January 19, 2024

Legal challenges for accessing financial services by migrants in conflict zones

This article is written by Tisha Mehta, 3rd year law student at Gujarat National Law University, Gandhinagar.

ABSTRACT

“In the age of technology, everything has become digital including banking, taking loans, doing day-to-day transactions, etc. In the 21st century, we cannot imagine our life without virtual banking. However, there are certain vulnerable sections of our society, who cannot even access basic banking services be it physical or virtual. These people are refugees, war migrants, asylum seekers, etc. As they move from one war-stricken country to another, they face a lot of legal challenges to access financial services. This article focuses on those legal barriers and recommends solutions for overcoming the situation. “

  • INTRODUCTION

Access to financial services for refugees is a critical aspect of their economic integration and overall well-being. Refugees, forced to flee their homes due to conflict, persecution, or natural disasters, often face numerous challenges when it comes to financial inclusion. The ability to access banking, credit, and other financial tools is essential for refugees to rebuild their lives, support their families, and contribute to the economies of their host countries.

 

Refugees typically encounter hurdles in the process of accessing financial services, ranging from identification and documentation issues to regulatory barriers. Many lack traditional forms of identification, and the documentation they possess might not be universally recognized. Financial institutions, bound by regulatory compliance, may find it challenging to adapt to the unique circumstances of displaced populations.

 

In recent years, there has been a growing recognition of the importance of financial inclusion for refugees, not only as a means of addressing immediate economic needs but also as a pathway to long-term self-reliance. Efforts by international organizations, governments, and financial institutions are underway to develop solutions that cater to the specific challenges faced by refugees in accessing financial services.

 

This exploration into the realm of financial inclusion for refugees delves into the obstacles they encounter, the initiatives aimed at overcoming these challenges, and the broader impact of empowering displaced populations economically. By understanding the nuances of financial inclusion for refugees, we can work towards creating more inclusive and resilient societies, fostering the economic integration of those who have been forced to seek refuge.

  • LEGAL CHALLENGES

Financial access for migrants and asylum seekers is influenced by factors such as legal status, financial history, socioeconomic position, duration of displacement, and proficiency in the host-country language. The lack of legal status poses challenges in obtaining identification, as financial institutions often require compliance with know-your-customer regulations. Formal financial system usage before displacement varies by origin, affecting migrants’ adaptability upon arrival. Migrants’ socioeconomic status, linked to wealth and education, plays a role in their attractiveness to financial institutions. The duration of stay in the host country impacts migrants’ financial needs and attractiveness as customers. Limited host-country language skills create communication barriers with financial institutions, hindering access to services.

 

  1. Identity Verification: Migrants in conflict zones may lack proper identification documents or may have lost them during displacement. Financial institutions often require robust identity verification, and the absence of traditional documents may hinder access to services.

Refugees who have crossed international borders due to crises often encounter challenges accessing essential services, including healthcare, housing, education, legal assistance, and financial services. While the UNHCR registers refugees and issues identification documents, formal financial institutions may not recognize these as valid, given that common Customer Due Diligence (CDD) requirements typically mandate national identification documents or passports. Disasters or conflict-induced displacement may result in the loss or destruction of these documents, hindering affected communities’ access to financial services. 

 

  1. Regulatory Compliance: Financial institutions must adhere to strict regulations to prevent money laundering and terrorist financing. Operating in conflict zones may make it challenging for them to comply with these regulations. Governments may impose additional restrictions or scrutinize financial transactions more closely in conflict areas, creating barriers for migrants.

 

  1. Security Concerns: Financial institutions may be hesitant to operate in conflict zones due to security risks, making it difficult for migrants to access banking services. Security concerns may also lead to increased scrutiny of financial transactions, causing delays and obstacles for migrants. Government policies in host countries significantly influence refugees’ access to financial and other services. While some nations with long-standing refugee populations, such as Kenya, Uganda, and Colombia, have enacted or adapted legislation to enhance the rights and integration of displaced people, many other host states resist policy changes due to concerns about national security, social cohesion, ethnic or religious balances, and scarcity thinking. Concerns often revolve around perceived competition for jobs, diversion of development funds, disproportionate use of public resources, and potential strain on public services. Ignorance about refugees’ potential social and economic contributions can also contribute to resistance against more inclusive policies. These factors collectively hinder the adoption of measures that could improve the well-being and integration of displaced populations.

