Access to finance can be transformative—whether it's student loans enabling you to get a degree, a small business loan supporting your entrepreneurial dreams, or a credit card bridging the gap between paychecks.
Unfortunately, around 1.4 billion people worldwide lack access to formal financial services, like bank accounts, credit, and insurance. Refugees and displaced people in particular face significant barriers in accessing credit, making it difficult for them to establish financial stability in their new homes.
Kiva has been committed to advancing financial access to refugees and communities impacted by forced displacement since 2016. Together with our partners, we are actively working to address the challenges that refugees face when accessing finance.
But what exactly are those challenges?
To deepen our understanding, we spoke with partners about the challenges they face in lending to refugees and solutions they’ve developed to work through these. The Kiva Impact team conducted a listening tour with 15 institutions in the Kiva Refugee Investment Fund (KRIF) portfolio, revealing five key issues they face and providing insights into opportunities to shape our future support.
1. Documentation and legal status
Difficulties in providing necessary documentation and establishing legal residency present some of the most significant challenges when it comes to accessing credit as a refugee.
Many refugees are hesitant to share personal information, fearing it may affect their support from organizations like UNHCR, the UN Refugee Agency. Others arrive in a new country with expired documentation, or no documentation at all.
Legislative requirements can add further complexity. In Mexico, for example, money-laundering policies require that institutions confirm the legal residency of their clients, which can involve a combination of verifying identification, confirming that the borrower has lived in the area for more than a year, or providing references - all of which can be more difficult for people in more temporal situations like refugees.
Progress has been made in some countries, such as Uganda, where UGAFODE advocated for policy changes to better accommodate refugee clients, like pushing for refugee IDs to be an acceptable form of ID and for these to be made available digitally so that they can be verified much more quickly.
We had to adjust processes so that we fit the refugees into the core banking system. We also had to introduce a refugee ID as an acceptable document. We did not stop here. We wrote to… the Bank of Uganda and the Credit Bureau Services to add a refugee ID as one of the documents for credit reference checks.” - UGAFODE, Uganda
John, a Kiva borrower and refugee living in Uganda
2. Lack of credit history, collateral, and business stability
Refugees often lack formal credit histories and stable incomes, complicating the evaluation of their creditworthiness. Many run informal businesses without proper registration or documentation. This lack of formal records poses significant challenges for financial institutions, who must find alternative methods to assess creditworthiness. Some institutions are exploring ways to forecast prospective income and include non-traditional factors in credit evaluations to accommodate refugees' unique circumstances.
We are trying to include such components as prospective income to forecast the income based on what they have now, and with the funds that we are financing what they will have. We are concentrating on such things to increase their creditworthiness. Otherwise we would in many cases refuse the clients who really need our support." - FINCA Armenia
3. Cultural differences
Navigating cultural barriers, ranging from language to mindset, is an important challenge when it comes to serving refugees, and this varies from country to country. In Uganda, language differences necessitate hiring staff who can communicate effectively with refugee clients. In Ecuador, they need to shift their messaging in order to communicate with refugees from Colombia and Venezuela in ways that resonate with them. Similarly, institutions in Ecuador and Jordan face challenges in navigating preconceived notions of how their financial systems work, particularly regarding loan repayments and financial independence.
4. Public opinion and policy
Public policy and opinion significantly impact the lending environment for refugees. A stable and transparent regulatory environment, with clear guidelines on documentation, the legal status of refugees, anti-money laundering compliance, and risk assessment, can boost confidence among financial institutions to lend to refugees. Unfortunately, this stability is lacking in many countries, where inconsistent government policies create a difficult environment for serving refugees. In countries like Ecuador and Mexico, these inconsistencies impact how financial institutions operate, requiring them to be flexible and find workarounds to adhere to changing guidelines.
Something that happened at the beginning of this government's six-year term of this government is that the government gave a lot of support to migrants, above all to Central Americans. They were giving out permits and documents at the beginning. Unfortunately, it was only for a while, nothing more... And by the time they were here, the government couldn't keep up with so many demands.” - Conserva, Mexico
Saintemene, a Kiva borrower and Haitian refugee living in the Dominican Republic
5. Operational costs and risks
Serving refugees often involves high operational costs and risks. Institutions face challenges such as violence, remote locations, inadequate infrastructure and time intensity. For example, in Colombia, credit executives sometimes need to travel by horse for hours to reach clients. In Uganda, the cost of setting up operations in refugee settlements is substantial due to the lack of basic amenities like electricity. Processing refugee applications can also be a lot more time intensive due to the manual nature of analyzing credit histories or identification.
To mitigate some of these challenges, financial service providers are increasingly turning to digitization. Digital tools can help reach remote borrowers more efficiently, reducing some of the operational burdens. However, the implementation of such technologies must be tailored to the unique needs and circumstances of refugee populations.
“Sometimes you can't even get into a territory because there's guerrillas or they're blocking the roads or even, there's no road, in the worst case scenarios. We have some clients that are so hard to reach that our credit executives need to go by horse… It's like three hours away from the main road. So you wanna reach them, you gotta take a horse three hours out and then three hours back.” - UNI2, Colombia
Challenging, but not impossible
These insights gathered from the Kiva Impact team’s listening tour demonstrate the multifaceted challenges refugees face when accessing credit. Addressing these issues requires a concerted effort to adapt lending practices, engage with policymakers, and leverage technology. Despite the barriers and costs associated, there are many financial service providers that are willing to make these changes because of their understanding of the great need that exists in refugee communities, and the potential impact that lending to refugees can provide.
By learning from our partners, Kiva aims to enhance its support for refugees, as well as improving financial inclusion for these vulnerable populations beyond our own efforts and partnerships. We encourage other service providers to share their learnings and best practices too, to help more institutions in the industry take the leap to start lending to refugees.
