The ET Interviews: Banking the Unbankable

After interviewing Alex Gladstein of Human Rights Foundation last week and getting into ‘censorship resistant money’, this week I wanted to go deeper into the ‘on the ground reality’ of some of the most vulnerable people in the world: forcibly displaced populations.

So, at the risk of ‘talking our own book’, I’m interviewing my colleague Lev Plaves, a Senior Investment Manager at Kiva, as he has about as deep and broad a knowledge of working with forcibly displaced populations as anyone I’ve ever met. – Neville Crawley

Welcome to Epsilon Theory, Lev! Could you give us a bit about your background and how you came to be leading this work?

I joined Kiva in 2012, not long after the war in Syria began. For my first 4.5 years with Kiva I was based in Istanbul, overseeing our work in the Middle East. I spent much of my time traveling in Turkey, Lebanon, and Jordan, the three countries which host more than 40% of Syrian refugees displaced globally. It was what I saw day to day throughout my time in the region that led me to focus on this work.

A 2015 trip to Lebanon specifically stands out to me. I recall checking into my hotel located in the trendy Hamra district of Beirut. Unlike previous trips to Lebanon, it was not the constant honking and scooters zipping through the streets that caught my attention. Instead, I was drawn to the half-constructed abandoned building across from me, most units filled with Syrian refugees looking for some semblance of shelter ahead of what is usually a cold and wet winter in Beirut.

For the refugees in the building across from my hotel, basic humanitarian assistance such as food and shelter was what they needed most. And that need remains today for many of the 68.5 million forcibly displaced people around the world.

But throughout this trip to Beirut, I was also struck by the many refugees I met who were eager to move beyond humanitarian assistance and were desperately trying to generate livelihoods for themselves and their families. This matched the reality I was seeing in my home-city at the time, Istanbul, where many of the Syrians I spoke to were well-educated or highly-skilled, but had sacrificed everything to escape the violence in Syria.

I realized that for many Syrian refugees, finding economic opportunities was now critical. The international development community as a whole was also coming to a similar conclusion — while emergency humanitarian assistance plays a key role, especially in addressing early needs, we must begin thinking about more sustainable solutions to the global refugee crisis.

I began to see that access to finance was crucial for many displaced individuals, as a loan has the power to help refugees start businesses, pay for urgent medical needs, or continue their education. I decided to focus my efforts at Kiva on what we could do to make financial inclusion a reality for refugees.

What are the basic stats on Refugees and Internally Displaced People (IDPs)? How many people in the world are there in this situation?

Today there are over 68 million people forcibly displaced. Nearly one person is forcibly displaced every two seconds. These are the highest numbers since World War II. According to the World Economic Forum 84% of refugees live in developing countries. And sadly these numbers are only going to increase in the coming years.

You launched the World Refugee Fund at Kiva. What is it and why did you launch it?

Despite the need for access to finance, most financial institutions around the world are unwilling to serve refugees. Refugees are often seen as too risky to lend to due to a concern over flight risk, specifically around the perception that refugees are highly transient. Refugees also may not have documented credit history and have few fixed assets or limited collateral in their new countries.

In response, we launched the World Refugee Fund (WRF) in an effort to mobilize Kiva’s unique capital to help financial institutions overcome the perceived risks of lending to refugees and catalyze refugee lending around the world.

Kiva works through a network of local organizations and financial institutions which we call our Field Partners. With the WRF, we began working with Field Partners in areas with large refugee populations to use Kiva funding to develop or scale lending programs that provide loans to refugees and internally displaced peoples (IDPs). Because our loans are crowdfunded by individuals in increments starting as little as $25, our capital is risk tolerant and uniquely compassionate. We saw that our funding had the potential to serve as R&D capital, allowing local financial institutions to pilot refugee lending despite their concerns around risk.

After working with our existing Field Partners, we then began finding other financial institutions interested in working with refugees and brought them on to the Kiva platform.

What have been the results thus far with the World Refugee Fund?

