Who Needs Financing More Than Businesses? Refugees

This blog post was first published by Bloomberg Opinion.

Finance exists to solve certain basic problems. The world’s displaced confront more of them than anyone. 

Wall Streeters will happily expound upon the many uses of finance: to ensure the safety of assets and belongings, to solve timing problems between the outflow and inflow of capital, to allocate risks to parties that can best handle them and to channel resources to productive uses. What they may not have considered is who needs all those services more than anyone—the world’s 70 million refugees and internally displaced people.

That shocking number is the highest since World War II. What’s worse, people are being displaced for ever-longer periods of time: The average refugee today won’t break out of that status for over a decade. And, contrary to public perception in wealthy countries, developing nations host 90% of the global refugee population. Those countries are especially ill-prepared for the burden, given that they’re already struggling to meet the needs of their own citizens.

Our basic approach to this challenge remains woefully outdated. At the outset of every crisis, there is a noble and heroic effort to provide safety and necessities such as food, tents and medicines. After this “emergency” phase, international attention and aid commitments drop precipitously.

Only two years since more than half a million Rohingya refugees were driven out of Myanmar, the plan to cover their basic needs for this year is only one-quarter funded. Meanwhile, most refugees are prohibited by national laws from legally working, starting a business or accessing banks and financial services—in short, they are blocked from striving to meet their own needs. 

Better access to finance could address many of these problems. For one thing, it’s important to remember that refugees are not completely destitute, at least not at the beginning of their periods of exile; many carry savings and valuables with them. That means they have a real need to protect their portable assets. Yet, because they typically aren’t allowed access to local banking systems, they face the risk of robbery and physical danger. They also forego, of course, any interest and capital accumulation their savings could generate. 

The United Nations already registers refugees in a secure system for the purposes of protection and aid distribution; in theory, that’s just a step from providing them basic, no-frills savings accounts. Another option would be for governments hosting large numbers of refugees to grant them access to the local banking system, as Pakistan has recently done. This would allow a sizeable influx of capital into developing countries, while ensuring the safety of refugees and their assets.

Secondly, finance can help solve the imbalance between a quick surge of donations and long-term funding gaps. To do so, we need to take the initial spike of money and invest some of it to generate returns over time. If agencies could count on income coming in year-after-year, for example, they could more quickly switch to building durable infrastructure for refugee camps, including things like better roads and water treatment facilities.

Third, since refugees are being hosted by some of the most climate-vulnerable countries in the world, there is a critical need for insurance arrangements to mitigate disaster risks.  Half of the world’s top 10 refugee-hosting countries—Bangladesh, Ethiopia, Pakistan, Sudan and Uganda—are also among the nations most vulnerable to climate change.

SwissRe AG has already worked with local insurers and NGOs in Bangladesh and Kenya on pilot projects to insure local farmers against crop failure and flood risks. These models should be extended to cover refugee populations; donor budgets can help cover the costs. Today, if a disaster hits, the affected country’s government and donors shoulder 100% of the burden. With an insurance arrangement in place, the costs would be shared by a much larger, more global set of financiers better equipped to weather the storm.

Finally and most importantly, finance can help unleash the enormous potential of refugees and displaced people. It’s no accident that refugees—including Albert Einstein, Hannah Arendt, Vladimir Nabokov and Marc Chagall—shine as some of our greatest examples of human accomplishment. Historically, when displaced people have been lucky enough to land in countries that allowed them to start businesses, the results have been spectacular. Nearly half of Fortune 500 companies were founded by refugees, immigrants or their children. 

Rather than allowing refugees to languish, we should invest in their productive capacities. Understandably, many governments fear that allowing refugees to work would take away job opportunities from their own citizens. Still, countries such as Ethiopia, Jordan and Uganda have recognized that their own self-interest—as well as the moral imperative—warrants allowing refugees to contribute their skills, resourcefulness and resilience to their economies. Studies show that when refugees are allowed to work formally, they are net contributors to the economies of both developed and developing countries.

Much more needs to be done. The World Bank and other donors should help more governments take the brave step of allowing refugees to work. Following the examples of Jordan and Ethiopia, this could be done through large-scale investment and grant packages to create additional jobs for both refugees and host communities. There should also be venture capital for refugee entrepreneurs; credit lines, loan facilities and investment platforms for refugee businesses; and student loans for refugees to improve their skills.

Finance has lived with a persistently bad reputation since the 2008 crisis. Yet it exists to solve certain basic problems that we cannot solve any other way. Refugees and displaced people face more of those challenges than anyone. It’s time we created the tools to address them.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.

Image credit for social media/web: Social media image by Dominic Chavez, World Bank