Often Shut Out of the Financial System, Refugees and Other Migrants Face Economic Integration Challenges

Globally, significant strides have been made in recent years to expand affordable financial services to marginalized populations. Services such as low-cost microcredit and mobile money transfers have helped millions of people obtain loans, build credit, and benefit from an advanced, global financial system. Nevertheless, many refugees and other migrants in the Global North can encounter difficulties accessing financial services, due to inadequate identification, discriminatory business practices, and limited financial literacy, among other challenges. These barriers can prevent migrants from fully integrating into their host communities and can have wide ripple effects, given that a bank account is often essential to access formal employment, obtain housing, and manage expenses.

The landscape is uneven and differs for certain migrants in particular regions. For instance, the European Union is generally recognized as a global leader in financial inclusion, and EU regulators and financial service providers have offered lower fees and simplified onboarding processes to millions of displaced Ukrainians since the Russian invasion in 2022, helping these individuals access banks, credit cards, and other financial services. But other groups have tended not to receive the same accommodations, and many refugees and asylum seekers arriving in the region are financially sidelined. The 2014 EU Payment Accounts Directive, which grants refugees and asylum seekers the right to open basic bank accounts, has not been evenly implemented across the bloc. Furthermore, a 2017 study indicated that EU financial institutions lacked both capacity and willingness to serve refugees, even after 3 million asylum seekers arrived in Member States in the three-year period from 2015 through 2017. This reflects a broader tendency across many Western countries to be more receptive to certain groups of migrants over others, due to political leanings, public sentiment, geographic proximity, or other reasons. Globally, 75 percent of refugees and humanitarian migrants reside in developing countries, where access to formal financial services is even more limited.

In addition to being a humanitarian responsibility and integration mandate for host nations, financial inclusion is a market opportunity for corporations. There were 110 million forcibly displaced people (including those internally displaced) at the end of June, of which an estimated 47.5 million were displaced internationally. These individuals comprise a substantial yet underserved customer base needing savings accounts, the ability to send and receive money, and take out loans. Best practices to serve these customers have emerged from financial education interventions and partnerships between businesses and nongovernmental organizations (NGOs), but barriers, red tape, and lack of corporate interest remain. Still, technological solutions such as digital wallets and identity-building apps mean that financial tools and services are becoming increasingly easier to access, pointing towards a future in which more individuals can reach their full economic potential.

This article provides an overview of the financial needs of humanitarian migrants during different stages of their displacement, including challenges in host countries, and highlights financial innovations to assist them. While the support systems and government benefits available to migrants can differ vastly depending on their legal status, the pathway through which they arrived, host country, certain needs, and gaps are common.

The Financial Inclusion Journey                     

Financial inclusion is a step-by-step process towards greater knowledge of and access to financial services and products. The journey can be conceived as climbing a ladder, rather than making a one-time leap.

The first rung is the ability to safely store money and make simple transactions through traditional banks or mobile wallets (which are more common in developing economies). Advancing up the ladder allows individuals to access loans for business ventures and personal expenditures, along with secure channels for sending remittances. At the top of the ladder, individuals can access complex tools such as insurance and investments, but must have the financial acumen to make informed decisions about long-term planning. Considering migrants have diverse backgrounds and circumstances, timely interventions can support their progress up the financial inclusion ladder until they attain satisfactory integration, where their situation closely matches that of the host population.

Needs across Displacement Stages

Humanitarian and vulnerable migrants have distinct financial needs that evolve over their journey. These stages can be categorized into four phases: preparation (including transit), arrival and the initial displacement phase in host countries, prolonged displacement, and permanence in the host country or return. Needs may differ in each stage, but a common thread is the desire for services that span borders and enable humanitarian migrants to engage with their host country’s economy.

Preparation for displacement often occurs frantically; individuals must urgently withdraw cash, liquidate assets, or take out loans to fund their journey. Many migrants who lack access to legal pathways must rely on costly smugglers to facilitate irregular travel that can span multiple countries. Even those who have access to legal pathways or protections in their destination country may need sizable funds to afford transit and cover the early days or weeks in their new home. Therefore, safely storing and transferring money across borders can be critical.

Upon arrival to an intermediate or final destination, migrants may need cash or in-kind assistance for essentials such as food, housing, and health care. Many carry debt incurred during their migration and look for loans or work to pay it off, both of which often require a bank account. Yet displaced individuals often lack the know-how to navigate the formal and complex financial systems in high-income countries. Many who come from places where formal financial institutions are corrupt, distressed, or perceived as open only to elites, may also distrust banks and lenders. Learning this financial literacy and overcoming distrust can require assistance.

