccessibletoeveryone—eventhosewithoutformalidentification.Source:http://www.fi2020progressreport.org/addressing-customer-needs

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numberofotherdatapointsandanalytics,includinglocationconsistency,andthesizeanddiversityofabusiness-owner’scustomernetwork(seeexamplesinBox6).Duringtheappraisalprocess,makesuretoaskaboutexistingdebt,buttrainstafftoavoidtheaprioriexclusionarypracticeofdisqualifyingclientsthathaveanyotherloansoutstanding,asthisislikelyonlytoleadtoclientswithholdinginformationfromyourFSP.Whilemostrefugeesmayhaveborrowedfromfriendsandfamily,somemayalsohaveexperiencewithROSCAs,83whichcanbeanadvantagebecausetheywillalreadybefamiliarwithbasic loanandsavingpractices.Ratherthanactingasanautomatic disqualifying criteria, existing outstanding debt should be factored into a subsequentrepaymentcapacityassessment.

Oncepotentialrefugeeclientshavebeenidentifiedthroughsegmentationandinformedandscreenedat introductorymeetings,andinternalcriteriaandforms have been adjusted as necessary, thestandard FSP appraisal process for payments,credit,savingsand/orinsuranceproductsshouldbefollowed. However, it is advisable to putexperienced credit/business service officers incharge of conducting additional meetings to fullyappraiserefugeeclientsandeventuallyexplaintheproducts, terms and conditions on offer. Suchmeetingsmayneedtoberepeatedmorethanonce,and all meetings should be conducted inappropriatelanguagesorwithinterpreters. 2.6 Step 6: Conduct a Pilot Test andCompileDatafortheBusinessCase Thesegmentationandappraisalprocessmayhaveuncoveredspecificvulnerabilitiesordemandsinthenewclientsub-segmentofrefugees.Donotignorethese refugee-specificneeds.Decidehowyoucantake them into account in the sequencing, mix,range, and delivery mechanisms of products andservices.Apilottestofaproductisthebestwaytogaininsightsintowhichproductswouldworkbestandhowtheymightneedtobeadjusted,especiallyif your FSP does not have experience with non-nationals.

Aswithanyotherproductvalidation,decidewhetheryourFSPwants topilot test the inclusionofrefugees in one product/service in all branches, in several products in two or three branches, orwhetheryouthinkthereisdemandandcapacityenoughtoopenupmoreproductsinallbranchesfromthestart.

83Indifferentcountries,ROSCAsgobydifferentnames,e.g.susu’s,sanduq’s,orho/hui.

Box6:Phone-basedcreditworthiness• PERC—aUSA-basedthinktankdevoted

to use of alternative data in creditreporting—confirmsthatmanyformsofalternativedata,suchasrental,utilities,and cell phone payments, definitivelypredict creditworthiness and couldreadily be incorporated into creditscoringmodels.

• LaunchedbyCommercialBankofAfricaand Safaricom in Kenya in 2012, M-Shwari taps into thepersonalhistoriesof poor and unbanked customersregarding their telephone use andmobilemoney activity tomake credit-scoringdecisions.

Source:FI2020Progressreport:http://www.fi2020progressreport.org/technology.• FirstAccess inTanzaniaand InVenture

in Kenya use prepaid mobile phonehistory to assess borrowercreditworthiness on behalf ofmicrofinance institutions. Customersgrantconsentforaccesstotheirphonerecords and these companies analyzethat history to generate a loanrecommendation that is texted to theloanofficerimmediately.

Source:http://www.firstaccessmarket.com/andhttps://inventure.com/

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Designthepilotasyouwouldanyotherproductdevelopmentplan.84Ifstakeholdershaveexpressedsignificantconcernsovercredit risk,youcan limit the initialexposure (capital) to thenewrefugeeclientsegmentuntilastrongerrelationshipisbuilt,forexamplebystartingwithapayment/transfer(remittance),savingsand/orinsuranceproduct,ifthesearealreadywell-establishedproductsinyourportfolioandthedemandisconfirmedbytheselectedclientsub-segment.IfyourFSPcanonlyoffercreditproducts(withorwithoutcompulsorysavings),startwithalower-valueloanproductthathasaninitialtrainingandsavingsperiod,orsimilar.Makesurethatyoubudgetcosts,includingstafftime,forthepilotprojectaswellasthecompilationoffindings,clientfeedbackandlessonslearned,anddefinerelevantindicatorsofsuccessforthepilotandcollectbaselineinformationagainstwhichyoumonitorprogressandresults.Makesurethatyouroperations,riskmanagement,andMISdepartmentsarepartoftheevaluationteam.ThepilottestwillprovidemuchmoredetailedinformationonhowyourFSPcanbestmarketservicestothenewclientsegment(s),howproductsshouldbedeliveredinarefugee-inclusiveclientportfolio,whichadjustmentsmaybenecessaryinoperations,andhowyoucanbestidentifyandmitigatetherisks toensureeventualprofitability. InSection3,weexplore theseaspectsby linkingback to theprofitabilitydriversinthebusinesscaseframeworkpresentedinFigure2. Section3.PotentialProfitabilityDrivers As illustrated in Figure 2, the profitability drivers to be identified will eventually determine howcompellingthebusinesscasewillbe.Identifyingthekeydriversofcostsandrevenueduringthepilottestcanleadtoadjustmentsintheselectionofrefugeeclientsub-segment(s),butmostcommonly,itwillservetoclarifytheproductsequence,mixandrangetobeofferedtorefugees,andadjustthedeliveryapproachestoworkoptimallyfortheselectedsub-segment(s).Thekeyquestionstoaskintheevaluationofthepilottestinclude:• Whichapproachestomarketingwouldworkbest?• Whichproductsshouldweoffer,inwhichsequenceandthroughwhichdeliverychannels?• Whichoperationaladjustments/innovationswouldbenecessary?• Howdoweidentifyandbestmitigaterisks?• Willthisventurebeprofitableandwhen?In this section, the guidelines present evidence from research and experience from FSPs alreadyserving refugees to highlight recommendations, tips, and ideas structured as along the likelyprofitabilitydriverstooutlineapotentialbusinesscaseforincludingrefugeesasFSPclients. 3.1 MarketingFinancialServicestoRefugees Outreacheffortscanbedifficultandcostly,buttheycanalsobeveryeffectiveinbridginginformationbarriers,bringinginnewclients,creatingpublicity,andenhancingtheinstitution’sbrandimage.Duringthepreparationphase,yourFSPwill likelyhavemadecontactwithnewpotentialpartners,organisationsaswellasprivatesectorserviceproviders,sousetheopportunitytomarketyourFSP:bringinformationmaterialsandexplainwhatyoucanoffer.85

84Usinge.g.theMicroSaveToolkitsforPlanning,ConductingandMonitoringPilot-TestsorProductRoll-Out.Seehttp://www.microsave.net/files/pdf/1366178832_Overview_of_Toolkits.pdf85CGAP:TheBusinessCaseforYouthSavings,op.cit.

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Considerfacilitatinggreatercontactbetweennationalandrefugeeclientsbyconductingmarketingevents and informational sessions with mixed groups of existing and new national clients andrefugees. If your FSP already offers non-financial services—financial education or businessdevelopmentservices(BDS)—allowrefugeeclientstomixwithnationalsduringtrainingsessionsasawaytopromotesocialcohesion.FSPscurrentlyservingrefugeesallagreethatwordofmouthisthebestmarketingchannel.Ingeneral,refugeestendtotrustreferralsfromotherrefugees.Oncesomerefugeeclientsarebeingserved(well)byFSPs—forexample,duringthepilottest—theywillspreadthewordandbringinnewclients,andthuslowerthecostofmarketing.PrivatesectorpartnersandrefugeeshavingbecomefamiliarwithanFSParealsogenerallybetterreferralsthanauthorities,humanitarianNGOsorprotectionagencies,whotendtoreferaccording tovulnerabilityorneed,andhencedonotnecessarily refer themostappropriatepotentialclientstoyourFSP. 3.2 ProductsandServices:Sequence,Range,andMix Thefinancialneedsofappropriatelysegmentedrefugeesdonotdiffersignificantlyfromtheneedsofnationalclients.Servingrefugeesisnotaboutdevelopingspecificnicheproducts.Rather,itisaboutexpanding–and in some cases adjusting–existing products and services so that they also cater torefugees(andothernon-nationals).Assuch,productsshouldbestandardizedbutinclusivemeaningthat they are equally accessible to both refugees and nationals. In fact, as emphasized by all thepioneeringFSPsservingrefugees,itisimportanttoofferthesameproductsandservicestoallclients,includingrefugees,topromotesocialcohesioninthecommunityandreducehostilitybetweengroups. 3.2.1 Non-financialServicesAlmost all FSPs offer some kind of client training, but often the capacity extends only to basicinformationabouttheFSP’sproducts. Inductiontraininghasbeenbuilt into lendingoperationsfordecades, and the business case has been largely confirmed.86 However, for new refugee clients,inductiontrainingmaynotbesufficient.Manyrefugeesalsoneedmarketorientationtrainingtoknowtheirlegalrights,localbusinessregistration,taxandVATrules,andlocalmarketsandvaluechains,aswell as general life/social skills training, including topics suchas language, computers, health, andhousehold budgeting.87 Like many national clients, refugees also benefit from financial literacy,businessmanagement skills training, and technical training in self-selected,marketable vocations,particularly if the host environment differs significantly from that of refugees’ countries of origin,and/orifpriorexperiencewithmicrofinanceislimited.WearelearningfromFSPsalreadyworkingwithrefugeesthatmorecomprehensiveandcontinuousnon-financialsupportservices(NFS)arenotonlyavaluableadd-on88tostandardizedfinancialservices,butanessentialaspectofsuccessfullyservingrefugees.NotallFSPsofferNFSasitisanotoriouslycostdriverandrequiressignificantstaffresourcesandup-frontandongoinginvestmentforanexpectedbenefitofincreasedclientuptakeonmoreprofitableproducts,andbetterfinanciallyeducatedclients.ThespecificNFSprovidedbyFSPsvarywidelywithcontextandhistory,socialmissionandtargetmarket,theFSP’sinternalcapacityandanypartnershipsestablishedwithotherNFSproviders.However,ifyourFSPalreadyoffersNFSto(somesegmentsof)

