Humanitarian Crises: Understanding Demand for Financial Services

As a financial inclusion specialist living in the Arab world, I often wondered during the early stages of the Syrian crisis about the role of financial services in such situations. Could having access to financial services make crisis-affected populations more resilient?

My colleagues and I have now gathered enough evidence to demonstrate that financial services can indeed play a positive role in humanitarian crisis. When a crisis hits, those who lack access to services like savings, remittances, insurance, and credit can find themselves without a financial cushion, unable to (re)start their livelihoods, and excluded from health care and education systems. Language barriers and the absence of friends, family, and acquaintances to provide funds, facilitate access to financial services, and help in other ways can exacerbate these effects for people on the move, especially if they have crossed a border.

Of course, accessing formal financial services does not usually rank among people’s top priorities during a crisis. Understandably, this comes after securing shelter, putting food on the table, sending the kids to school, and getting medical treatment. Yet an analysis of Findex data shows that there is a demand for financial services in countries facing humanitarian crises (as defined by ACAPS) — and that demand is mostly being met through informal services.

Savings. Almost half of adults in crisis-affected countries save, putting them roughly on par with other low- and middle-income countries. (The latter serve as a useful benchmark since developing countries host 90 percent of refugees and are subjected to more natural disasters than high-income countries.) However, fewer than 2 in 10 people in crisis-affected countries save at a formal institution, which means they are three times less likely to use formal savings.

Credit. Half of all adults in crisis-affected countries borrow, mostly to cover costs related to health emergencies for which they do not have insurance or savings. This is a slightly higher rate than we see in low- and middle-income countries, but the rate of formal borrowing is lower. Only 1 in 10 adults in crisis-affected countries takes out formal loans, compared to 2 in 10 in low- and middle-income countries.

Recent research on the demand for financial services in crisis-affected countries has focused on refugees, and little is known about internally displaced people or host communities. However, emerging evidence provides similar insights as the Findex data regarding the use of informal services. In CGAP-GIZ research conducted in Jordan (publication forthcoming), 30 percent of Syrian refugees reported borrowing, but only 1 percent said they did so formally. A preliminary essay from the Fletcher School also shows that refugees lead complex financial lives and use a variety of financial tools, relying mostly on informal services that they pay for.

Why are formal financial services used so infrequently in crisis-affected countries? Under-developed financial systems are certainly part of the answer, since 75 percent of adults in these countries do not have access to an account. But there are arguably other factors, too, such as the lack of convenient and easily accessible products, trustworthy providers, and sustainable livelihood options. More research on crisis-affected populations’ needs would make a difference for those trying to develop solutions, such as those who hope that increasing emergency cash transfers will lead to financial inclusion. The following are some key unanswered questions about demand that warrant a closer look:

How should crises-affected populations be segmented, and what is the actual demand for financial services within these segments? Affected communities do not form a homogenous group. They are men, women, and children, young and old, poor and nonpoor, skilled and unskilled. As a result, their demand for financial services is likely to differ. SPTF and UNHCR guidelines on extending services to refugees provide a useful categorization of refugees’ financial needs based on their displacement phase (on the road, upon arrival, initial displacement, etc.), but we do not know how many people fit into each category. The CGAP-GIZ research showed that 30 percent of refugees would be interested in saving if they had extra money. Other studies point to a smaller percentage of refugees who could be eligible for microcredit. A joint Majmoua-Sanad-Making Cents study in Lebanon found that about 14 percent of refugees were considered stable enough to borrow, but less than half were interested. Echoing this figure, a Microfinanza study in Italy found that 6 percent of refugees were economically proactive but did not need a loan. Both studies found a large segment deemed too vulnerable and in need of social assistance.

How can high-impact products be offered sustainably? Disaster and index-based insurance products have a lot of potential, but practical approaches for scaling them are still needed. Remittances, especially if digitized end-to-end and made across borders, will require significant piloting and experimentation to play their full role. There is also a long way to go to link informal savings to formal financial services on a large scale. Credit is perhaps the most widely offered product, but there is little evidence of its impact in crisis situations. Arguably, credit helps to sustain livelihoods when invested in productive purposes, but refugees typically do not have the right to work and access to livelihoods. SPTF and UNHCR guidelines make the case for refugee finance while calling for careful analysis of refugees’ context. Like the Majmoua and Microfinanza studies, they point out that most displaced people should be offered nonfinancial services before becoming eligible borrowers.

What role should financial services play when they are embedded in humanitarian or development programming? The graduation approach — a series of interventions aimed at building self-reliance — is now being piloted in crisis contexts, notably by UNHCR. Should the approach yield positive outcomes, as it does in stable environments, there will remain a question mark on the importance of access to savings relative to nonfinancial components of the approach.

These questions will not be easy to answer. Reliable quantitative data are hard to obtain. And while a few countries host roughly half of the forcibly displaced population, the other half is scattered in countries with diverse political, regulatory, and economic variables. Nonetheless, the predictability of disasters and conflict still calls for action to understand where and how the use of financial services can improve humanitarian and development responses, build livelihoods, and improve long‐term resilience.