Remittance giant Western Union is recognizing that refugee communities can be emerging economies in their own right.
The Kakuma refugee camp in Kenya has 164,571 registered refugees and asylum-seekers, according to the UN Refugee Agency, and more than 500 merchants: produce markets, coffee and tea shops, bars; hardware and electronics shops, clothing stores, bike shops. Most refugee camps operate as largely cash-based economies — an expensive and inconvenient reality.
Now, Western Union and Mastercard are working on creating a digital infrastructure model for refugee camps, with Kenya as their test bed, focusing on mobile money, digital vouchers and cards that remove the intermediaries and losses associated with in-kind donations, brings funds directly to beneficiaries and gives them some control over their financial health.
“Ninety plus percent of refugees will never be granted asylum,” said Maureen Sigliano, head of customer relationship management at Western Union. “A lot of these countries where the bulk of the world refugees are” — Jordan, Lebanon, Turkey — “are poor; hosting such large volumes of refugees puts a burden on those countries. If they have a little cash in their hand, they’re no longer a burden, they become a new customer segment.”
In most of the developed world, digital transactions generate data on customers that companies can use to evaluate their credit, create new services and bring new businesses and customers into the economy.
The idea is still in an exploratory phase, but the plan is to use Mastercard’s digital voucher program to provide chip cards to refugees and host community members. The cards would be loaded with points they can spend on everyday purchases and are designed to work on or offline so participating agencies, like the International Rescue Committee, for example, can monitor different programs.
They also want to incorporate more widespread use of Kenya’s advanced mobile payments — the shining example of how mobile infrastructure can bring underserved people onto the formal financial grid — inside the camps. M-Pesa, the mobile money transfer service launched in 2007 by telecoms giants Vodafone for Safaricom and Vodacom, is the largest mobile payments network in the world. It’s used by 90 percent of the country and Western Union already offers the option to send remittances directly into an M-Pesa wallet.
Other countries with large refugee populations don’t have the physical, financial or technological infrastructure to pursue a digital model, but assuming in a few years they could, Western Union is betting they’ll be able to apply what they learn in the Kenyan camps to others.
The problem with cash
Refugees manage money in a number of different of ways, according to Gregory Matthews, deputy director of economic programs for cash initiatives at the International Rescue Committee. Most rely on receiving aid in cash, some use prepaid debit cards — but it can be hard to find an ATM; and some use money transfer agents like Western Union, whose fees can be hefty depending on the transaction.
“High fees are definitely a problem from an operations and efficiency perspective, but they’re also a reality,” Matthews said. “In places where we work, nothing else is available — that’s why they have high fees.” It’s possible to shift those fees away from the person receiving the funds, he added, but the IRC itself still processes a lot of bulk payments and has to swallow those fees.
How refugees handle money depends in large part on the local banking infrastructure. With its high mobile penetration, Kenya becomes the perfect test bed. And as more countries show interest in that kind of development, “working with refugees is increasingly an onramp to getting people to use mobile wallets,” said Matthews.
“Nothing is all digital or all cash, it’s a mix,” Sigliano said. “The word is evolving such that it’ll increasingly become digital, but not as fast as we’d like, so we have to make sure all options are available.”
From default to design
Western Union is 166 years old and operates in more than 200 countries; it was serving refugees “before people were talking about refugees,” Sigliano said. But in September 2015 a photo of a drowned Syrian boy sent tremors around the world. She identifies this as the day Western Union changed.
“We saw that photograph and realized we actually need to be more focused on this reality; it can’t just be by default, it has to be by design,” she said. “How is it possible that a company like Western Union who serves the immigrants of the world wasn’t taking a strong position on refugees when we are uniquely positioned to do so? How can we ever expect customer loyalty if we’re not loyal to them at a time like this?”
That’s when the company decided to work harder on financial empowerment, instead of just financial access. Of the billion of dollars being moved each year between government agencies and NGOs to refugees, some 90 percent is for in kind aid: food, clothes, books, tents. Just five to 10 percent is delivered in cash. And with procurement, transportation and distribution costs associated with it, it’s so expensive it’s a wonder no one has successfully tried to disrupt the system.
“On average the cost of delivering in kind aid is 50 percent,” Sigliano said. “You put a million dollars in and get $500,000 on the other end.”
It also creates a cycle of dependency. Refugees fall in line in to receive cash in an envelope and so far the global perception of them is that they’re “poor, dependent, hopeless people,” she said.
“What they need most is financial empowerment, dignity and opportunity. So when a refugee gets even a tiny bit of money and can decide to spend, save or invest it, it gives them back dignity, choice and allows them to take a little control of their lives.”