86CitiFoundation:BridgingtheGap:TheBusinessCaseforFinancialCapability,March,2012.87 See featured initiatives and toolkits specific for refugees at EPALE – a European adult learning network https://ec.europa.eu/epale/en/blog/how-support-integration-migrants-refugees-and-asylum-seekers 88 PositivePlanet: Responsible Inclusive Finance andCustomer Empowerment, Thematic Paperby the e-MFPUniversityMeetsMicrofinanceActionGroup,September2015.

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nationalclients,enableaccesstotheseservicesalsoforrefugeesbasedonthefindingsfromtheclientsegmentationandappraisalprocess.NFS can be offered alongside remittance and savings products even before refugee clients areassessed as credit-ready, and can impact how successfully refugees will eventually use financialproducts.89 FSPscanuseNFSasanopportunity tobetterunderstand thisnewclient segmentandcreatemoreeffectivefeedbackloopsbetweenclientsandtheFSP,whichmayimprovetheproductofferinganddeepenclientloyaltyandretention.The segmentationmatrix discussed in Step 4 (see section 2.4) can help in establishing common-interest groups of national and refugee clients for specific NFS. As Al Majmoua in Lebanonexperienced,someNFSarebestofferedindifferentiatedgroups90—refugeesandnationalsmayneeddifferent technical and vocational training, for example—while other NFS work well in mixednationalitygroupswithasimilardemandprofile,includingtraininginhouseholdbudgeting,financialeducation,andpersonaldevelopment,aswellassocialactivities,suchascommunityclean-ups,treeplanting,andsportingeventstopromoteintegrationandsocialcohesion.As a continuing service offering, NFS can guideborrowers’ business development process, entryinto formal business ownership, or employment,andcanbeamutuallearningexperience.Refugeesbenefitfrommarketinformationtobetterintegrateandbecomesuccessfulintheneweconomy,whileFSPs staff and existing clients can benefit fromincreased knowledge of the refugees clients’economicstrategies.91NewwaysforongoingNFStogenerate potential increased uptake and cost-savingsincreditprovisionareemerging(seeBox7).Retaintheprincipleofequaltermsandaccessbyallclients to any NFS offered. This may requirenegotiationwithexternalfunderswhomaywishtoprimarilyorexclusivelyfundsupportservicesforrefugees.Explaintosuchfundersthat“specialtreatment”forrefugeesislikelytobreedresentmentamongnationalclients,andcouldspelldisasterforyourportfolioquality.Setanoverallgoaltoserverefugeeandnational clients equally,whilemaintaining flexibility to allow fordisaggregating clientgroupsbyinterestinspecificactivities.BasespecificNFSofferingsonclientdemand,andinvolveclientsinthedesignofcurricula,topics,anddeliverymethods.Createinformal,safespacesforrefugeeandnationalclientstomeetwithstafftodiscuss needs anddemandsbasedonmarket opportunities, andengageexperienced staff to alsoobserve and listen out for unspoken needs. Listen for constraints such as transportation to theactivitiesandtiming(e.g.,preferencesforweekendormorningactivities).Askfor ideastoaddressconstraints—clientsmaywellhavealternativeideasthatyourFSPhasnotthoughtofyet.IntheNFSdesignprocess,theabilityandwillingnessofallpotentialclientstocontributetothecostofNFSshouldbe explored, including identifying (paid or volunteer) trainers/facilitators fromamong the refugee

89KathleenE.Odell:MeasuringtheImpactofMicrofinance:LookingtotheFuture,GrameenFoundation,January,2016.90AlMajmoua:ImplementingPartnerPerformanceMonitoringReporttoUNHCRfor2014forlivelihoodcenterinMt.Lebanon,15February,2015.91 SeeK.Krell:TheImpactofMicrofinanceonAfricanRefugeesinUrbanAreas–Casestudy:CongoleseRefugeeWomeninTelAviv,[undated].

Box7:ApeekattheFutureofNFS?RevolutionCredit,anonlinelenderintheUnitedStates,offersonlinecoursesandvideostoincreasefinancialliteracy,andwhencustomerstakeacourseorwatchavideo,itisrecordedintheirclientprofile.Theideabehindtrackingtheseactivitiesistoidentifyconsumerswhoarelessriskyborrowers.RevolutionCreditdoesnotaimtoreplacecreditscores.“It’sreallymoreofabooster,”saysfounderZaydoonMunir.Source:http://www.fi2020progressreport.org/technology/

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community–especially if there are language barriers and/or topics include technical skills trainingspecifictoacommunity,forexample,“ethnic”handicraftsorfoodproduction.DuringNFSactivities,expecttensionandbepatient.AlMajmouafoundthatittookanaverageoftwosessionsamongyouthandfoursessionsamongwomeninLebanonforNFSparticipantstostartfeelingcomfortabledealingwitheachother.92Asrefugeesareoftenlessintegratedinthelocalcommunityandmighthavehadexperienceswhichtriggerdistrustinnewinstitutionalsettings,trainstafftofocuson personal relationship-building with new refugees both during meetings and in between. Forexample,staffcansendreminderSMSsaboutmeetingtimes,topicscoveredduringthelastmeetingand send something as simple as birthday greetings. Build trust by delivering on promised nextactivities,ratherthanover-promising.EvenwiththelikelybenefittotheFSPofmoresuccessful,moreloyalclientsoffinancialservices,NFSisundeniablyexpensive.FewFSPsareofferingNFSasan integralpartoftheirproductrange, fullycross-subsidizedbytheloanportfoliorevenue.93SomeFSPscoversomeoftheNFScostsbychargingparticipation fees, or by cost-sharing with business development providers, NGOs or sometimesbanks.OtherFSPsoutsourceorpartiallyoutsourceNFSmanagement(includingfundraising)tootherinstitutionsorsistercompanies,sometimeswithavisiontoestablishanincreasinglysustainableentity(suchasan“academy”) focusedexclusivelyoncommerciallyviabletraining,businessdevelopmentservices,andtechnicalassistanceservicestoclientsbutalsotootherFSPsasconsultingexperts.Mostcommonly,however,FSPsraiseexternalgrantfundingtocoverthecostsofNFS.Suchfundingisoftenshort-term,andthereforemostappropriateforresearch,preparation,andpilotprojectstohelpdevelopmodelsformoresustainable,ongoingprovisionofNFS.EvenifyourFSPcoversNFSthroughshort-termprojectfunding, it isabsolutelyessentialtoavoidstop-and-goNFSprovision.Developalonger-termplanfor“graduation”orreferralofNFSparticipantssothatthemajoritygainaccesstoyourfinancialservicesortootherprovidersofcontinuingNFS.ThecommitmentofanFSPtoserveclientsinthelong-termisacoredeterminantforloyalty,andabandoningNFSclientsduetofundingconstraints isahugeopportunitycostwithseriousconsequences forclient retention,especially incompetitivemarkets.ThereareoptionsformakingNFSaccessedbyrefugeesmorecosteffective.TheFrenchFSPADIE,forexample,reducescostsbyrecruitingretiredbankstaffasvolunteerstoconducttrainings,provideBDSandmentorclients.94MicroFyinIsraelhaspartneredwithTelAvivUniversitytodeliverBDScoursesto refugee clients.95 Your FSP could explore NFS partnerships with (I)NGOs that already provideintegrationandwelcomeservicesforrefugeesinyourarea,betheyfaith-based,suchastheDiakonieinAustria,96orrefugee-specificliketheRefugeeServicesofTexas.97Theymaybeabletoofferfinancialeducationaswell.SomehumanitarianNGOsliketheInternationalRescueCommittee(IRC)alreadydeliver financial literacytrainings torefugees in theUSA.98Cost-cuttingpartnershipsmightalsobeforgedthroughpublic-private-sectorbusinessplatformswhichareemerginginsomecountries,suchas the Humanitarian Private Sector Partnerships Platform (HPPP) in Kenya that arranges“business2business” meetings between national and multi-national company representatives andrefugeeentrepreneurs.99

92Ibid.93EmergingbusinessmodelsforintegratedNFSmaycomefromBRAC,SEWABankIndiaandBancoAdopemintheDominicanRepublic.94http://www.adie.org/nos-actions/nos-services-aux-micro-entrepreneurs95http://www.microfy.org/#!about/v98l096https://diakonie.at/english97http://www.rstx.org/about-us.html98https://www.rescue.org/99http://www.unocha.org/top-stories/all-stories/east-africa-how-make-living-refugee-camp

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Providingmarket-ledvocationaltrainingwiththeaimtogetrefugees(andotherclients)intoformalemploymentwhileretainingthemasfinancialservicesclientsisanother“graduationmodel”usedbysomeFSPs.Asdecadesofexperiencewith thisapproachhasdemonstrated,however, incentivizedapprenticeshipsorjobplacementsdonotalwaystranslateintosustainableemploymentinthelonger-term.100Continuedaccesstoemploymentorincomestreamsmaybebetterachievedbylinkingclientstosustainable(commercial)valuechainsmanagedbysocial(orsociallyresponsible)enterprises.Buildon the initiativeanddrive that refugeesmaydemonstrate themselves,and/or link topublic-privateprogrammesthatoffercommercialjobplacements(seeBox8forexamples).

