On March 14, e-MFP was pleased to launch the European Microfinance Award (EMA) 2024, which is on ‘Advancing Financial Inclusion for Refugees and Forcibly Displaced People’. This is the 15th edition of the Award, which was launched in 2005 by the Luxembourg Ministry of Foreign and European Affairs — Directorate for Development Cooperation and Humanitarian Affairs, and which is jointly organised by the Ministry, e-MFP, and the Inclusive Finance Network Luxembourg (InFiNe.lu), in cooperation with the European Investment Bank.
In the third of e-MFP’s annual series of guest blogs on this topic, Deborah Foy, summarising themes from a new Opportunity International paper on the topic, outlines the critical (and growing) role climate change plays as a driver of forced displacement and ways the financial inclusion sector can respond to the challenge.
In 1990, the Intergovernmental Panel on Climate Change warned that the greatest single impact of climate change could be the impact on human migration. Fast forward to 2024, and climate change has become a leading cause of new displacements globally. It is also a ‘threat multiplier’, magnifying the impact of other drivers of displacement such as conflict and violence.
Most of those forced to move are displaced internally, with national governments bearing the primary responsibility for their protection and welfare – nations which typically lack the resources needed for both prevention and response of climate displacement. In the coming years, as the adverse effects of climate change worsen, cross-border movements will become increasingly likely.
Against this backdrop, financial inclusion plays a vital role in both preventing climate-induced displacement, by helping communities to be more resilient, and in supporting forcibly displaced populations (FDPs) to rebuild their lives. For not only do the vast majority of the world’s unbanked live in climate-vulnerable economies, but people who have been forced to move within and across borders are often completely shut out of the financial system.
Action Needs to be Proactive and Forward-Looking
To address the challenges and leverage the opportunities presented by mass climate-induced displacement, those in the financial inclusion sector must ask ourselves:
- How can we provide meaningful support to mitigate the effects of climate impacts and minimise climate-induced displacement?
- How can we support those who have been forced to move to rebuild their lives?
- What are effective solutions that have the potential to address the complex interaction between climate change, financial inclusion, and human mobility?
- How do we finance and deliver these solutions at the scale required?
Opportunity International sees two key areas of focus, outlined in more detail here:
1. Scale Up Efforts to Prevent Displacement
As a sector, we must do more to help communities to be stronger and better prepared to handle disasters, thereby lessening the necessity to move. Inclusive and resilient development that increases the capability of vulnerable nations to adapt could reduce climate-related displacement by as much as 60%. We must also support those who face multiple constraints to mobility, and who simply cannot move – the typically most marginalized and resource-constrained communities.
On the one hand, we need to expand climate adaptation efforts. This could include agronomist advice on regenerative agriculture techniques better suited to a changing climate, as well as enabling vulnerable communities to access the resources to implement adaptation measures. On the other hand, we need to accelerate efforts to support disaster-affected people who persist in place – such as keeping agent networks active in a crisis situation to ensure continued access to financial services.
In Colombia, for example, Bancamía’s climate vulnerability maps combine publicly available climate prediction data with a geolocation system for clients using ArcGIS. This helps Bancamía to generate climate alerts that both identify the bank’s exposure to weather events such as floods, and help to design mitigation and/or adaptation strategies tailored to the needs of affected clients.
More attention should also be focused on addressing protection gaps. These disproportionately affect low income groups, particularly smallholder farmers. Globally, insurers are already over-exposed to climate risk. Unless significant progress is made to innovate and develop new insurance models, Christiana Figueres warns that we risk moving into a world that is ‘systemically uninsurable’.
2. Support Those Who Have Been Forced to Move
Financial inclusion has a major role to play in supporting people who have been forced to move because of slow- and sudden-onset climate hazards. This includes accessing cash (one of the most critical needs when preparing for displacement), as well as the resources and support necessary to help the transition to new livelihoods – particularly for those in situations of protracted displacement.
There has been significant progress in this space over the last ten years, much of it due to the UNHCR’s leadership and convening power. Yet exclusion rates of FDPs to the formal financial system remain persistently high.
It’s a complicated space – FDPs are socio-economically diverse, with differing levels of vulnerability. Financial service providers typically perceive the risks of serving FDPs to be high. Challenges are compounded by negative cultural perceptions of FDPs, a lack of identification and documents, differing legal frameworks, language barriers, and a lack of data.
Existing solutions include simplifying onboarding processes, facilitating access to remittances services, and incorporating psychosocial support for ‘'migratory mourning'. No doubt this year’s European Microfinance Award will spotlight best practice and shed more light on new innovations.
Opportunity International’s own experience following decades of working with FDPs has taught us this:
- The humanitarian-development-peace nexus is complicated and requires excellence in partnering with governments, NGOs and humanitarian organisations.
- We must meaningfully include FDPs in design and decision-making processes, as well as work with refugee-led organisations.
- We need to leverage digitization in order to amplify opportunities. For example, digital payments and mobile wallets are already shifting how humanitarian aid is distributed.
- We must work in partnership to address documentation gaps. Encouragingly, some regulators now allow UNHCR-issued IDs to satisfy KYC requirements.
A final priority is helping already displaced communities affected by climate change. 60% of FDPs displaced by conflict live in countries on the front line of the climate crisis and are thus at risk of secondary displacement. Noah Ssempijja, Opportunity International’s Refugee Programme Coordinator in Uganda, has seen this first-hand. “Most refugees here depend on agriculture for survival. But growing conditions for smallholder farmers in the settlements are now almost impossible.”
One of the main challenges is that financial inclusion actors typically approach the two critical issues of climate resilience and displacement management separately. Going forward, we need to break down organizational silos and ensure much greater integration.
The Window of Opportunity
The global conversation on the role of financial inclusion in the context of climate change urgently needs to include the impact on forced displacement. The climate crisis is deeply connected to the movement of people both within and across borders. With a billion people projected to join the ranks of the climate-displaced by 2050, the window of opportunity for the financial inclusion sector to act is rapidly shrinking. It requires a massive step change in efforts to prepare for displacement at scale.
What is encouraging is that solutions are already at work that are sustainably preventing, minimizing and addressing climate-induced displacement. The success of financial inclusion initiatives for refugees in Uganda for example provides important global learnings about how to build comprehensive resilience solutions for people on the move. These solutions need to be scaled, and new solutions need to be identified.
Finally, let’s not forget that climate-induced displacement is a global issue, and thus requires a global response. A sense of shared responsibility is especially important in light of prevailing sentiments in the Global North around migratory movements across borders. It’s vital that the international community ensures sustained and targeted investment in solutions to the complex challenges presented by climate-induced displacement – and do so in way that upholds human dignity.
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