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 fourth of e-MFP’s annual series of guest blogs on this topic, Laura Cordero presents the history of displacement within and to Colombia, and how that country has put public processes in place and mobilised its financial inclusion actors to address this challenge - with valuable lessons for others.
Colombia has a long history of forced displacement. The internal conflict has lasted almost 80 years and resulted in one of the largest internally displaced population in the world: more than 8.6 million people. It is also the number one destination of migrants from Venezuela: 2.8 million as of 2023. Totally combined, they represent around one fifth of the Colombian population. Few other countries in the world have had to face a displacement challenge paramount to this in terms of volume, share of the population and diversity. And unfortunately, both types of forced displacement continue to grow.
As in most countries, issues affecting those that have been internally displaced are handled by public and private actors separately from those regarding foreign immigrants. Yet, many of the challenges that both populations face are similar, and a significant proportion of them end up joining the ranks of the most vulnerable groups, posing similar pressures to the national health, education, and social protection systems.
Over the last twenty years the Colombian government has put in place several measures to tackle the complex and multi-faceted problem of forced displacement. The Victim’s Law, issued in 2011, kickstarted a comprehensive reparation program for the victims of the armed conflict and strengthened humanitarian attention to those forcibly displaced (around 90% of the registered victims). Now Colombia is currently in the process of approving a new law related to climate-related forced displacement, an increasing cause of internal population movements.
Migration from Venezuela is not new to Colombia, but since 2018 the migrant population has more than tripled, requiring new targeted policies being implemented. Among other important measures, the creation in 2021 of the Temporary Protection Statute for Venezuelan Migrants has allowed almost 2 million migrants to acquire legal status in the country.
Public efforts to financially include forcibly displaced populations
In terms of financial inclusion, both groups – IDPs and migrants from Venezuela – have been targeted by public policies, often using similar instruments but via different programs and entities. While the 2020 national financial inclusion policy provides the general framework to support financial inclusion in the country, targeted strategies such as the National Strategy to Promote the Integration of Venezuelan Migrants have specific financial inclusion targets. In practice, examples of public sector support measures to both target groups include the following:
- Issuing financial norms and legislations aimed at facilitating access to financial products, such as the first simplified savings accounts, or providing guidance to financial institutions on Know Your Clients (KYC) processes for the case of Venezuelan migrants;
- Including financial inclusion-related measures within the humanitarian and reparation programs to those displaced by the conflict;
- Linking social protection and financial inclusion efforts via the conditional cash transfer programs. These programs have often resulted in massive opening of deposit and transactional accounts thanks to Government agreements with banks and e-wallet operators;
- Issuing targeted credit lines to financial institutions via Bancoldex and FINAGRO (apex institutions) or providing guarantees via the National Guarantee Fund (FNG) to finance these specific groups; and
- Partnering with international development organizations to fund and implement financial inclusion programs, such as UNHCR, USAID, or the International Finance Corporation.
The role of financial service providers
But beyond public and international cooperation actors, how is the financial sector in Colombia including forcibly displaced populations?
The answer is not so straightforward. To start, there is a big information asymmetry: we have good information on financial inclusion of Venezuelan migrants, not so much regarding internally displaced population.
We know, for example, that approximately 27% of Venezuelan migrants in Colombia have a deposit product in a financial institution: a big improvement over the last few years. The Temporary Residence Permit (PPT) is increasingly accepted by financial sector providers, yet there are still obstacles related to validation, documents equivalence and internal systems adaptation that still need to be surmounted.
According to Fundación Capital, Fintechs are currently playing a leading role in the financial inclusion of migrants in Colombia, offering digital wallets associated with an increasing variety of financial services. These products respond to migrants' immediate need to be able to send and receive money, make payments, send remittances. Also, some of this often digitally-savvy population prefers this channel that reduces the (conscious or unconscious) biases that they sometimes encounter in the face-to-face service. Transactions with some of these wallets are used by credit bureaus and there are even digital platforms that offer ‘nano-credits’ based on scoring systems. There are also a few microfinance banks and cooperatives that also target this segment, some in partnership with cooperation agencies such as the German Savings Bank’s Foundation to provide a more comprehensive support to the migrants. Yet, the perceived high risk and operating costs hinder traditional (micro)credit supply: latest available figures indicate that only 1.3% of this population have access to formal credit.