3.2.2 FinancialServices 3.2.2.1 Remittances,Transfers,andPaymentsRemittancesaredefinedascross-border,person-to-person(P2P)paymentsof relatively lowvalue.Theproportionofrefugeesinthemigrantremittancemarketisnotaccuratelyknown,butitislikelythat a significant segment of refugees already send and receive remittances,101 whether throughformalorinformalchannels.TrendsinEuropesuggestthathighereducationallevelanduseofotheronline/mobile banking platforms correlates with increased use of formal remittance providers,102whereas refugees with limited host country language skills and/or insufficient ID documents forsendingand/orreceivingremittances,moreoftenusetheinformalremittancesmarkets.103NotetheextentthatpotentialclientsuseremittancesandtheirpreferredprovidertypeduringStep4.ForFSPs thatoffermoney transfer services, remittancescanbeanatural transaction intercept,ortouchpointtounbankedrefugees,andafoundationonwhichtoofferotherinclusiveandsustainable

100Foroneexampleamongmany,seeWRC:DawnintheCity,op.cit.,p.20.101GlobalPartnershipforFinancialInclusion(GPFI),theWorldBank,andtheInternationalFundforAgriculturalDevelopment(IFAD):Theuseofremittancesandfinancialinclusion,Sept2015.102A.KosseandR.Vermeulen:Migrant’schoiceofRemittanceChannel–DoGeneralPaymentHabitsplayaRole?,ECBWorkingPaperSeriesNo.1683,June,2014.103SeeCarlosVargas-Silva:RemittancesSenttoandfromRefugeesandInternallyDisplacedPersons,KNOMADWorkingPaperno.12,March2016.

Box8:PromisingPracticesforlinkagestoformalemployment• EthiopianrefugeesinDallas,USA,gained“onthejob”trainingineasy-to-findjobsatconvenience

storesinordertogainmarketandbusinessskillsinsteadofexpensivetraining,andhencebuiltuptheirskillsandpotentialasfutureentrepreneurs.

Source:http://www.fmreview.org/innovation/nibbs.html• UpwardlyGlobalintheUSAoffersjobplacementsforskilledimmigrantsandrefugeesbytraining

andlinkingthemtocompanieslookingtorecruitandretaininternationally-trainedtalent.Source:https://www.upwardlyglobal.org/us-immigration-issues• TheexternallyfundedproductionworkshopestablishedbyAlMajmouainLebanonincollaboration

withthesocialenterpriseArtisansduLibanhasenabledtrainedSyrianrefugeewomentoproducehandicrafts-to-order from home. Supplies are pre-financed and designs are delivered to theproducers,withfullpaymentprovideduponpick-upandqualitycontrolofthehandicrafts.

Source:SPTF:CasestudyofAlMajmoua,op.cit.,annex3• Therefugee-runagriculturalwholesalerKyangwaliProgressiveFarmersLtd.buysupproducefrom

smallerrefugeegrowersinUganda.• ThesocialenterpriseTechnologyforTomorrowinUgandatrainsandemployscamp-basedrefugees

toproduceMakapads(sanitarynapkins)fordistributionbyUNHCR.Source:HIP:RefugeeEconomies,op.cit.

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financialservices,creatingwhattheGlobalPartnershipforFinancial Inclusion(GPFI)calls“financialcitizenship”104 forthenewcustomers.Thismodel isexemplifiedbyafinancial inclusionproject forEurasianmigrantsinEurope,whichhelpedbanksandmicrofinanceinstitutions(MFIs)conductmarketsurveystoanalyzerecipientbehaviorandfinancialskillsespeciallyfocusedonremittances.Usingthetransactioninterceptmodel,agroupofeducatorswerecontractedandtrainedtoofferon-the-spotindividualized 30-minute interview sessions with remittance customers waiting in line in bankbranches.Sessionscoveredthetopicsoffinance,budgeting,andpersonalday-to-dayfinance,beforepotential clients were invited to open an account with the bank. The project was successful in“converting” 42% of unbanked remittance senders to bank account holders, and banks weresupportive. Some banks removed fees on deposit accounts, included financial education in theircustomerrelations,andoftenhiredtheeducatorsasmarketingagents.105PaymentsandP2PtransferscouldinprinciplealsoserveaspotentialtransactioninterceptsbetweenFSPs and refugees that use mobile money platforms to send or receive payments, includinghumanitarian cash transfers. So far, research into the use of mobile money suggests that mostdisplacedpersonswithdrawthemajorityofreceiptsimmediatelyanddonotusemobileplatformsforsavings.However,FSPsmaybeabletoleveragerefugees’familiaritywithmobilemoneychannelsbyofferingothermobilemoneyproducts.Mobilemoneyplatformscertainlyhaveadvantagesintermsof lower transaction and time costs for clientswho havemobile devices and access to power forcharging.Additionally,managingmoneyonmobileplatformscandecreaserisksoftheftandmisuseforclients,aslongaspersonaldataisadequatelyprotected.Thesedeliverychannelsrelyonawell-trainedandconsistentlyliquidagentnetworkaccessibleinsafetransaction(cashout)spaces.106MostMFIsarelimitedbylawtoconductoperationsinnationalcurrencies,sotheyaremainlyinvolvedintheremittancemarketplaceasagentsofnationalorinternationalMTOs.Thisreducesthemarginonremittanceservicesandmaydampentheappetiteforengaginginsuchpartnerships,eventhoughremittanceservicesare indemandbytheircustomerbase,andbyrefugees inparticular.Similarly,regulations,liquidityconstraints,andlimitationsinbankingsystemsmaypreventthementeringthepaymentsmarket.Bycontrast,FSPswithfullbankingserviceshavedevelopedstrategiestocross-sellexistingproductstoremittanceandpaymentrecipients,evenifonlyafewareleveragingtheircomparativeadvantagestoprovidecomplementarytransactionaccounts,likesavings,insurance,andloanproductstobetterserveremittanceusers.107EquitybankinKenyabreaksthismold.IthasbuiltasuccessfulbusinesscaseforitstwobranchesinDadaabandKakumarefugeecamps,respectively,onaprofitablemixofcash-basedtransferservicesforhumanitarianagencies,salaryaccountsforlocallybasedstaff,remittancesandpaymentservices,aswellassavingsaccountstostarttheirclientrelationshipswithrefugeeslivinginthecamps.108TheEquityBankcaseexemplifieshowFSPscanearnrevenuebytransferringcashfromhumanitarianagenciestorefugees.SuchcontractswithhumanitarianagenciesrequiretheFSPto have the right infrastructure and capacity, including sufficient liquidity and scalable deliverysystems such as accounts linked to debit/ATM/smart cards. Keep inmind thatwhile they can beattractivefromarevenueperspective,suchcontractsarenotnecessarilygoodtransactioninterceptstorefugeeclientsastheclientselectionprocessisnotwithinthecontrolofthecontractedFSP.

104GPFI,op.cit.,p.10.105TheprojectswassupportedbytheEuropeanBankforReconstructionandDevelopment(ERDB)andMicrofinanceCenterPolandprovidedtechnicalassistance.SeeGPFI,2015,op.cit.,Casestudy4.ThetransactioninterceptmodelwasoriginallypioneeredbyBanProinNicaragurawithsupportfromIOMandtheInter-AmericanDevelopmentAgency.106SeeGSMA:DisasterResponse–MobileMoneyfortheDisplaced,December2014.107GPFI,2015,op.cit.108InterviewwithGMA.WanjukiNdwigaofEquityBankKenya,27June2016.