After a significant period of time in their destination—typically once they have secured a sufficient stream of funds—asylum seekers and other migrants often shift from being primarily recipients of cash to net financial contributors to their families in their place of origin. Many are interested in cost-effective remittance services to send back wages or other assistance. Some may need loans to establish and manage small businesses. Moreover, in countries such as those in the European Union and North America, where credit histories are crucial to access housing, loans, and even cellphones, newcomers must establish and develop their credit profiles to fully participate in civic life.

As migrants gain permanent or long-term residence in their new countries, their financial needs often begin to closely resemble those of the native born. These may encompass elements such as pensions, investments, and mortgage and car financing. For those who hope to eventually return to their countries of origin, transferable savings, credit, and pensions accessible across borders are critical.

Needs across Demographics

Asylum seekers, refugees, and other migrants are a diverse group, and their financial needs are likely to depend on demographic factors such as age, gender, family structure, and religion. For instance, approximately one in four individuals in Ukraine was over age 60 as of this writing, so those displaced disproportionately need transferable pension schemes and the ability to pay medical fees. Because 90 percent of displaced Ukrainians are women and children, they are also particularly likely to need to pay for maternal health-care services, child care, and educational expenses.

On the other hand, asylum seekers and other migrants arriving in the European Union from Africa and the Middle East tend to be younger, single, male, and have responsibilities to assist their families, so they often are interested in remittance providers and small business loans. Some individuals hold beliefs prohibiting them from taking out interest-bearing loans or earning interest on their savings, thus requiring tailored financial products suited for Islamic banking.

Challenges for Financial Inclusion

Financial access for asylum seekers and other migrants fleeing difficult situations tends to be influenced by five factors: legal status, financial history, socioeconomic position, duration of displacement, and proficiency in the host-country language.

Lack of legal status often presents a significant barrier in securing identification. Financial institutions in many countries must comply with know-your-customer regulations to verify customers’ identities and assesses their risk for money laundering, terrorist financing, or other financial crimes. Often, for these purposes institutions do not recognize identification issued by organizations such as the UN High Commissioner for Refugees (UNHCR) or passports from internationally sanctioned countries such as Afghanistan and Syria. Registered asylum seekers, resettled refugees, beneficiaries of temporary protection schemes (including Ukrainians in the European Union), and others may receive qualifying paperwork from their host-country government, but others may find themselves effectively barred from formal financial services.

An individual’s use of the formal financial system before displacement also plays a significant role in their ability to adapt upon arrival. The situation varies depending on place of origin. For instance, 84 percent of the population in Ukraine held bank accounts in 2021, compared to just 10 percent of those in Afghanistan, where trust in formal financial institutions tends to be low. Approximately 45 percent of adults residing in countries affected by humanitarian crises managed to save money in 2016, but fewer than 8 percent reported doing so through formal financial institutions. After being displaced, individuals from these countries may approach formal financial services warily, and financial institutions may be similarly reluctant to serve them.

Indeed, it is no secret that companies prefer customers who are more likely to yield profits, and migrants’ socioeconomic status—which is closely linked to wealth, education, and career capital—can play a major role in their attractiveness. Here too, migrants from the Global South tend to be disadvantaged. In 2020, the average adult in Ukraine had estimated wealth of U.S. $13,104, according to Credit Suisse, likely making them more attractive customers to banks and other financial service providers than individuals from Myanmar (who had an average wealth of $5,025), Syria ($2,197), or Afghanistan ($1,744). Moreover, Ukrainians tend to have higher educational attainment, which likely means higher financial literacy and greater opportunities for formal employment, both of which ease their access to financial services.

The duration of a newcomer's stay in their host country also affects their financial needs, which in turn impacts their attractiveness as customers. Those intending to stay for shorter periods may only require basic services for subsistence needs, such as a checking account, while individuals facing prolonged displacement might need loans, insurance, and other advanced tools and services. Interest in these more complex services will make settled migrants—who also likely have jobs, places of residence, and other markers of longer-term integration—more attractive customers for financial institutions. However, migrants’ duration of stay may differ from what they intend, as crises and conflicts often extend longer than expected. And many financial institutions still perceive them as transient customers who poses high flight risk, despite the increasingly protracted nature of displacement, with refugees experiencing an average displacement of 20 years. On the ground, displaced individuals often end up establishing themselves long-term in their host countries.

Finally, limited host-country language skills can pose challenges for newcomers of all kinds. Communicating with bank tellers, using ATMs, and understanding financial statements can be nearly impossible for those without knowledge of the host-country language and if institutions do not provide translation or interpretation. Just 7 percent of refugees in the United States and 1 percent of those in Germany arrived with proficient or conversational language skills between 2008-13 and in 2015, respectively (although many immigrants’ language skills increase quickly after arrival). Financial institutions often do not have staff who can communicate in newcomers’ languages or otherwise accommodate their needs.