 

  1. Cross-Border Issues: Conflict zones often involve borders and may lead to displaced populations crossing international boundaries. Migrants may face difficulties in accessing financial services across borders due to differing regulatory frameworks and limited cross-border cooperation. Refugees who move across borders may face difficulties in dealing with multiple currencies and varying exchange rates. Financial services that do not account for these challenges can lead to additional costs and complications for refugees. Legal restrictions and barriers may impede refugees’ ability to open bank accounts or engage in financial activities in host or neighboring countries. Some countries may have strict regulations that limit financial inclusion for non-citizens.

 

  1. Humanitarian and International Law: Humanitarian law may limit the activities of financial institutions in conflict zones, and there may be legal considerations related to providing services to vulnerable populations. Financial institutions may need to navigate complex legal frameworks to ensure they comply with both international humanitarian law and national regulations.

 

  1. Data Protection and Privacy: Handling personal and financial data in conflict zones may present challenges related to data protection and privacy. Financial institutions need to ensure that they adhere to privacy laws while still providing essential services to migrants. Refugees often need to provide sensitive personal information when accessing financial services, including names, addresses, identification numbers, and sometimes biometric data. This information is highly valuable and, if mishandled, can lead to identity theft, fraud, or even compromise the safety of refugees who may be fleeing conflict or persecution. Refugees may not always have the same legal protections regarding data privacy as citizens in the host countries. The legal frameworks governing data protection may vary across countries, and refugees might not be fully aware of their rights or have the means to seek legal recourse in case of privacy violations.

 

  1. Displacement and Documentation: Conflict-induced displacement can lead to the loss or destruction of important financial documents, making it difficult for migrants to prove their financial history and access services.

 

  1. Improper Infrastructure: Physical infrastructure, including roads, telecommunications networks, power grids, bank branches, ATMs, and agents, can suffer severe damage in conflict or natural disasters. The absence of this essential infrastructure hampers financial institutions’ ability to contribute to the recovery process. Financial infrastructure, such as payment systems, automated clearing houses, interbank settlements, credit bureaus, and collateral registries, tends to be underdeveloped in many developing countries, not limited to those affected by crises. However, a robust and resilient payment infrastructure can play a crucial role in addressing challenges arising from crises. Diaspora communities often respond swiftly, sometimes even before international aid, but face obstacles in efficiently delivering funds to affected populations, including those with existing accounts and especially those who have crossed international borders.


  • POSSIBLE SOLUTIONS

Addressing the legal challenges associated with accessing financial services for migrants in conflict zones requires a multifaceted approach involving collaboration between governments, financial institutions, international organizations, and humanitarian agencies. Here are some potential solutions:

 

  1. Digital Identity Solutions: Implement digital identity solutions that rely on biometrics or other secure technologies to verify the identity of migrants without the need for traditional paper documentation. Policymakers could explore measures to broaden the types of identification accepted by financial institutions, as seen in Jordan where the Central Bank authorizes UNHCR-issued identification documents. In Finland, the company Moni provides anonymous prepaid cards to asylum seekers using a combination of a case number from the Ministry of International Affairs and police records, ensuring privacy compliance while meeting CDD requirements. Some financial service providers may still demand additional documents, such as proof of address, to process transactions and identify suspicious activities. Regulations that allow providers to adopt a risk-based approach could facilitate a balance between financial sector access and integrity in crises.

 

  1. Flexible Regulatory Frameworks: Governments can work with financial regulators to create flexible and adaptive regulatory frameworks that consider the unique challenges of operating in conflict zones while still ensuring compliance with essential financial regulations. To enhance financial inclusion and address Customer Due Diligence (CDD) requirements, it is recommended to expedite regulatory reforms that facilitate digital financial services and mobile money. These reforms should include the acceptance of alternative identification methods for refugees. Regulatory enablers such as agent regulations simplified CDD requirements, and regulations governing electronic money can play a crucial role. Mobile money has proven to be a valuable tool in expanding financial inclusion, benefiting both local and displaced populations.

 

  1. Mobile Banking and Technology: Promote the use of mobile banking and digital financial services, allowing migrants to access financial services remotely without the need for physical presence in conflict-prone areas. Recent research by GIZ and CGAP in Jordan emphasized the importance of raising awareness about mobile money to facilitate its adoption and usage among both Syrian refugees and low-income Jordanians. The methods for training and awareness-building vary based on the context. For example, after Typhoon Haiyan in the Philippines, Mercy Corps implemented a mobile money cash transfer program to aid recovery. The study conducted during this program compared the impact of a one-hour financial literacy training with the impact of delivering voice messages to recipients to encourage savings. The findings revealed that the one-off training did not affect recipients’ likelihood to increase their savings behavior, whereas beneficiaries who received voice message reminders demonstrated an increased use of both formal and informal savings products.