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Humanitariancashtransfers,whethertransferredphysically,electronically,orviamobileplatforms,remaincashgrants.Thegraduationofrefugeecashtransferrecipientstofinancialserviceprovisionisneitherorganicnorautomatic,andattemptsbyyourFSPtocapturepotentialrefugeeclientsfromorviacashtransferprogrammesshouldbeprecededbycarefulsegmentation,appraisal,andinformationdissemination to avoid the confusionof terms and conditionswell-known fromhistoric failings toinstitutionally segregate the two types of service provision. Cash-based transfersmay be amorepromisingtransactioninterceptforpublicsocialprotectionservices,i.e.Government-to-People(G2P)paymentsineconomieswhererefugeesareeligibleforpublicgrants.3.2.2.2 SavingsProductsThere is a likelydemand for safe, inexpensive, andaccessible small-value savingsproductsamongrefugees,startingfromtheinitialdisplacementphase(seeTable1),evenifevidencefromthebroadermigrant community does not suggest a high usage of mobile money platforms to store savings.UnbankedrefugeesmaystorecashathomeorsaveininformalROSCAs.109 Savings products with no- or low-fees and low minimum-balance requirements do not generatesubstantial revenues for FSPs, but the business case for small savers looksmore promisingwhenopportunitiestocross-sellmoreprofitableproducts(payments,remittances,andcredit)arefactoredin.Thekeyrevenuedriversareloans,otherfinancialproducts(insuranceormoneytransfers),savingsaccountfees,technology(e.g.ATMs),andhigherloaninterestratesforsmallerandotherwisecostlier-to-maketypesofloanstosmallsavers.110 Deposit-takingFSPsandMFIsactingasagentsforbanksmaywellbeabletocross-sellacompetitivepackage of products to refugees starting with a savings account which might double as apayments/transactional account tomanagepayments toor frompublicorprotectionagencies. Inadditiontogeneralstorageofexcesscash,refugeesmightalsobe interestedintheopportunitytograduallygenerateacashdepositforaloan,asanalternativetofindingnationalguarantors(seeBox9).For FSPswith a longer-term profitability horizon, savings products specifically for youth could beextendedtoincludesegmentsofrefugeeyouth,giventhathalfofallrefugeesworldwideareyoungerthan18yearsofage.Theremaywellbeastrongbusinesscaseforofferingsavingsservicestorefugee

109Seeemergingevidenceofthisathttp://odihpn.org/magazine/loan-cycles-of-innovation-researching-refugee-run-micro-finance/110CGAP:IsThereaBusinessCaseforSmallSavers?,OccasionalPaperno.18,September2010.

Box9:Savingsandpaymentsbeforeloans• EquitybankinKenyaopenedbranchesinDadaabandKakumarefugeecamps,buildingthebusiness

caseona combinationof revenuefromcash-basedtransfers (viadebitcards) fromhumanitarianagenciestorefugees,andthepotentialforlocalsalaryandsavingsaccounts.InKakumacamptoday,some23%ofall30,000savingsaccountsareheldbyrefugees,andaround200refugeeshavetakenindividualloanscollateralizedbystockorchattel.

Source:InterviewwithEquityBank,Kenya,27June2016• InordertotakealoanfromMicroStartinBelgium,clientsmusthavea50%personalguaranteefrom

aguarantor.However,becauseMicroStartknowsthatitisdifficultformigrantsandrefugeestofindguarantors,theyofferanalternative.Theclientopensaseparatebankaccountthats/heusestosaveacashdepositasaguaranteefortheloan.Oncetheclientsavesenoughfortheguarantee,s/heiseligibleforaloan.Adoublesignaturebyaloanofficeroradvisorisrequiredforwithdrawalsfromtheaccount.

Source:http://microstart.be/fr/services-proposes

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youthforestablishedFSPsthatseeopportunitiesfordevelopingfuturemarkets,andforadditionalcross-selling opportunities, including life insurance, building society contracts, credit cards, andconsumerloans.111Fornon-depositmobilizingFSPs,thestandardinductiontrainingcombinedwithcompulsorysavingsmaymimictheincentivesofasavingsproduct. 3.2.2.3 InsuranceProductsUrban refugeeswith retail businessesmay demand theft and firemicro-insurance, whereas ruralrefugeepopulationswithaccesstolandcouldbeinterestedinagricultural,weather-basedindexandlivestock insurance, including Shariya-compliant Takaful products.112 Including refugee clients ininsuranceproductsisanotherwaytobuildafinancialclientrelationshipwhileprovidinganimportantservice.Ineconomies thatdonothavepublic social insuranceschemes,orwhere refugeepopulationsaresystematicallyexcludedfromsuchschemes,healthinsuranceforclientsandtheirfamiliesislikelytobeinhighdemand.Amongpoornationalsincountrieswherehealthcareisparticularlyexpensive—forexample, inJordanandLebanon—meetingthecostsofanunexpectedhealthemergencyisthemostcommonreasonwomengiveforhavingtoliquidateordecapitalizetheirbusinesses.113Assuch,a health insurance product extended to refugees could also serve to lower FSP credit risk. TheMicrofundforWomeninJordanisconsideringexpandingitscreditandcompulsoryhospitalplanforfemaleborrowers,Afituna(“Caregiver”)toSyrianrefugees.Clientspayanominalmonthlypremiumwith their loan repayment and receive 15 JOD (USD 21) cash pay out for each night they or anymemberoftheirfamilyspendinhospital.114Whileabusinesscasehasbeenmadefor life insurance,personalaccidentandfuneralcoverageaswellashealthcoverslikethe“hospitalcash”productmentionedabove,microinsurancerequiresFSPsto maximize scale and minimize administrative costs.115 If your FSP already has a pooled andunderwritten credit life or health insurance or hospital plan in place for national clients, considerincludingrefugeeclientstoo. 3.2.2.4 CreditDespite a high demand for credit among refugees, careful client appraisal including a detailedassessmentofrepaymentcapacity isnecessarybeforeofferingcreditproducts,sincenoteveryonewillbenefitfromdebt.Keepinmindthatsomerefugeeswillprefergrouploansandothers–typicallylarger,moreestablishedentrepreneurs–willpreferindividualloans.Solidaritygrouplendingasamethodologyworksbestwhengroupsself-selecttheirmembership.114Refugees can self-select members to form groups just like any other client segment can, asdemonstratedby refugees in theDadaab refugee camp inKenya,whoare receiving and servicing

111CGAP:TheBusinesscaseforYouthSavings,op.cit.112Takafulisamutualinsurancescheme.ParticipantspaypremiumstoafundthatinvestsinaShariya-compliantmannertoenablepayoutstoparticipantsintimesofdeath,croploss,oraccidents.Seemoreat:http://www.cgap.org/sites/default/files/CGAP-Focus-Note-Islamic-Microfinance-An-Emerging-Market-Niche-Aug-2008.pdf113 http://www.microfund.org.jo/PublicNews/Nws_NewsDetails.aspx?lang=2&site_id=1&page_id=107&NewsID=547&Type=P&M=8 114 http://microfund.org.jo/public/main_english.aspx?M=3&page_id=1 115 R.C. Koven and M.J. McCord: Is There a Business Case For Microinsurance?, Best Review, October 2014. Research into the business case of microinsurance is continuing under the MILK project of the Microinsurance Centre, see http://www.microinsurancecentre.org/milk-project/milk-overview.html 114 K.Jacobsen:Microcreditandotherloanprogramsinprotractedrefugeesituations:LessonsfromtheAlchemyProject,FeinsteinInternationalCenter,TuftsUniversity,June2004.

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solidarity-group loans for agriculture through Equity Bank. However, the bank has so far used arevolvingfundviaanNGOtofinancethecreditproduct,duetocreditriskconcerns.115OtherFSPsworkingwithrefugeesseektomitigatethecreditriskassociatedwithrefugeesbyrequiringgroupstohaveamajorityofnationals,even if theactualrepaymentperformanceofthesemixed-nationalitygroupsmirrorthatofnationalgroups.116

Joining a mixed-nationality group can beextremelydifficultforrefugeeswithoutastrongsocialnetworkinthehostcommunity(seeBox10). Giventheprevailing lowrisktoleranceofmost FSPs for refugee borrowers, mixed-nationalitygroupsmaybeastartingpointandmaypromote social cohesion locally. Consideran incentive for national group clients toincreasetheattractivenessofincludingrefugeemembers. As an example, AlMajmoua allowsLebaneseclientsinmixed-nationalitygroupstoaccesshigher-valueloans.Eventually,however,well-performingrefugeeclientsshouldbegiventhechancetoaccessloansinfullyself-selectedgroups.

DependingontheexistingproductrangeofyourFSP,aVillageSavingsandLoanGroups(VSLA)orvillagebanktypegrouploanproductmaybeappropriateforsomerefugeeclients,especiallyinruralareasand/orincamps.ThereisemergingevidencethatVSLAsofferapathwaytofinancialinclusionwhengroupsare linkedtomoreformalFSPs. ThisapproachhasbeenpilotedbyAsylumAccess inTanzania,wheremanyFSPsrequirerefugee-exclusionarycitizenshipdocuments.116Many refugees runbusinesses that in sizewouldqualify as SMEs, even if theyarenot registered.Younger,lessestablishedrefugeebusinessventuresmayinitiallymeritsmallerloansizesandshorterloantermswithmorefrequentrepaymentplansincombinationwithasavingsproduct,117inordertobuildtrust,developacredithistoryandsatisfyFSPriskassessments.However,demandforhigherloanamountsandlongertermsshouldbemetovertime,alsoforrefugeeclientsthatperformwell.

