In 2009, some of the world’s leading microfinance experts came together through an initiative supported by the SEEP Network to explore strategies to respond to the challenges of providing financial services in crisis environments. Those discussions identified a pressing need to create a framework and guidance on how to ensure that crisis affected populations have access to appropriate and timely financial services as economies transition from relief to recovery.
The Minimum Economic Recovery Standards (MERS) handbook articulates the minimum level of technical and other assistance to be provided in promoting the recovery of economies and livelihoods affected by crisis, and was written as a collaborative effort with input from 62 development agencies and 200 practitioners. One portion of the handbook, the MERS Financial Services Standards, provides guidance on what is considered good practice to ensure reliable and inclusive financial services in crisis affected environments. The Financial Services standards include five minimum standards:
- demand for financial services;
- institutional capacity to deliver the services;
- good financial service practice;
- client protection;
- institutional crisis planning.
When reaching out to our network of trainers in the MENA region, most of which are directly involved in the response to the Syrian refugee crisis, we confirmed how useful MERS is as a framework to analyze the basic or minimum requirements for financial service providers working in crisis environments. Providing access to finance is particularly challenging in Lebanon, where one out of every three persons is a refugee – the largest concentration of refugees in the world.
Photo Credit: Dominic Chavez/World Bank
We will only focus on a few key aspects of the Financial Services Standards, and there application to the case of Lebanon.
Good Financial Service Standards
MERS underlines adherence to local laws, enforcing repayment, and clear strategies to differentiate between loans and grants. In the case of adherence to local laws, the regulatory framework in Lebanon is not conducive towards inclusive financial services. Furthermore, the Lebanese government is increasing restrictions on Syrian refugees, including new visa requirements due to its difficulty to cope with such a massive humanitarian crisis. The lack of clear laws and regulations, and the high risk of lending to Syrian refugees, makes it very challenging to provide financial services to this vulnerable group while ensuring good financial services practice and enforcing repayment.
Long Term Services
According to our MERS trainers in Lebanon, NGOs are finding it difficult to engage with Syrian refugees beyond direct support and cash grants. Enterprise development and long term financial services such as loans are interpreted as providing incentives for Syrian refugees to stay. The case of Lebanon mirrors what in the MERS handbook is referred to as a crisis stuck in the relief phase. In crisis environments, short term goals focus on stabilizing households and providing basic needs. However short term immediate strategies need to ensure they don’t negatively impact longer term recovery. In the Lebanese context, donors have helped refugees meet their basic needs and get protection from the cold using e-vouchers, but not on a consistent basis due to funding shortages. According to the International Rescue Committee (IRC)’s impact evaluation of the Winter Cash Assistance Program of 2013 of UNHCR, cash can reduce negative coping mechanisms and has significant multiplier effects on the local economy. Cash transfers also create long term benefits as they establish payment systems to effectively deliver cash via ATM cards, introducing the refugee population to formal financial services. However, as long as the Lebanese Government and donors are still in emergency response mode it will be difficult to transition from grants to longer term financial services.
Institutional Crisis Planning
The last of the MERS Financial services standards is on institutional crisis planning. Global Communities has a long history of working in conflict environments particularly the MENA region. Through its holding company the Vitas Group, Global Communities operates a large international network of microfinance companies with subsidiaries in Lebanon, Jordan, Iraq, and Palestine. Since their inception in the mid 1990’s, these subsidiaries have lent more than $1.5 billion to more than half a million clients, with an average Non-Performing Loan (NPL) of 30 under 2 percent. In terms of institutional crisis planning, all subsidiaries have in place protocols to deal with crises, including: keeping a certain amount of cash on hand (for example, to pay six months’ worth of salaries in case of a complete halt to operations), customer care policies to deal with the aftermath of a conflict by first ensuring customers are okay and have basic necessities met, and restructuring, refinancing or collecting on a case by case basis.
In addition to financial services, MERS includes minimum standards for productive assets, employment creation, and enterprise development. The handbook brings together the cumulative experience of the microfinance industry working in complex conflict and emergency settings in a user-friendly handbook with the goal of mainstreaming economic recovery into emergency response programming. More importantly, it helps to raise key questions in terms of what is the minimum we should expect to provide these services responsibly.