In our first year in 2016, we provided more than $1 million in loans to displaced populations. That more than tripled in 2017. In addition to serving Syrian refugees in the Middle East, our lending has expanded to IDPs in Colombia, Burundian and Congolese refugees in Rwanda, Central American refugees in Mexico, and we will soon be working with refugees in Kenya and Uganda. Today, the World Refugee Fund has provided $10 million in loans to over 11,000 refugees and IDPs around the world.

You recently put out a report on lending to Refugees and IDPs with some powerful data around credit risk in these populations. Could you share an overview of these findings?

The World Refugee Fund is more than just lending, as we believe our work can lead to systems change. On June 20th of this year (World Refugee Day), we released our first Refugee Impact Report, which challenges the perception of refugees as “too risky.” Our findings show that refugees and IDP borrowers repay their loans at a rate on par with non-refugee borrowers. Since the start of 2016:

  • Loans to refugees and IDPs have a repayment rate on Kiva of 96.6%
  • Loans to non-refugee populations have a repayment rate on Kiva of 96.8%

The data is clear: refugees can, and do, pay back loans. Our goal is to continue to share our results around refugee lending, as we believe that doing so will change the perception around refugees being too risky and encourage other lenders to begin serving displaced populations.

As you know, I think and write a lot about changes in technology in this Rabbit Hole column and the effect (both good and bad) on society. Is there anything you are seeing in this area that is particularly relevant to Refugees and IDPs?

Technology has a major role to play. We are beginning to see ways in which technology can solve some of the key problems refugees are facing. The lack of formal identity, for example, is a challenge facing many individuals displaced around the world. As efforts around digital ID gain more traction, I think refugees stand to benefit greatly.  

Kiva recently announced the launch of Kiva Protocol, a new initiative which will provide unbanked people with decentralized self-sovereign digital identity. I am personally excited about how we can expand this project to support refugees, especially those who are without formal identity. This would also be hugely impactful for those who may, unfortunately, become displaced in the future.

Digital identity is just a beginning. Technology has the potential to help refugees in areas such as credit history, remittances, and carrying money across borders. For a refugee who has settled in Jordan or Lebanon, a digital wallet with their credit history, education records, employment history, and so on, would be a great asset. Leaf, a digital savings platform, has become another leader in this space, looking to provide refugees with the ability to safely transport savings across borders.

In the future, I see the potential of this work leading to digital visas, providing refugees with access to digital work, which is especially important for those in countries where their right to work is limited.

Bank accounts are another major obstacle. Even in many countries where refugees legally have the right to work, they are often unable to open a bank account. Could technology solve this problem by offering a digital bank for the displaced?

Could you relate a personal story of where we have been able to put money to work and it has helped a family or community to thrive?

Last year I met Samira, who fled violence in Syria with her family and settled in Lebanon. Here is an excerpt of Samira’s story, the full version of which can be read in this blog post:

“We didn’t bring anything from our home, except for some clothes because we thought we would be back in 2 months,” Samira explained. Seven years later, the family is still not able to safely return home. In those early days adjusting to life in Lebanon, Samira struggled to connect with her new surroundings.

“When I came here, I had just come out of a state of war. I was depressed and didn’t want to see anyone. I kept on thinking about war. I was always scared,” Samira said. “Everything was ‘Syria, Syria, Syria.’ Until I slowly started to meet people.”

One of the people who started to bring Samira out of her depression was her Lebanese neighbor, Souad. A tiny but vivacious woman, Souad is quick to smile and always ready to provide tea, compliments and advice.

Making a living was hard for Samira and her family too. She was doing makeup and hair for weddings but wasn’t able to make enough. Souad suggested they take out a loan, funded by Kiva lenders, so they could both build their businesses. With the Kiva loan, Samira bought used wedding dresses to rent to Syrian brides for affordable prices. Souad and Samira helped each other pay back the loan successfully. Thanks to this new business, Samira was able to double her income from $300 a month to $600 a month. She was also able to help move her family into a larger apartment and buy supplies her kids needed for school.

