How Entrepreneurs Can Bridge the Gaps in Financial Inclusion for Migrants

One of the multiple challenges faced by the estimated 281 million international migrants and more than 59 million internally displaced people is their finances, or more specifically their lack of access to the financial system of their new country. But these many obstacles to financial inclusion also represent a promising opportunity for fintech startups looking to improve the situation, according to a new report from Village Capital.

Title Catalyzing Financial Inclusion: 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, North Africa, and South and Southeast Asia.

“The current financial system in many countries does not meet the needs of migrants,” says Alicia Sornson, regional manager for the MENA region at Village Capital.

The report recommends that investors, funders and others provide catalytic capital to support local solutions to systemic financial inclusion issues.

Several roadblocks

The report outlines many of the finance and fintech challenges faced by migrants and asylum seekers, such as:

Legislative constraints. In some countries, outdated or weak legislation hinders the ability of migrants to access formal financial services with a bank account. But having a bank account is the foundation of financial inclusion, as it provides access to loans, insurance, and other financial services. The lack of cross-border jurisdiction also hampers the portability of essential products and services such as credit scores and pension plans.

Lack of digital access. While migrant workers generally own a mobile phone, less than two-thirds of refugee households have one, according to the report. This lack of digital access hampers their ability to leverage fintech-based services. And, because women are less likely to have a bank account, own a mobile phone, or be digitally savvy than their male counterparts, they are particularly hindered in their ability to join the formal financial system, save money and increase their wealth.

Language and literacy barriers. The lack of financial and digital literacy among migrants poses a significant challenge to the financial inclusion of migrants. This is especially true for more sophisticated financial products such as loans or insurance. According to a UNHCR study cited in the report, low literacy is the second biggest barrier to internet use among refugees.

Lack of trust. Often the target of predatory behavior, migrants are generally wary of any financial service provider. For this reason, they generally favor community savings groups and other informal alternatives. This distrust can be aggravated when they encounter systems using unknown technologies.

Identity requirements and documentation. Many countries require strict know-your-customer processes to prevent money laundering or the financing of terrorist groups. This can mean anything from requiring a permanent address to legal documentation that many migrants cannot provide.

Migrants cross the Channel

Getty Images

Entrepreneurial response

The report also examines how entrepreneurs are beginning to overcome these obstacles. One area with a particularly large number of fintech startups is creating digital verification products, according to Sornson. “They help you certify that you are who you say you are and ensure compliance with regulations,” she says. For example, Uqud, based in the United Arab Emirates, analyzes cognitive data...