Effective Public-Private Partnerships to Advance Financial Inclusion and Financial Well-Being of Forcibly Displaced Persons and their Hosts – Aligning the Business Cases

Authors: Lene M. P. Hansen & Micol Pistelli.

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 fifth of e-MFP’s annual series of guest blogs on this topic, Lene Hansen and Micol Pistelli from UNHCR discuss the role of public-private partnerships between humanitarian actors, development agencies, host governments and the private sector,  and the factors that underpin their effectiveness.

In recent years, the importance of partnerships between the humanitarian, development, and private sectors in protracted displacement contexts has become increasingly evident to enhance the socio-economic wellbeing of forcibly displaced and stateless persons. However, developing these partnerships to be effective, sustainable and impactful is not always easy, and guidance is scarce.

How can solutions be co-created in partnerships between the humanitarian sector (with its focus on immediate aid through cash assistance), development agencies (with their focus on longer-term poverty alleviation), and the private sector )with its focus on profitability and value creation)? And how can this be done in ways that also engage host governments, focused on cost-effectively improving the lot for citizens? Bridging the gaps between differing terminology, priorities and systems for funding and measuring impact is a work in progress. But progress has been made.

There is widespread recognition that working through markets as shared platforms can channel sustainable contributions to improving the wellbeing of People and the Planet while enabling business Profit. But working together to support – rather than distort - market systems and make them stronger, more inclusive, and more environmentally sustainable, is no small feat. For longer-term sustainable partnerships between public and private sector actors in displacement contexts to succeed, the business cases must be clearer.

To broker better market-led partnerships, we propose focusing on at least four elements:

• A shared understanding of a contextual problem;

• Jointly defined common goals;

• Policy anchors and trust-building to enable flexible collaboration; and

• Capacity for sustainability and scale.

But who takes on which roles in the partnership? How are comparative advantages and additionality applied? How can all actors work better together, given the constraints of each context of displacement? Let’s look at each of these elements in more detail.

1. Defining and Documenting a Shared Contextual Problem: Better Data

Effective partnerships define a common problem and seek solutions together. In many markets, exclusion or restricted access to labour markets, formal employment and entrepreneurship remain a challenge for the forcibly displaced. This prevents them from contributing meaningfully to the local economies, building resilience, and be less aid-dependent.

• Humanitarian organizations with their field presence can bring in-depth knowledge of the needs and challenges faced by people who are forced to flee in accessing labour markets and financial services. When such insights and data are presented to provide evidence of benefits and value creation, collaborative solutions can more easily be designed. Importantly, humanitarian actors can leverage their networks to bring representatives of the forcibly displaced and their hosts, to the table through Refugee-led Organisations or other NGOs, to help clarify the challenges, based on their lived experiences.

• Development agencies can apply their analytical expertise to assess existing gaps,  and clarify the costs and net benefits of increased inclusion for host governments, providing evidence of the contributions and economic dividends of the forcibly displaced – and other migrants – to local economies, when their skills match the local labour market needs.

• As a source of expertise, innovation, and sustainable business models, the private sector is an integral part of any local economy, working to produce, exchange and distribute goods and services, while also serving as one of the main sources of employment and livelihoods, both locally and increasingly remotely. But for the private sector to engage, there must be win-wins. There must be additional value created, and there must be a use case. Private sector entities can help define how these use cases should look and what data is needed to demonstrate their viability. For this reason, they should be engaged from the very start of the process.

• Governments create the conditions under which effective participation in markets is possible. By limiting access to work, they inadvertently prevent the forcibly displaced from becoming self-reliant. This perpetuates their dependency on scarce aid budgets and overwhelmed social protection systems, while contributing to informality in the labour market. Prioritizing these - or other - problems can help pinpoint how market-led solutions may have the greatest impact.