Meeting Samira not only showed me the impact a small loan can have, but I was also struck by Samira’s relationship with Souad. Especially in Lebanon, there is often tension between refugees and their host communities. With Samira and Souad’s joint group loan, I saw how economic opportunities can bring people together and encourage social cohesion.

What do you think the outlook for Refugees and IDPs is over the next decade?

Unfortunately, the number of forcibly displaced peoples is going to increase. Humanitarian assistance will continue to be vital, but economic opportunities and supporting the long-term needs of refugees will only become more important.

Today’s discourse often frames refugees as a burden; a population solely in need of aid. And while refugees certainly need the support of the international community, we need to shift the paradigm to one that understands that refugees also have the ability to be significant contributors to local economies and societies as a whole.

I saw how true this is first-hand throughout the time I spent living in Istanbul and traveling often to Lebanon and Jordan. And many others have seen it too, whether in developing countries, such as Rwanda, or in communities in developed countries, from Denmark to cities in the United States.

To truly improve the long-term wellbeing of refugees, we need to look at the whole picture of what is needed to rebuild their lives and create healthy communities. Demonstrating that refugees are viable microfinance clients is our first step, and our long-term goal is to continue to serve as a proof of concept that will unlock capital at scale for refugees. Bringing digital identity and credit histories to displaced populations will be a key next step for us. But these are only small pieces of the puzzle in empowering refugees.

It will take a massive effort to see real change become a reality for more refugees, one that will require NGOs, the private sector, and governments all to play key roles. It is my belief that if we all come together, we can truly help refugees and displaced people build a brighter future for themselves and their families.

Who else do you think is doing impactful work in this space?

The list of people doing impactful work in this space is endless. From UN agencies, namely The United Nations High Commissioner for Refugees (UNHCR), to both local and international NGOs, first responders on the ground are providing life-saving humanitarian assistance to refugees and IDPs. Many NGOs, such as the International Rescue Committee, MercyCorps, and Save the Children are looking both at the humanitarian side and also creating sustainable livelihood opportunities, such as providing trainings to refugees focused on entrepreneurship skills and business development. This work is key in helping displaced populations get to a place where a loan is even appropriate.

And we are already seeing impact in the digital and technology space as well. In addition to Kiva Protocol and Leaf, mentioned previously, Making Cents is piloting a digital ID platform for Syrian refugees in Jordan. Last year, the World Food Programme rolled out its Building Blocks pilot, an effort to use blockchain as a means of making transfers more efficient, transparent and secure.

Foundations and the private sector, especially those in the US, are also already playing an important role and their support will only become more necessary. USA for UNHCR, a Washington DC based non-profit, was one of the first supporters of Kiva’s World Refugee Fund. Another supporter of the WRF, the Tent Partnership for Refugees, is bringing some of the biggest private sector actors together to support refugees.

Kiva is also proud to be on the steering committee of the Refugee Investment Network (RIN), the first impact investing and blended finance collaborative dedicated to creating long-term solutions to global forced migration. The RIN recently released a landscape report which shows how investment can unlock the potential of refugees.

As I previously mentioned, ensuring that these different efforts support each other, rather than exist in silos, will be key. Open Society Foundations and The United Nations Development Programme (UNDP) have begun exploring ways to more formally coordinate and bring together the work of existing initiatives. Such an ecosystem or enabling environment will foster the collaboration and innovation we need in the space.

If someone wanted to directly help and get involved what can they do?

All of the organizations I’ve referenced are great ways to get involved, whether you are looking to volunteer, donate, or invest in the refugee space.

Speaking to our own work, now that we have proved the credit risk profile of this population through $10 million of lending, we believe there is a clear business case to lend to refugees. We just announced that we are scaling our efforts by raising a new $50 million Kiva Refugee Investment Fund that will be an institutional, positive IRR fund putting money to work via deeply impactful loans to refugees. For any portfolio managers out there looking to add this to their mix please be in touch by emailing [email protected].

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