The Role of Financial Services in Humanitarian Crises

24 April 2017
Financial exclusion is particularly acute among crisis-affected countries.
Humanitarian crises pose a formidable development challenge. While the nature and incidences of these crises vary significantly, they affect millions of people, particularly the most vulnerable. Some populations are displaced from their communities or countries as a result of crises; others stay where they are, by choice or necessity. Forced displacement is becoming more common with the number of individuals displaced by conflict or violence peaking at 65.3 million in 2015, and an additional 25.4 million people displaced every year due to natural disasters and climate-related events. Crises are also becoming more protracted: 90 percent of countries making appeals for humanitarian assistance in 2014 had been registering for three years or more; 60 percent of the appeals had lasted over eight years. 
 
Financial inclusion is one potentially foundational opportunity to support people affected by crises. Financial inclusion allows low-income households to build assets; mitigate shocks related to emergencies, illness, or injury; and make productive investments. Increased use of emergency cash transfers and digital mechanisms to address immediate vulnerability may offer an opportunity to enable financial inclusion. 
 
Barriers that impede the delivery of financial services include the lack of effective policies and crisis preparedness, particularly to scale-up delivery options. This can include the lack of a simplified customer due diligence (CDD) regime and clear agent regulations to facilitate digital transfers. Crises can cause damage to physical infrastructure (roads, telecommunications networks, power grids, bank branches, automated teller machines, and agents) that prevent the immediate operation of a financial system. Conversely, robust and resilient payments infrastructures can help address the challenges crises pose. 
 
Donors need to play a role in building deliberate linkages between humanitarian and development efforts through financial services. Donors should explicitly embed financial inclusion objectives into humanitarian programming and align the operational incentives of aid agencies with the integration of financial-sector actors into emergency programming. 
 
Looking ahead, investing in crises-affected countries’ systems and capacities to manage crisis by leveraging financial services should be priorities. Crisis-adaptable regulations should be developed and may include reviewing CDD requirements that impede financial access, notably for forcibly displaced populations. Regulatory reforms that enable mobile money should be expedited, including agent regulations, tiered or simplified CDD, and e-money regulations. 
 
Leveraging financial services as a tool to mitigate humanitarian crises will require the sustained commitment of financial services providers. Developing contingency plans, building reserve funds, diversifying client bases, and investing in staff training are important for maintaining business continuity during crises. Donors can play an important role in supporting market players to prepare for and manage crisis situations, by incentivizing preparedness and risk management through the use of targeted subsidies and liquidity support, and by mainstreaming tools for adaptation.
 
Further evidence is needed to better understand the demand for and use of financial services by different segments of populations affected by crises. Improved evidence around specific products that have high potential in crisis environments is also needed, including further evaluation of digital payment transfers on financial inclusion objectives.