Financial inclusion for refugees

21 Jun 2016 By Carl Packman

The world for many people feels like a terribly unsafe place. Figures published for Refugee Week (20-26 June, 2016) demonstrates this fully. The Global Trends report by the United Nations High Commissioner for Refugees (UNHCR) finds 65.3 million people, or one person in 113, were displaced from their homes by conflict and persecution in 2015.

War and oppression, the report finds, has driven more people from their homes than at any time since UNHCR records began.

The Global Refugee Crisis/European migrant crisis, which resulted in many well-documented tragedies throughout 2015, has had a devastating effect on individuals and families fleeing war torn countries and risking their lives to cross the Mediterranean Sea. Many of the arrivals to countries within the European Union are Syrian – escaping Civil War – Afghani and Iraqi.

Ensuring provision of the correct services for when refugees and migrants arrive has been a high priority – but not an easy one, particularly in the current economic climate.

Many UK local authorities are experiencing significant budgets cuts under already difficult financial circumstances, which is having an impact on everything from housing advice to benefits, debt and legal services.

On top of an assortment of anticipated pressures for refugees in the UK, such as finding employment, in addition to the hardships and emotional complications they face, there are a number of other potential complications that can come as an unexpected shock. Access to appropriate financial services is one example.

As it’s been noted of financially excluded refugees before: “Overnight, you go from being banked to going unbanked […] You’re leaving everything behind, including a bank account.”

Historically, unfortunately, being able to link people newly arrived into the UK with appropriate financial services has been a difficult process. Previous research by Simon Blake and Esther de Jong found that the key reason for this is that mainstream products do not work well for people on low incomes. They found that “potential borrowers often have a bad credit history or no credit history at all (e.g., migrants and refugees). This means that they look like bad or uncertain risks.”

They go on to say:

“There is a lack of hard data on the financial exclusion of migrants and refugees, but several factors put them at risk, including not understanding UK financial services, language barriers, document problems, and incomplete or non-existent credit history.”

One of the interventions Toynbee Hall has been involved in, which is mentioned in Blake and de Jong’s research, is to combine financial education with other initiatives to tackle financial exclusion. We have also helped people to open bank accounts as part of engaging them in financial capability work.

What we regularly see are a set of otherwise hidden positive financial behaviours that too regularly go unnoticed. There are many stories of where a person arrives in the UK without a record of their financial history, capability, or indeed a credit score and what follows is an assumption that their financial skills are so low that no bank would dare touch them.

In fact the opposite should be true. There are examples from previous research that show how remittances (sending money back to a person’s home country) can be a way for refugees or migrants to pay back debts to families who had financed their move to the UK.

Work from 2015 segmenting British Household Panel Survey data between temporary and permanent-stay migrants revealed that both groups used sending money back home as a means of saving, but that temporary migrants have a propensity to save 26 per cent higher than permanent migrants in UK.

Although one of the frequently heard problems with our financial services system is that it takes too long to recognise non-traditional forms of financial behaviours, with saving money (often very small amounts) there can be no more recognisable a demonstration of someone’s capability. Instead, the financial exclusion experienced by many refugees and migrants has less to do with their own behaviours and more to do with how much trust we have in traditional credit scoring.

This is why it’s very encouraging to see the main credit reference agencies respond to this reality and look into non-traditional forms of data they can use (though we should note that not all data is credit data), as well as the new crop of FinTech firms entering the credit scoring space: Credit Kudos, Aire, Insight Report and others.

For Refugee Week we should remember the many people desperately fleeing the most tragic situations and recognise the huge number of complications in their lives. Given the extent to these, access to financial services should be as simple as possible.