Consideroptions for increasing the flexibilityofcredit,whichwouldbenefit refugeesaswellasallotherborrowers.AMKinCambodia,forexample,haslaunchedapopularcreditlinethatallowsclientstodrawdowncreditasneeded,ratherthanpayinterestonunusedcapital.AMKfoundthatcustomerdraw-downsandpaymentpatternsallowedittooffertheservicesustainablyandwithoutincurringliquidityissues.1183.2.3 LeverageRefugees’TransnationalNetworksOnceyourFSPhasestablishedarefugee-inclusiveportfoliothatperformswell,itmaybeworthwhiletoexplore theproductdevelopmentpotentialof theoften strong ties that refugeeshave to theirhomecommunities.Refugees(andmigrantsandotherdiasporaclients)areoftenfarbetterinformedonthepolitics,localmarketopportunities,networks,language,andcultureoftheircountrythanmost 115 InterviewwithEquityBankKenya,27June2016.Seealso:http://www.actionafricahelp.org/543-kakuma-refugee-group-effort-to-be-self-reliant 116 AlMajmoua:AssessmentoftheGroupLoanproductOfferedtobothSyriansandLebaneseIn2014. 116https://realizingrights.wordpress.com/2012/05/10/expanding-refugee-access-to-microcredit-strengthens-local-communities/117WRC:DawnintheCity,op.cit.118http://www.fi2020progressreport.org/addressing-customer-needs/

Box 10: Refugee Clients’ insights onguarantorsManal*,aclientofAlMajmoua,Lebanon:“Themost difficult thing is finding a Lebaneseguarantor. I was able to getmy neighbor tosign,butforothersitishard.Itwasalsodifficultto find Lebanese for the group, as Lebanesehavetobemajority. Iunderstandthe reason,butitfeelsunfair.TheLebanesefeelsuperior,don’ttrustSyriansandtheyareafraidwewillleave, even if we explain we have madeprovisionsforrepayments.”Salwa:* “Totally agree - I applied for an [AlMajmoua]loanbutIcouldnotfindaLebaneseguarantor,soIamstuck.”*Nameshavebeenchangedforprivacy.

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foreigninvestors,andmaybeinterestedinandwillingtotakeonriskbyinvesting“backhome”whenotherswill not. Post-conflict and fragile states inparticular canbenefit fromdiaspora investment.Refugeesandmigrantscanbe instrumental in socio-economic reconstructioneffortsas thebridgebetween the end of conflict and the beginning of financial inclusion in their home communities.However,inorderforsuchlinkagestodevelop,financialinfrastructuremustbeinplace.119If your refugee clients have prior experience with FSPs in their home country, explore if theseinstitutions remain in operation and consider contacting them for referrals to verify client credithistory and develop institutional linkages. Such linkages could result in mutually beneficial newproduct development, including cross-border remittances, payment and re-payment services, andperhapsevenmortgage-likearrangementsinvolvingthehomecountryFSPverifying,valuating,anddocumentingimmobileassets(likelandandproperty)whichcanenhancethesecurityforloansinthehostcountryfortherefugeeclient.Likewise,ensurethatrefugeeclientscantakethecredithistorydevelopedwithyourFSPwiththemto their next destination, whether home or to a third country as resettled refugees. Provide acertificatedocumentingtheduration,services,andperformance(e.g.,acreditscore)ofyourrefugee(andothernon-national)clients.1203.3 DeliveryChannelsandOperationsasProfitabilityDrivers To the extent your FSP can use its institutional infrastructure and capacity to leverage existingchannels to reach new refugee clients, delivery will be relatively inexpensive. Even if upfrontinvestmentsarerequired,thelowleveloffinancialinclusionamongrefugeepopulationsingeneralsuggests that theacquisitioncostper clientwillbe lower than formanynational clientswhomayalready be banked elsewhere,121 and that costs per client will decline over time, as the refugeesegment of the portfolio grows and products and processes are standardized across a “refugee-inclusive”portfolio.Upfrontinvestmentsofmanagementandstafftimeandfundstoincluderefugeesmayalsocreateanopportunitytoexperimentwithinnovativedeliverymethodsthatcouldbeleveragedforotherclientsegments across the FSP portfolio. For example, new delivery channels could be forged throughrelationshipswithnewpartnerorganizationsorserviceproviders,whichcanhelpestablishcontacttorefugeecommunities.Someofthesenewchannels(e.g.,socialmediaplatforms,diasporacommunitynetworks,andespeciallylarge-scalesocialsafetynetprogramsthatuseFSPstodelivercashtransfers),canactas“aggregators”bringinglargernumbersofpotentialclientswithinreachofFSPs.Forexample,theHungerSafetyNetPrograminKenyaautomaticallyachievedscaleforEquityBank.Inthepastfiveyears,EquityBankhasopenedupfivenewbranchesinnorthernKenyatosupportthedeliveryofcashtransfers throughbankaccounts.122 Itmayalsobepossible topiggybackonexistingoutreachandmarketingeffortsbysocialauthoritiesandprotectionagencies.Similarly,yourFSPcouldleveragefirstroundclientsaseffectivechannelstobringinnewclients(wordofmouth),whichwilllowerthecostofacquisition.Thisapproachappearstobeparticularlysuccessfulamong refugees, because referrals basedonpositive experience fromother refugees are likely to

119GFPI,op.cit.120ThismodelwaspioneeredbytheAmericanRefugeeCommitteeforSierraLeoneanrefugeesinGuineaandLiberia.See:T.Nourse:RefugetoReturn:OperationalLessonsforServingMobilePopulationsinConflict-AffectedEnvironments,AMAPMicroPaper#4,May2004.121Itcostsmoretoconvinceaclientto(also)bankwithyou,iftheyarebankedelsewhere.SeeCGAPbusinesscase,2014,op.cit.122http://www.hsnp.or.ke/index.php/our-work/delivery-of-cash-transfers

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attractmanymore,giventhehighleveloffinancialexclusion.EmployingdirectsalesagentsamongrefugeestomarketyourFSPanditsproductsmayalsosignificantlyincreaseuptake.Theremayalsobeefficiencygainsinhiringrefugeesthemselves,iflegallypossible.If already inusebyyourFSP,mobilemoneyplatformsmaybeaviableandcost-effectivedeliverychannel,asmanyrefugeeshaveaccesstomobilephones.Mobilephonescanbeusedtosendclientsmonthlytextmessagereminderstomakedepositsorrepayments,andcanbecombinedwithalow-costATMcards(usedonlytocheckbalances),123whichmightbeapopularchannelforrefugeestoengagewiththeFSP.However,evidencesuggestsmobilebankingshouldbeaccompaniedwithsomelevelofface-to-faceinteraction.Forthebenefitofallclients,seektominimizetransactioncostsforclients.Likemanynationalclients,refugee clients canbeequallyunhappy touse their small businessprofits for transport toweeklymeetingsacrossthecity,forexample.124Makesuretoaffordinfluencetorefugeeclientsonthetimingandduration,distanceandlogisticsofinteractionswiththeFSP,evenifthecostscannotandmaybeshouldnotbecompletelysubsidized.

Bearinmindthatinvestmentsmayberequiredforexistingresources(staff,systems)toservethenewclientsegmenteffectively.AsdiscussedinSteps4-6,operationaladjustmentstoprocedures,manuals,anddocumentationandrelatedstafftrainingmayberequired.Marketresearchandpilottestswillalsorequireadditionalresources.Crucially, remember that the large information gap and the stereotypes surrounding refugeepopulationswill extend to staff andnational clients andmayneed tobe counteredbyawarenessraising,regularinformalcontact,andstafftraining.Inaforeignandoftenhostileenvironmentwhererefugeesmayexperiencexenophobia,harassmentandisolation,theimportanceofcreatinglevel,safespacesandinterfaceswithwelcomingstaffcannotbeoveremphasized.ADIEinFranceprovidestwodaysofinter-culturaltrainingforallitsvolunteerclientmentorsandhasrecentlyincludedatwo-hoursessiondedicatedtoworkingwithrefugees.125AlMajmouainLebanonhasemployedsomestafffromamongrefugeestofacilitatetheinterface.MISsystemsmightneedtobeadaptedtoadequatelytracknewclientsegments.MakesuretoinvolvetheMISdepartmentinthedesignandpilottestingofproducts.IfyourFSPisofferingbothfinancialand non-financial services, make an effort to record baselines for both types of services in anintegrateddatabase/systembasedonuniqueclientidentifiers(e.g.,aclientnumber).IfyourMISistunedtothetotalclientinterfaceinthismanner,youwillbeablebettertotracktheelusivecross-sales between products. Define indicators of progress (e.g., portfolio growth, uptake by product,delinquency,andclientretentionbasedonriskcategories,aswellasearlywarningtriggerstohelpdetect counter-productive trends that require further adjustments to products or operations.126Ensurethatyourfrontlinedatarecordingandreportingformatsaccuratelycapturetheindicatorsandmeasuresthatyoudecidetomonitor.Selectingappropriateandrelevantindicatorsandmeasuresisimportantformeasuringnotonlyclientperformance but also client outcomes. Beware of indicators proposed (or required) by externalfunderswhichmaypushmonitoringandservicedeliveryinparticulardirections.Forexample,somegovernmentfundersemphasizegettingrefugeesintojobsasfastaspossible,andprovidefundingto 123TheseservicesweresuccessfullyintroducedbyXacBankinMongoliaforyouthclients.124W.Kamugi:MicrofinanceasaLivelihoodStrategy–aCasestudyofForcedmigrantsinJohannesburg,SouthAfrica,AfricanCentreforMigration&Society,UniversityofWitwatersrand,February2014.125InterviewwithADIE,14June2016.126M.Hamad:“TheImpactofMicrocreditProgramsinAlleviatingPovertyandRestoringLivelihoodsoftheTargetedPopulationsinBosniaandHerzegovina”inJournalofEconomicandSocialStudies,Vol.2,Issue1,Spring2012.