Financial Products and Services for Humanitarian Migrants

Some financial companies have designed products specifically for refugees and other migrants, but not all provide an on-ramp to broader financial inclusion. For instance, prepaid cards are common means of distributing cash assistance during initial displacement and may represent a forced migrant’s introduction to their host country's financial system. However, these cards typically have limited functionality and operate within a closed-loop humanitarian network outside of which they do not work. This presents challenges when migrants need to make payments beyond designated vendors, including online. It also represents a missed opportunity for them to build credit and climb up the financial inclusion ladder.

Because of the distance between many humanitarian migrants’ needs and the services offered by formal financial institutions, individuals frequently turn to informal providers. Hawala, an informal system operating via a network of brokers, is a popular choice, particularly for migrants from the Middle East, North Africa, and South Asia, as it offers good prices, rapid speeds, and anonymity. The wide networks of the hawala system extend even to hard-to-reach places such as Afghanistan and Somalia, where few formal banks operate. However, hawala’s position outside formal regulatory frameworks has raised concerns about its transparency and potential use for illicit activities.

Financial Education, Innovations, and Best Practices

Financial education is key for humanitarian migrants, who often struggle to navigate complex systems and the wide range of products in their host countries. In Germany, only 32 percent of Syrian refugees could answer questions on basic financial concepts in a 2018 academic survey, compared to 65 percent of native Germans. This makes them susceptible to fraud and risky financial positions.

In the United States, organizations such as the International Rescue Committee (IRC) have implemented a "bundled services" approach allowing refugees and other new arrivals to access financial education classes, personalized advisors, and other services all in one place. Newly arrived refugee households that received the services were more likely than others to increase their income, with the results especially prominent for women who received financial coaching. Studies have found that financial education can modify migrants’ behaviors and enhance their livelihoods, so long as it is deployed over long periods of time and offers flexible and timely support to address situations as they arise.

Other successful models have emerged. Sparkasse, a network of savings banks in Germany, established specialist centers with know-your-customer-trained staff and language support to help migrants open accounts. Lloyds Bank in the United Kingdom partnered with 30 charities to help vulnerable groups, migrants included, use alternative forms of identification to conduct banking. Outside the Global North, a partnership between the UK Aid-backed Strengthening Host and Refugees Populations in Ethiopia (SHARPE) program and Shabelle Bank enlisted know-your-customer-trained staff to educate agents on onboarding refugees to HelloCash, Ethiopia's leading mobile banking service. This initiative also recruited refugees to work as agents in every Ethiopian refugee camp.

In addition, innovations in mobile banking, digital identification, and credit-building that address gaps in traditional financial companies’ services can pay dividends for migrants. To reduce the risks involved in carrying substantial amounts of cash across borders, enterprises such as BOSS Money (formerly Leaf Global Fintech) employ blockchain technology to convert, store, and transfer currency via digital wallets. Companies including Humaniq, MONI, and Simprints are harnessing biometrics and transactions data to help migrants lacking traditional documentation establish verifiable digital identities. Others allow newcomers with minimal credit histories to obtain a credit card, build credit, or transfer credit scores across borders. Migrant-focused financial technology (fintech) is a nascent but rising field, and data management and user registration regulations are still evolving. These regulations aim to strike a balance between protecting user privacy while enabling people to access crucial resources.

Positive outcomes can help dispel industry biases that new arrivals are not viable customers. For instance, Kiva, a digital crowdfunding platform for small business owners, has reported that from 2016 to 2022 the average repayment rate among refugee clients was 97 percent, nearly identical to that of non-refugee clients. Likewise, newly resettled refugees in the United States maintained an average repayment rate of 94 percent on IRC’s consumer and business loan products as of 2017. These findings illustrate that these customers tend to be creditworthy and may entice other lenders to expand services to them.

Asylum seekers, refugees, and other humanitarian migrants come from diverse backgrounds, have distinct financial needs, and face challenges integrating in their new countries. However, they share a common aspiration for a better life. While it may be tempting for financial service providers to focus solely on the easiest-to-reach clients—those with existing experience, knowledge, and resources to quickly access financial systems new to them—many other migrants risk falling through the cracks. Specialized products designed for vulnerable migrants, while well intended, can inadvertently perpetuate economic exclusion by confining them in humanitarian aid systems, impeding their advancement up the financial inclusion ladder. A more sustainable and mutually beneficial approach involves integrating newcomers into their host country’s mainstream financial system. Embracing appropriate tools, services, and fintech innovation has the potential to create a fairer and more inclusive financial landscape that empowers all residents—migrants included—to pursue their dreams of a brighter future.

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