 

  1. International Collaboration: Facilitate cross-border cooperation between governments and financial institutions to streamline financial transactions for migrants who may be crossing international borders. Since 2019, the ILO and UNHCR, along with UNICEF, IFC, and the World Bank, have collaborated on the PROSPECTS project initiated by the Netherlands government. The project aims to enhance sustainable livelihoods for Forced Displaced Persons (FDPs) and host communities in East Africa and the Middle East. The ILO’s Social Finance Programme, part of PROSPECTS, is working to extend financial services to FDPs and host communities. The Social Finance Programme operates on three fronts: Advocating for measures to integrate FDPs into host countries’ financial systems at the policy level.  Supporting financial institutions catering to FDPs and hosts through product diversification and innovation. Focusing on increasing the financial capability of FDPs and host communities to empower sustainable financial decisions. Social Finance uses a participatory and multidimensional approach to overcome financial access barriers, promoting economic inclusion and resilience for refugees and host communities.

 

  1. Humanitarian Partnerships: Collaborate with humanitarian organizations to provide financial services tailored to the needs of displaced populations, ensuring compliance with international humanitarian law and facilitating access to financial resources. Investments by the humanitarian community can be strategically designed to support the expansion of infrastructure and agent networks that are sustainable beyond the crisis period through private sector involvement. For instance, in preparation for its partnership with WFP cash transfers in Kenya’s arid and semi-arid lands in 2012, Equity Bank significantly increased its agent presence. In the context of expanding cash transfer programs for Syrian refugees in Lebanon and Jordan, humanitarian agencies played a role in facilitating the growth of point-of-sale (POS) and iris scan recognition machines, particularly in rural areas. These investments not only address immediate crisis needs but also contribute to the broader expansion of the financial system, reaching communities that were previously excluded.

 

  1. Security Measures: Work on enhancing the security infrastructure in conflict zones to mitigate risks for financial institutions. This may involve coordination between governments, security forces, and financial institutions.

 

  1. Adapted Compliance Mechanisms: Develop compliance mechanisms that take into account the unique challenges and circumstances of conflict zones, allowing financial institutions to meet regulatory requirements while serving the needs of migrants.

 

  1. Ensuring Data Privacy: The UNHCR has formulated the “General Policy on Personal Data Protection and Privacy (GDPP)” to align its human rights-based approach to data protection with modern global standards. This policy establishes a comprehensive framework for the collection, use, and sharing of personal data, encompassing individuals served by UNHCR, as well as donors, partners, and personnel. The GDPP supplements the existing Policy on the Protection of Personal Data of Persons of Concern to UNHCR from 2015. Key features of the GDPP include the creation of the role of Chief Data Protection Officer, responsible for providing independent and impartial expert support, advising, monitoring, and overseeing UNHCR’s compliance with the data protection framework. Additionally, the policy introduces a review mechanism that allows individuals to formally request a review of complaints and cases. The Personal Data Protection Review Committee, once established, will independently and impartially assess such requests from all data subjects.

 

  1. Education and Awareness Programs: Conduct education and awareness programs to inform migrants about available financial services, their rights, and the importance of maintaining financial records even in challenging circumstances. Raising awareness and implementing Digital Financial Services (DFS) education interventions for a customer base of over lakh people and growing is both costly and challenging for any single DFS actor. The piloting of roll-outs and the execution of large-scale awareness campaigns necessitate a collaborative approach among various stakeholders. To effectively enhance financial literacy and awareness regarding DFS and financial services in general, there is a need to synergize efforts and adopt an inter-stakeholder approach. This collaborative strategy is seen as essential to effectively reach and educate the target audience.

 

  1. Public-Private Partnerships: Encourage public-private partnerships to foster collaboration between governments, financial institutions, and technology companies in developing and implementing solutions for financial inclusion in conflict zones. In Kenya and Uganda, humanitarian assistance serves as a crucial source of livelihood for most refugees, making it less appealing for the private sector to invest in these markets. Recognizing this reality, there is a need to promote Public-Private Partnership (PPP) models that enhance “Digital Financial Services (DFS) rails,” including infrastructure like road networks, electricity grids, and telecommunication towers. The Connectivity Working Group can play a leading role in spearheading initiatives to improve connectivity and infrastructure, fostering collaboration between the public and private sectors to benefit refugee populations in these regions.