There are however no disaggregated data on financial inclusion of internally displaced population. The latest financial inclusion figures in the country – with 91% of adult Colombian population with access to an account or digital wallet in 2022 - indicate that most internally displaced probably are financially included. However, scarce data are available regarding access to credit or other financial services, since financial service providers do not normally collect displacement related information in their systems. Many financial institutions have made use of the public specialized credit lines mentioned above, funding at least 165,000 credit operations to victim owned businesses since 2012 (Bancoldex, 2024).
Different but similar market segments
Therefore, with available data we cannot draw a global picture on financial inclusion levels of all forcibly displaced population in Colombia. Financial institutions view these two groups as different market segments and each of them pose distinctive challenges.
The Venezuelan migrant population is very heterogeneous. Yet, data show that Venezuelan migrants have a harder time finding a job, when they find it is often not related to their education or prior experience, and they are offered worse conditions than to their Colombian counterparts. Credit histories from Venezuela are incomplete or inaccessible, and most have no records in Colombian credit bureaus. Language and cultural differences are not significant, yet the relationship between the financial system and its clients differs in both countries, so cultural awareness is needed from clients and financial service providers. But most importantly, migrants are considered as a high-risk market due mainly to the real or perceived “flight risk”.
Internally displaced population do not present the same challenges in terms of access to the financial system: most have Colombian nationality (although some ID documents may have been lost during displacement). Many were suddenly -and violently- displaced, leaving with nothing but the clothes on their back. Some resettled in rural areas, but most went to the informal settlements around bigger cities. Their poverty levels are also higher than the Colombian average. Their credit histories have also suffered, despite the issuance of specific regulations creating a “special risk category” for loans affected by the displacement and other violent events. Overtime, many have integrated in their host communities and are no longer seen as “displaced”.
There are important similarities among these two -yet very heterogeneous- population groups. And these similarities revolve around the displacement itself and its consequences: the loss of assets and livelihoods; the need to rebuild their life and perhaps start a new economic activity; the traumas associated to the forced displacement; the reliance on personal networks in the host community. From a financial institutions’ perspective, these two population groups present distinct challenges in terms of KYC compliance, but credit risk analysis may not – in principle - differ too much. After all, Colombian financial institutions have a long experience attending forcibly displaced populations: but do they know to what extent are they serving them? Are there any good practices or lessons learned? Can the experience with one group be useful to serve the other? Further research would be needed to answer these questions.
What lessons can we draw?
Colombian public and private institutions have a long experience supporting the financial inclusion of forcibly displaced population. While most internally displaced have access to the financial system, more needs to be known regarding the depth and effectiveness of that inclusion. With regards to Venezuelan migrants, it seems a matter of time that their ID documents are widely accepted, and a majority can access a deposit product. Access to a wider range of products and particularly credit remains low and calls for further innovation in de-risking strategies.
Financial service providers in Colombia may have some interesting practice in client screening and segmentation (for example, assessing recovery from displacement and integration in the host community), risk appraisal adaptations, or portfolio metrics that could be applied to Venezuelan migrants.
Further evaluating the results of public policy investment in supporting the victims of the armed conflict can also shed light on how to further support the Venezuelan population. There are certainly lessons to be learned, such as the type and duration of support needed for the socioeconomic stabilization and recovery. An important one is that “rebuilding their life project”, a central idea around the comprehensive support provided to the victims, is a pre-condition to positive socio-economic outcomes. In summary: without forgetting the important differences, let’s focus on the experience and learnings from the impressive effort that Colombia has already made and can be applied to financially include all those forcibly displaced in a meaningful and sustainable way.
Special thanks to:
Aida Solano, Alicia Rueda, Daniela Pradilla, Diego Andrés Rueda, Liliana Cortés, María Fernanda Manrique, Meik Proescher and Veruschka Zilveti for their invaluable contributions.
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