How Refugees Can Financially Assimilate With the Host Country – A Study by Mastercard & Western Union

The Middle East and North Africa host 39% of the world’s displaced people, accounting for over 65 million refugees

That’s over 65 million people creating camps in foreign countries, which gradually become permanent settlements rather than being temporary. In order to sustain their growing populations, host countries are looking for ways to incorporate their newest additions into their economy. Besides contributing to the host country’s economy, refugees need to develop financial independence.

Source: Smart Communities: Using digital technology to create sustainable refugee economics

In response to mass displacement and a need for ways to improve financial service delivery, Mastercard and Western Union have teamed up to research two of Kenya’s most high-profile settlements, Kakuma and Kalobeyei, publishing a comprehensive study called Smart Communities: Using digital technology to create sustainable refugee economics.

Refugee camps share more similarities with major cities than differences

One important observation addressed is that refugee camps share more similarities with major cities than differences, and so, we are faced with the question: If the more economically stable cities install technology and mine data to more efficiently manage operations and advance inclusive growth, why can’t the same thing happen in these large settlements? After all, Kakuma now has a population of over 164,000 and stands as the seventh largest city in Kenya.

To help these settlements become financially similar to the cities of their host country, an emphasis has been placed on enhancing banking, payments, and remittances to improve financial infrastructure. The method currently in practice does little to alleviate the economic pressures faced by host countries and the expansion of financial inclusion.

The research team classified residents into three categories:

  • Impoverished new arrivals with limited access to funds
  • Intermediate residents who have been in the camps for some time and thus, have a small network and social support
  • Economically active residents who participate in trade within and outside the camp

The longer an individual stays in a camp, the greater their chances are to go from being impoverished to becoming economically active. After becoming economically active, they can start to make contact with outsiders. Thus, the settlement builds a financial network and forms relationships with members of the host country. In order to accelerate this process, the use of digital technology must be implemented.

Digital technology can start to advance refugee camp economic systems in a way that grows communities

Mastercard and Western Union believe that digital technology can start to advance refugee camp economic systems in a way that grows communities. What a country like Kenya calls for is a digital, scalable infrastructure that can adjust to the needs of the refugees and host communities. To support their theory, the two companies created a replicable model for this digital infrastructure that can facilitate non-payment transactions, delivery and use of cash aid, income, and local expenditures.

For starters, refugee families arriving in Kakuma or Kalobeyei receive a Manifest Document by the Kenyan Government and United Nations High Commissioner for Refugees (UNHCR). The document grants the holder permission to open a bank account and makes them eligible for free services or goods under the UNHCR’s supervision. Significant sources of income for refugees include foreign and domestic remittances through Western Union or hawalas.

While this single system solves several issues, it doesn’t cover all of them. Low-income populations lead equally complex financial lives as higher-income populations. The difference is that the latter has more tools available to them for accessing goods and services. The proposed Mastercard-Western Union model streamlines payments, transactions, and local expenditures for locals and refugees. This allows for an equitable delivery of services and creates flexibility to later involve new technologies to accommodate growth in a community.

The digital voucher program, Mastercard Aid Network, offers Kenyans a chip card loaded with points to redeem the items they want from a merchant; it also works offline to make monitoring easy. This beats the risk of cash transfers, protecting both parties in transactions. Most of the 500+ merchants in Kenya already utilize mobile money. The expansion of e-wallets would allow remittances to be sent directly to them. In addition, digital funds encourage savings.

Source: Smart Communities: Using digital technology to create sustainable refugee economics

Mastercard and Western Union digital payments and transaction ecosystem:

  • Lays the groundwork for a set of multipurpose transactional tools
  • Gives residents greater control over their livelihoods, well-being, and dignity
  • Advances the critical goals of social cohesion and economic linkages across the settlement environment
  • Adopts digital payments as an entry point to the formal financial system and can be extended to incorporate a wider set of use cases.