 

  1. Flexible Banking Models: Explore innovative and flexible banking models, such as mobile money agents or community-based financial services, to reach migrants in remote or conflict-affected areas. Jordan is at the forefront of efforts to address the Syrian refugee crisis, hosting over a million refugees. In collaboration with the World Bank, European Union, and other partners, Jordan is actively recognizing and supporting refugee rights while promoting overall development. Central to this initiative is the financial support from the ‘World Bank’s Global Concessional Financing Facility (GCFF)”, which offers lower-rate loans to middle-income countries like Jordan. These loans, seen as an acknowledgment of the positive impact of such investments, aim to meet the development needs of both refugees and host communities. Jordan’s commitment to refugee protection extends beyond its borders, contributing to regional stability and fulfilling international moral and legal obligations.

 

Implementing these solutions requires a coordinated effort from various stakeholders and a commitment to addressing the specific challenges faced by migrants in conflict zones. It is crucial to strike a balance between regulatory compliance, security considerations, and the urgent need for financial services for displaced populations.

  • EFFORTS MADE GLOBALLY

Financial education is essential for humanitarian migrants facing challenges in navigating complex financial systems. In Germany, only 32 percent of Syrian refugees could answer basic financial concept questions in a 2018 survey, highlighting their vulnerability to fraud and risky financial positions. In the United States, the International Rescue Committee (IRC) implements a “bundled services” approach, providing refugees with financial education, personalized advisors, and other services in one place. This approach has proven effective, especially for women receiving financial coaching, leading to increased household income. Successful models in Germany, the UK, and Ethiopia involve specialized centers with trained staff, language support, and partnerships with charities to facilitate migrants’ access to financial services.

 

Innovations in mobile banking, digital identification, and credit-building address gaps in traditional financial services for migrants. Companies like BOSS Money use blockchain technology to convert, store, and transfer currency via digital wallets, reducing the risks associated with carrying cash across borders. Fintech companies like Humaniq, MONI, and Simprints leverage biometrics and transaction data to help migrants establish verifiable digital identities. Some fintech platforms enable newcomers with limited credit histories to obtain credit cards or transfer credit scores across borders. Despite being a nascent field, migrant-focused fintech is rising, with evolving data management and user registration regulations aiming to balance privacy protection and resource accessibility. 

 

The “Financial Action Task Force (FATF)”, an international standard-setter in anti-money laundering and countering the financing of terrorism (AML/CFT), offers guidance on the “Customer Due Diligence (CDD)” process to support financial inclusion. This guidance allows flexibility in applying identity verification controls, especially for specific groups like asylum seekers and refugees. The example of the European Union (EU) and its Member States is cited, where official documentation of asylum seekers is accepted as an identification method for bank account opening.

 

The “European Banking Authority (EBA)” provides clarification on CDD measures for credit institutions dealing with asylum seekers from higher-risk third countries or territories. This guidance addresses compliance challenges faced by institutions due to the associated money laundering/terrorist financing risks and concerns over the reliability of asylum seekers’ identity documentation. The EBA emphasizes the importance of providing asylum seekers with access to basic financial products and services as a means to combat money laundering and terrorist financing. The EBA suggests that official identity documents issued by EU Member States to confirm asylum seekers’ status can likely satisfy AML/CFT regulations if current, issued by an official authority, and include full name and date of birth. Unless credit institutions have reasonable grounds to suspect forgery, such documentation should suffice to meet AML/CFT verification requirements according to directives.

  • CONCLUSION

In conclusion, access to financial services for refugees is not only a matter of economic empowerment but a fundamental aspect of fostering self-reliance, dignity, and resilience among displaced populations. While refugees face significant challenges in obtaining financial services, ranging from identification issues to regulatory complexities, recent initiatives and collaborations demonstrate a growing recognition of the importance of addressing these barriers.

 

Efforts by international organizations, governments, and financial institutions are crucial in developing tailored solutions that cater to the unique circumstances of refugees. The introduction of innovative financial products, advocacy for supportive regulatory frameworks, and leveraging technology to bridge connectivity gaps are all steps toward improving financial inclusion for displaced populations.

 

Moreover, financial inclusion goes beyond immediate economic needs; it plays a pivotal role in the long-term integration of refugees into their host communities. By providing access to banking, credit, and other financial tools, we not only empower refugees to rebuild their lives but also contribute to the economic growth and stability of the countries that host them.

 

As we continue to navigate the complex landscape of forced displacement, it is imperative to view financial inclusion as a key component of holistic refugee support. By addressing these challenges and fostering financial inclusion, we move closer to realizing the vision of inclusive and resilient societies where refugees can rebuild their lives with dignity and contribute meaningfully to their host communities.

  • REFERENCES

 

 

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