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institutionsbasedonthenumberofrefugeesinwork/jobswithinsixmonths.Thishasdrivenmanyrefugeesintoinappropriate/lowleveljobsasplacementsbecamemoreimportantthanexploringandmatchingtheskillsandknowledgethattheclientspossessed.127Finally, take care in how you report results to external stakeholders and the public. Reporting ofnationality-baseddatacanbepoliticallysensitiveinmanycountriesandillegal insome.IfyourFSPreportsthepersonaldataofrefugeestoauthorities,itcouldandincreaserefugees’riskofharassment,ifnotdetentionordeportation.TheSmartCampaign’sClientProtectionPrinciple128 onPrivacyofClientDataoffersguidelinesforhowtotreatclient informationsothatyoudonotunintentionallycauseharmtoclients. 3.4 RiskManagement YourFSPshouldaimtoreplaceassumedcreditriskwithdocumentedprobableriskasyoubuildyourrefugee-inclusiveportfolioovertime.Assumptionsaboutrefugeepopulationsbeinghighriskareoftenreflected instandardizedFSPriskmanagementsystems. Inadditiontothereviewofeligibilityandclientselectioncriteria(seeStep5,section2.5),regularlyreviewtheriskmanagementandmitigationmeasurestomakesurethesearebasedonprobableriskandnotinunfoundedassumptions,especiallyregarding “flight risk.” Even if risk isperceived rather than documented, higher risk categories ofcustomers call for stronger risk management – not for a strategy of avoidance.129 A risk-basedapproachalsodoesnotimply“zerofailure.”130There are still too few FSPs actively serving refugees worldwide to provide benchmark data forperformance,but theavailableevidencestronglysuggests that refugees,migrants,andothernon-national clientswhen appropriately segmented and selected do not pose a significantly increasedcreditrisk.FromexperienceinFrance,Belgium,Italy,Lebanon,andKenya,theoverwhelmingfeedbackisnotaboutflightorcreditrisk.Despiteinitialriskconcerns,thesefewFSPshaveexperiencedlittleornegligibleactualincreasedcreditriskintheirrefugeeportfolios.Portfolioatriskover30days(PAR30)fortherefugeeclientsegmentsoftheseportfoliosappearstobeequalto,better,orinafewcasesslightlyhigherthantheoverallPAR30fortheFSPs.131However,theperceptionofhighflightriskpersists.Themostcommentriskmitigationstrategiesusedby FSPs serving refugees include making smaller loans, with shorter terms and more frequentrepayments; and requiring national co-members in groups and/or national loan guarantors (seesection3.2.4).Inordertomanagecreditandflightrisk,rethinkyourcurrentriskmanagementandmitigationstrategies.Considerthefollowingstrategies:• Relying more heavily on character assessment, using references from refugee associations,

communityorreligiousleaders• Assessing upfront whether the potential client is likely to relocate within 12 months, using

indicators of intent to “put down roots” (e.g., children enrolled in school, spouse employed,enrolmentinclasses,participationinlocalsocieties/associations,housingrental)

• Assessingcommitmenttobusiness(e.g.,spacerental,membershipinlocalbusinessassociations,businessregistration,supplier/customerinventories,orderbooks)

• Verifyingcredithistoryincountryoforigin(whichcouldbeverifiedwithcountryoforiginFSPs),use of humanitarian cash transfer services (cards, vouchers), and/or evidence of regularremittancestofamilyincountryoforigin(indicativeofregularincome)

127file:///C:/Users/User/Downloads/UsRefugeeOutcomes-FINALWEB.pdf128http://smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles129T.Curry,ComptrolleroftheCurrency,Speech,AssociationofCertifiedAMLSpecialists,17/3/2014.130FATF23/10/2014,op.cit.131SeeSPTF:CasestudyonAlMajmoua,op.cit.,foradetailedexample.

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• Requiringtheclienttosaveorprovidecash(orasset)collateralforloans.Insomesituations,itmaybepossibletoestablishlinkswithFSPsinrefugees’countryoforiginandthroughthemhaveassetspledgedtohostcountryFSPforloans

• Applyingemergingtechnologiesthatdevelopanalternativecreditscorebasedonmobilephoneusage,asdiscussedinsection2.5.

Adjustments to the standard riskmitigating requirement of a national credit guarantor are beingexploredwithsomesuccess.Forexample,ADIEinFranceusesasolidaritygroupguaranteeforgroupsof non-national clients, breaking from the assumption that repayment performance is related tonationality. They also use a “testimony guarantee” from two influential witnesses (e.g., a localcommunityleader)amongthesociallytight-knitbuthighlymobilecommunitiesofRomaclients.Thenon-cash guarantee carries amoral responsibility for re-payment. Non- or late repayment by theguaranteedclientwillbartheguarantorsfromaccessingcreditandmaynegativelyaffectallborrowersofthecommunity,effectivelyleveragingpeerpressureforrepayment.TheresulthasbeenabetterrepaymentrateamongRomaborrowersthaninADIE’soverallportfolio.132 Portfolioperformanceindicatorsshouldincludeearlywarningtriggerstohelpdetectactualcreditriskinrefugee-inclusiveportfoliostoinformamoreaccurateriskperception.Thisisespeciallyimportant,becausethestandardriskmanagementindicatorsmayoverlookemergingactualrisksinarefugee-inclusive portfolio.Monitor arrears rates anddelinquency by geographic and/or business purposesegmentinboththerefugeeandnationalclientportfoliotoidentifyanysignsof“cannibalisation”intheportfolio—thesituationwhereloanstosomerefugee-runbusinessesout-competebusinessesofotherrefugeesorofexistingnationalclients.Alsomonitorandcompareretention/exitratesbyclientsegment to detect problems. For example, while you might offer smaller, shorter loans to newborrowers,too-smallloansandtoo-shortloantermsorotherill-fittingproductconditionsmightleadtoaspikeinclientexitamongrefugeesthatneedlargerloanstosustainandgrowtheirbusinesses.Combinedwithregularfeedbacksessionswithclients,monitoringsuchearly-warningtriggerswillgiveyouabetterideaofclients’satisfactionwithproductsandterms.While a strong focus on credit (and other) risks in the portfolio is always advisable, it is worthrememberingthatthemostpowerfulsourceofsecurityinmicrocredittendsnottobetheFSP’suseof(group)guarantees,butratherthestrengthofitslending,monitoring,andcollectionprocedures,aswellasthecredibilityofthe institution’spromisethatclientswhorepaywillhaveaccesstotheservicestheyneedinthefuture.133ThedecisionofanFSPtostayputwithclients,includingrefugees,evenindifficulttimes—flaresofconflictincamps,forexample—yieldstrustandahighlevelofloyalty.Thebettertheduediligence(appraisal)isupfront,thebetterandmoreappropriatetheriskmitigationregime can become. It is worth remembering the irony that “de-risking” refugeesmight seem tominimizeFSP’sownriskbutleavesasignificantclienteleexcluded,andmaythereforecontributetoincreased financial market vulnerability by pushing these clients to smaller, informal financialinstitutionsunabletodealwithanyhigherrisk—alsoknownas“re-risking.”Notservingrefugeescouldhaveopportunitycosts. 3.5 Profitability—TheBusinessCaseforIncludingRefugees Concerns about profitability is an oftmentioned reason for FSPs not to serve refugees. They arethoughttorequirelotsofworkandcoststoinclude,andthereforenotworththeeffort,especiallyifFSPshaveplentydemandamongnationalclients.

132 M.Degrand-Guillaud:descriptionofADIE’sexperienceandpositiveoutcomesofitsactivitiesformigrants’inclusion,06November,2014. 133CGAP:AGuidetoRegulationandSupervisionofMicrofinance-ConsensusGuidelines,October2012.

