One of the many challenges facing the estimated 281 million international migrants and more than 59 million internally displaced persons concerns their finances, or more specifically their lack of access to the financial system of their new countries. But those many roadblocks to financial inclusion also represent a promising opportunity for fintech startups looking to improve the situation, according to a new report from Village capital.
Alice Sonson
called Catalyzing financial inclusion: gender-inclusive fintech solutions for migrants, the report is based on more than 70 interviews with entrepreneurs, NGOs, financial institutions, investors and others. The focus is on financial services in Sub-Saharan Africa, the Middle East and North Africa and South and Southeast Asia.
“The current financial system in many countries is not meeting the needs of migrants,” said Alicia Sornson, regional head for MENA at Village Capital.
The report recommends investors, grant providers and others provide catalytic capital to support local solutions to systemic financial inclusion challenges.
Multiple roadblocks
The report outlines numerous financial and fintech-related challenges faced by migrants and asylum seekers, such as:
Legal restrictions. In some countries, outdated or weak legislation prevents migrants from accessing formal financial services with a bank account. But having a bank account is the basis for financial inclusion, as it gives access to loans, insurance and other financial services. A lack of cross-border jurisdiction also hinders the portability of critical products and services such as credit scores and retirement plans.
Lack of digital access. While migrant workers commonly own a mobile phone, less than two-thirds of refugee households own a mobile phone, according to the report. That lack of digital access hinders their ability to tap fintech-based services. And because women are less likely to own a bank account, own a cell phone or be digitally savvy than their male counterparts, they are especially hindered in their ability to participate in the formal financial system, save money and accumulate wealth.
Language and literacy barriers. A lack of financial and digital literacy among migrants poses a major challenge to the financial inclusion of migrants. This is especially true for more advanced financial products such as loans or insurance. Low literacy is the second biggest barrier to internet use by refugees, according to a UNHCR study cited in the report.
Lack of trust. Migrants are often the target of predatory behavior and tend to distrust financial services providers. For that reason, they usually prefer community savings groups and other informal alternatives. That mistrust can be increased when they encounter systems that use unfamiliar technologies.
Identity Requirements and Documentation. Many countries require strict Know-Your-Customer processes to prevent money laundering or terrorist group financing. That could mean anything from requiring a permanent address to legal documentation that many migrants are unable to provide.
Migrants cross the English Channel
Entrepreneur response
The report also examines the ways entrepreneurs are beginning to address these roadblocks. One area with a particularly high number of fintech startups is creating digital authentication products, Sornson said. “They help you confirm that you are who you say you are and ensure you are compliant,” she says. For example, Uqud, based in the UAE, does cognitive data analytics and AI document scanning to enable the creation of digital identities. That means it helps translate, read and verify digital documents in different languages, enabling migrants to use paperwork from their home country.
Tunisia-based Kaoun verifies that individuals are real people through live video selfies they upload. It is mainly aimed at people in remote areas who may not have access to a bank branch.
Another big sector where the number of startups has increased is remittances, according to Sornson. HubPay in the UAE has a digital wallet that aims to reduce the cost of money transfers while creating a digital wallet for users that promotes financial inclusion. “Many families rely on remittances from relatives abroad,” she says. “And women disproportionately rely on it.”
Sornson also points to opportunities in other areas, such as microfinance and loans, insurance and pensions. “We see a lot of technology emerging to help people access those products like pensions and insurance in their home countries,” Sornson says. Other areas of focus include digital and financial literacy, employment technology, platforms to help farmers access markets and digital forms of savings circles, or tontines as they are called in many countries.
Stumbling blocks for entrepreneurs
Entrepreneurs naturally have their own challenges. For example, in some cases, they need to meet users where they are and design products that fit their capabilities and current status, Sornson said. For example, instead of requiring rigid onboarding, registration and compliance processes, a better approach would be to come up with alternative credit scoring mechanisms. “Through open and unified APIs, fintechs can track and aggregate users’ financial activity collected from various sources, and use this data to build financial profiles for unbanked users,” she says.