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Thereisnoone-size-fits-allsolutiontoachievingprofitability.Institutionsoperateindifferentexternaland internalcontextsandhavedifferentbusinesscaseconsiderations influencing thechoices theymakeandtheprofitabilityoutcomestheyachieve.134Thebusinesscaseforincludingrefugeesisstillemerging,but itseemstofollowthetrendsofothernewstatesofpracticeinthat itshouldtakeabroader, longer-term view of profitability, and that it is likely to strengthen over time as refugeeclients’relationshipswithinstitutionsdeepen.135ThemoreproductsanFSPhastooffer,thebetterthechanceofdevelopingacompellingbusinesscase,whichmightincluderevenuefromofferingcash-basedtransferservicestorefugeesforhumanitarianagencies.Thepilottestingofrefugee-inclusiveserviceprovisionshouldbeabletoprovideindicationsofhowandwhentheinvestmentwillpayoffincustomeracquisitions(portfoliogrowth),inadditionalclientloyalty(retention),andincorporatesocialresponsibility(CSR)/socialperformancegainsduringroll-out.Arguably,theneedforNFSisthemostsignificantcostassociatedwithexpandingservicestorefugees.NFS are “higher touch” and thus more costly to develop and deliver than standardized financialproducts, and slower to reach scale. Emerging research finds that NFS contribute to clients’bankability, usage of financial services, and to amaterial improvement in clientwell-being (socialperformance outcomes).136 The challenge is to find ways to enhance the financial capability ofclients—asthisdrivesactiveusage,retention,andreducedrisk—whileenablingFSPstoattainandretainoverallfinancialself-sufficiency.137AcoreaspectofmakingNFSsustainableistheabilityfortheFSP to graduate clients to and/or cross-sell more profitable credit products. Take advantage ofinduction,training,andsupportservicematerialsthatexistintheglobalindustry,andseekoutcost-sharingorco-fundingpartnershipstolowertheupfrontcosts.Whilecross-salesorcross-subsidiesbymoreprofitablecreditproductsmaybesubstantial,theyaredifficulttotrack(seesection3.3),andasaresultitisuncertainwhethertheycancoverthecosts.Apotentialalternative to trackprofitabilityof thenewclientsegment is touseaclient relationship-basedapproachaspioneeredforsmallsavers,andfocuson“totalclientprofitability.”ThisapproachconsiderstheentirebankingrelationshipoftheclientwiththeFSPoverthelongerterm,andassertsthatprofitabilityincreasesovertime.Italsodemonstratesthattheopportunitycostofeliminating(ornotserving)refugeeclientswouldonlyrelatetomarginalcosts—theFSPwouldstillhavetopayitsfixedcosts.Whenconsideringopportunitycosttoeventuallyanswerdecisionpoint6onopportunitycosts (seeAnnex 1), only factor in costs that would actually be saved by eliminating/not servingrefugees.138Intheshortterm,externalfundingforthepreparationphase(section2)ofincludingrefugeesmaywell be available from both protection agencies like UNHCR, as well as from more traditionalmicrofinancefundersandinvestors.Theoverallpurposeofgrantfundingshouldbetobuydownthe(perceived) riskof thisnewclient segmentand to testorprove the viabilityof thebusiness case.Subsidieswork best if they have a clear objective,measurable results, and a pre-determined exitstrategy.A number of FSPs who are sceptical about using their own capital to serve refugees have beenrequestingpartialloanorcreditguaranteemechanismsfromfunderstosharetheperceivedrisk.Theglobalexperiencewithcreditguaranteefundsoverthepast20yearshasbeenmixed,buttheindustryhaslearnedfromtheseexperiences.Aswithothersubsidies,guaranteesshouldbeusedtosupport 134CGAP:TheBusinesscaseforYouthSavings,op.cit.135BankableFrontierAssociates2012;WestleyandMartin2010quotedinCGAP(2015),op.cit.136Odell:MeasuringtheImpactofMicrofinance,op.cit.137SeeTheMonitorforCitiFoundation:BridgingtheGap:TheBusinessCaseforFinancialCapability,March2012,athttp://www.citifoundation.com/citi/foundation/pdf/bridging_the_gap.pdf138CGAP:IsThereaBusinessCaseforSmallSavers?OccasionalPaper#18,September2010.

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theriskofinstitutions,notofclients.Risk-sharingfundsshoulddecreaseovertimeastheviabilityofthe business case emerges, and should not subsidize interest rates or collateral requirements forclients—otherwise,subsidiescandistortthemarket.Norshouldsubsidieseverjustifypushingnon-readyclientsintotakingcredit,asthiscouldfuelover-indebtedness.139Seekout funders that adhere to goodpractice guidelines,140 andhaveaCSRor social/responsiblefinancecommitmenttomatch.Fundersshouldbeabletocommitfundingforthemediumterm(multi-yearfunding);committothetestingofthebusinesscase;haveanacceptableriskappetite;createthespaceandopportunityto“crowd-in”additionalinvestors;andnotpresentareputationalriskduetoits presenceas a funder. This latter issue is especially relevantwhen consideringUNHCRorotherprotectionagenciesasfunders,forthefollowingreasons:• RefugeeandotherborrowersmaybelesslikelytorepayloansknowntobebackedbyUNHCR.141• Becauseprotectionagenciesinherentlytendtofocusonthemostvulnerable,andtakeaneeds-

basedapproachtoanyservice,theymaywishtofundprimarily(orexclusively)veryvulnerablerefugeeclientsand/orsubsidizeinterestratesfortheseclients.142Thiscontradictstheequalaccessprinciple,andthefact thatFSPscanbestservetheworkingorentrepreneurialpoor—whetherthey are refugees or nationals. Be prepared to negotiate the principles of equal access andexpansionofaccesstoexistingproductsforrefugeesonequaltermstootherclients.

Thereisalwaysariskthatshort-termaccesstofinancial,andparticularlyNFSunderasubsidy,willnotleadtolong-terminclusionorusagebythetargetedclients.Anyrisk-sharingorsubsidizationshouldbecarefullydesignedtoenableyourFSPtocomfortablyengageinatestoftheviabilityofthechosenbusinesscase,andthengradualtakeover.Defineaclearexitstrategyforthefunder.ThisrequiresnegotiationsandagreementbetweenfunderandFSPonmonitoringandmeasurementofprogressandadeterminationofthe“endresult”–i.e.whenabusinesscaseisdeemedtobeviableornot.Inbothcases,fundingshouldbephasedoutwhentheendresultisreached.ThisisanimportantmomentforpushingtheboundariesoffinancialinclusiontorefugeepopulationsandmanystakeholderswithinandaroundthefinancialservicesindustryareaskingFSPstoengage.Financial services have historically focused on the citizens of nation states, but citizenship and“stability”are increasingly fluidconcepts,andthesheermagnitudeofdisplacedpopulationstodaydemandsthatpro-poorFSPsexaminetheirmotivationsforexcludingrefugees.Inparticular,sociallymotivatedFSPsshouldconsiderhowoutreachtorefugeesfitswithintheirmission.Servingrefugeesisnotasdifficultasitfirstappears.FSPsaredeterredforahostofreasons—fearoffinancialloss,limitedresourcestoinvestinmarketresearch,orsocialorpoliticalprejudice.Inshort,the “unknown”natureof refugees isdaunting tomanyFSPs.However,despiteadditionalbarriersrelated to legal status and language, refugees sharemany similaritieswith FSPs’ core clients andshouldnotbefeared.These guidelines have reviewed the arguments against including refugees, and find none to beinsurmountable.Proposingadraftbusinesscaseframework,theguidelineshavesoughttopresentrecommendationsandtipsforFSPswillingtoengageinthisnewfrontieroffinancialinclusion,basedonemergingevidence fromthe literatureandtheexperiencesofpioneeringFSPs thatarealreadyservingrefugees.ItisourhopethattheguidelineswillproveusefulforFSPsinterestedinreachingandservingrefugeesasanadditionalclientsegmentwithintheirportfolios.

139Seee.g.MercyCorps:FinancialInclusion-ApproachandPrinciples,June2014.140AsdescribedinCGAP:AMarketSystemsApproachtoFinancialInclusionGuidelinesforFunders,September2015.141WFC;Beyondmakingendsmeet,op.cit.142SeeforexampleSPTF:AlMajmouacasestudy,op.cit.,p.8.

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Annex1:BuildingtheBusinesscase:QuestionsfortheFeasibilityStudy TentativeBusinessCaseFrameworkforInclusionofRefugees

1. MarketLeversDecisionPoint1:Isthereaviablepotentialmarketsizeandscopeinourcurrent/futureareas?Determinethegeneralsizeandscopeofthepotentialnewclientsegmentinyourcountry,incurrentandprospectiveareasofoperation.Howlonghavetheybeenthereandhowlongaretheylikelytostay?Howprotractedistheconflict/disasterfromwhichtheyfled?Bothinruralandurbanareas,self-settledrefugeestypicallyliveinsamecommunitiesasthepoor,andfacethesamechallengesofhighunemployment,poorhousing,priceinflationandscarceaccesstoresources(water,grazing,etc.).Likethenationalpoor,self-settledrefugeesalsooperateprimarilyintheinformaleconomyandfaceharassment,haveinadequatesocialsafetynets,andarevulnerabletoexploitation.143Bothinurbanandruralenvironments,aswellasincamps,refugeestendtocongregatein national communities, providing an opportunity for aggregation of clients (scale). Avoid onlyfocusingonlivelihoods,becauserefugeeeconomiesformpartofacomplexsystemofconsumption,production, exchange, and finance. In several markets, there is evidence of dense economicinteractionwithhostcommunities,andsomelargerandolderrefugeecampsfunctionascentersofeconomicgravityforagriculturalandtradevaluechains,remittances,andbrokerage—solookatcampenvironmentsaswell.UNHCR and other protection, development, and migration agencies144 and localauthorities/municipalitiescanusuallyassistwithnumbers, locationmapsandbasicsocio-economicprofiles of refugeepopulations in your area.Also contact diasporaorganisations, refugee/migrantcommunityassociations,andprovidersofcash-basedreliefservices(merchantsservingrefugeeswith

143WFC:Beyondmakingendsmeet,op.cit.144TheseincludeUNDP,IOM,theInternationalCommitteeoftheRedCross(ICRC),andlocalandinternationalNGOs.Insomecountries,theseorganizationsarealreadymeetingregularlyinalivelihoodclustergrouporsimilar.

Feasibilityphase

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ATMcardsore-vouchers)andremittanceserviceproviderstogetasenseofthedemandandcurrentusageoffinancialservicesbyrefugees.Finally,askfrontlinestaffandexistingclientswhattheyknowaboutrefugeesintheircommunities.

DecisionPoint2:Howcompetitiveistheenvironment?Capturing future refugee clients early on can create a key competitive edge for your FSP, as thepotentialmarketof refugees isoftenunderservedbyotherFSPs.Therecanbesignificantbenefits(visibility,reputationandfunding) inbeingthefirstmover inthemarket,especially if refugeesareprimarily servedby internationalhumanitarianNGOs in thecountry,asnational stakeholdersmaypreferanationalFSPtogetinvolved.However,theremayalsobecomfortinpartnershipswithotherFSPs. Consider a discussion on “why not refugees?” in your national microfinance association ornetwork.GettingotherFSPsinvolvedmighthaveadvantagesforyourFSP.Getasenseofthecompetitivenessamongthehumanitarianrefugeeprotectionagencies—howmanyandwhich agencies and organizations are present,what services do they provide to how large asegmentoftherefugeepopulation?Noteopportunitiesforpartnerships,entrypoints,andsourcesoffurtherdataandinformationonrefugeesontheonehand,andontheother,assesstheriskofcreditmarketcontaminationorharmtothecreditcultureduetoreliefavailabilityanddependency.DecisionPoint3:Whatarethekeylegal,policy,andregulatoryparameterstotakeintoaccount?Refugees often lack proper ID documentation, clear legal status and limited rights to work ormovement.Regulatoryrequirements(suchas“knowyourcustomer”andreportingrequirements)canalsocreatechallengesthatdisproportionatelyaffectrefugees.Andthegeneralpoliticaldiscourseandlevelofacceptanceofrefugeesinacountrycancreatebothopportunitiesforreputationalgainsandreputationalrisk–considerbothaspects.Approachthecentralbankand/orregulatoryministrytothoroughlyunderstandwhetherandwhichrestrictionsmayapplytofinancialinclusionof(whichcategoriesof)refugees.Inafewcountries,lawsorregulationsprohibitordiscourageFSPsfromservingrefugees(ornon-citizensmorebroadly),butinseveralcountrieswithsignificantrefugeepopulations,regulatoryexemptions,facilitation,andevenincentives arebeingdrawnup for FSPs to also serve refugees, though these areoftennotwidelydisseminated. Themore specific questions you canaskof regulators andpolicymakers, themorespecificanswersyoumightget.Ifyouareconsideringservicestoencampedrefugees,checkthedegreetowhichyourFSPwouldhaveaccesstomeetandinteractwithclientsandanyrestrictionsonrefugeestomoveandworkoutsidethecamp.ContacttherelevantauthoritiessuchastheMinistryofInterior,localorspecializedpoliceorarmedforces,andcampmanagementauthorities.UNHCRmaybeabletoassistwithintroductions.TakenoteofpotentialsourcesofsupportforFSPengagement(approvals,ifnecessary)fromamongpolicymakersorpolicy implementingauthorities (e.g.municipalities, localgovernment),aswellasmorenegativereactionsorpoliciesthatmayrequiremitigation. 2. InstitutionalLevers AnFSP’sinternalmotivations,characteristics,andstrengthsallinfluencewhetherandwhenabusinesscasemayexistforservingrefugees,relativetootherproductlinesandclientsegments.DecisionPoint4a:Whatarethekeymotivations(rationale)oftheFSPforengagement?While itcannotcreateabusinesscaseonitsown,socialcommitmentcanhelpmotivateanFSPtoexpandservicestorefugeesinspiteofthechallenges.

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Determinewhethertheinstitution’sinterestinrefugeesisbasedprimarilyonasocialresponsibilityresponsetoarefugeeproblem(aswasthecaseforAlMajmouainLebanon)145orwhetheritisdrivenmorebyopportunitiesforportfoliogrowthbasedona“triplebottomline”businesscase.Verylikely,itwillbeamixofboth.Trytoclarifywhatgoalsdifferentdecision-makersexpectfromeachofthebottomlines,asthiscaninformthestrategy.Ask frontline staff and existing clients what they think about including refugees. Focus groupdiscussionswith clients and staff early on can provide very important insights into any fears andconstraints(whetherrealorperceived)thatyourinstitutionshouldaddressinastrategyforinclusionof refugees.Alsoaskyourownersandkey investors/funderswhether theywouldbe interested insupportinganinitiativetoincluderefugeesandwhy.Decision Point 4b:What is the institution’s capacity and infrastructure to allocate resources toincludingrefugees?FSPsneedtoinvestinadjustingexistingproducts,creatingdistributionandmarketingstrategies,andcultivating partnerships with new delivery channels. These efforts can require substantialmanagementattention,stafftime,insomecases,newstaffappropriatetotherefugeemarket,andotherresources.Someinstitutionsmaybeabletoleverageanexisting,wide-reachingbranchnetworkandotherresources.Othersmayneedtomakesignificantinvestmentsinnewdistributionchannels,managementinformationsystems,andoperationaladaptations.DetermineifyourFSPhasappropriateexistinginfrastructure,includingbranches(and/oragents)atsuitable locations and an adjustable MIS system. Do you have staff able to work with refugees(considerlanguageandinter-culturalpersonalskillprofiles)?Howmuchstafftimeandresourcescouldbeallocatedtoservingrefugees?Also review your internal eligibility and selection criteria. Is your mission inadvertently excludingrefugees or other non-nationals? Do your eligibility criteria prevent the extension of services torefugees (e.g., requirements of a national ID)? Could they be revised? Note which issues andadjustmentsmayneedtobeaddressedatalaterstage.Decision Point 5:Overwhat timehorizon dowe expect (or require) profitability from includingrefugees?Considertheexpected(estimated)demandversusyourcurrentproductrange.Inparticular,considerwhetherandhowyoucouldensureaccessbyrefugeestoNFSservices(seesection3.2.1) throughpartnerships,linkagestoBDSproviders,orasacoreservicemanagedin-house.Toalargeextent,thiswilldeterminethelevelofinvestmentneededandthepotentialbreak-evenpoints.Howandbywhencouldespeciallythecostsofnon-financialservicesbecovered?Considerthescopeforchargingfeesandcross-sellingprofitableproductstorefugeeswhichmay“subsidize”cost-bearingservices.Reviewtheavailabilityandappetitefor(additional)financingamongexistingandnewinvestorsandfunders. If new humanitarian or protection funders appear interested, take note of their fundingcycles,whichmaybeshort-termandconsideroptions for leveragingsuchshort-termfundingwithlonger-terminvestmentstosmoothyourFSP’scashflow.

145AlMajmouadidnotinitiallydevelopabusinesscaseforfinancialservicestorefugees,butsawanopportunitytousetheirnon-financialservicesasade-linkedsocialresponsetoanationalcrisis.Therewas,however,pressurefromsomebranchestoprovidecredittorefugeeslivingwithrelativesinLebanon,whocouldactasguarantorsandreferencesforthenewclients.

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DecisionPoint6:Whataretheopportunitycostsofincludingrefugeeasopposedtoinvestingresourcesintootherventures?Whenfacedwithresourceconstraints,FSPstypicallyallocatetheirlimitedresourcestotheproductsoperationsandclientsegmentslikelytogenerategreaterreturns.TheopportunitycoststoFSPsofexpandingservicestorefugeescanbesubstantial,but ifasizeablepotentialclientmarketexists inrelativelyproximitytoyourexistinginfrastructure,andifthereisinternalmotivationandcapacitytoengage,thereturnsoverapatienttimehorizoncanbeequallysignificantorgreater,bothintermsoffinancialandsocialperformance.Ask:• Couldweget abetter financial and/or social returnon investing in another client segmentor

differentexpansion?• Givenourresourcesandtheestimatedinvestmentrequired(productandsystemsadjustments,

training,stafftime,funds)aswellasthepotentialbenefits(growth,diversity,socialperformanceimprovement,visibility,andreputation),doesanexpansionofourservicesto includerefugeesseemfeasible?