2. Defining Common Goals: Diverse Contributions based on Comparative Strengths

All stakeholders in a partnership need to understand each other’s realities, comparative advantages, and constraints to define common goals in their specific context. Partnerships should have clear, measurable objectives that focus on delivering positive change for local communities of forcibly displaced and their hosts, e.g., increased financial wellbeing for all through employment and entrepreneurship opportunities. Financial wellbeing goes beyond inclusion—access to income and financial products and their usage – to measure resilience and behaviours such as spending wisely, building reserves, and planning ahead. By leveraging the comparative strengths of all actors, stronger, more sustainable and more inclusive local economies can be built, improving the wellbeing for everyone.

• For humanitarian actors, it’s easy to get caught up in the immediate delivery of basic services to the forcibly displaced. To develop more effective partnerships, it helps to extend the outlook and clarify the outcomes to be achieved for the forcibly displaced – and their host communities. The aspirations  of the forcibly displaced for peace, stability and a more secure, resilient life where they can contribute meaningfully to their community, resonate better with other stakeholder groups.

• In their overall drive for poverty alleviation, development actors tend to focus on market failures, poor infrastructure, and weak governance, which can make both private and public investments costly and risky. Documenting how existing markets function can help more people better contribute to these markets and crowd-in more actors.

• Private sector partners can offer innovation, technology, and financial resources to help close the gaps identified and demonstrate use cases of inclusion in employment and entrepreneurship.

• Recognizing that inclusive local markets can offer employment and entrepreneurship opportunities that benefit both the forcibly displaced and their host communities and also reduce dependency on aid and eventually decrease budgetary pressures, governments can design and implement policies encouraging economic transformation and inclusive growth. This involves creating regulatory environments conducive to investment, productivity growth, business expansion, and employment. By creating incentives for the private sector to engage in displacement locations, which may otherwise be overlooked due to profitability considerations, public sector actors can foster inclusive markets growth, as the Shirika Plan in Kenya aims to do.

3. Building Trust with Policy Anchors and ‘Skin in the Game’

Actors have different takes on solutions for better socio-economic inclusion and financial wellbeing for all. Great partnerships are built on principles of equality, respect, and shared accountability. However, partners don’t have to agree on everything and do things in the same way – as long as everyone aligns their interests and works towards the common goal.

Committing to core values such as inclusivity, transparency, and sustainability helps build trust and a common vision for positive change, serving as a frame of reference for the partnership even during difficult patches. International agreements and frameworks like the Kampala Declaration on Jobs, Livelihoods and Self-reliance in East Africa and its Roadmaps, aim to foster community resilience and economic participation. Linked to the Global Compact on Refugees and the Global Forum for Refugees, there are currently 86 pledges made by governments in the area of economic inclusion and social protection whose effects on the labor market participation of the displaced would multiply if matched by interventions sustained by the private sector – including investors and financial institutions. Private sector initiatives like IKEA Group's NESsT Refugee Employment Programme in Poland and Romania, and the pan-African Amahoro Coalition highlight the transformative potential of market-based solutions for economic inclusion.

Key actions to strengthen the partnerships into alliances and crowd-in new actors include:

• Organizing policy dialogues, roundtables, and forums to enable direct engagement between policymakers, private sector entities, development actors, humanitarian partners, and the affected communities themselves to review progress on initiatives and suggest course-corrections;

• Conducting joint research on the impacts of inclusive policies, initiatives and pilots to identify remaining pain points, opportunities, and progress towards financial wellbeing for all; and

• Sharing learnings and case studies on both successes and lessons learned. Colombia's integration of Venezuelan refugees and migrants, for example, has boosted the economy by filling labour gaps and increasing consumer demand, despite ongoing challenges like credential recognition.

Effective partnerships require willingness, capacity, and readiness to invest time and resources in relationship-building over time. Joint investment fosters a sense of shared ownership, as demonstrated by the Joint Initiative between IFC and UNHCR aimed at increasing private sector engagement in creating better markets in displacement contexts worldwide. Financial inclusion is also a key component of this initiative to enable access to finance for forcibly displaced people across Latin America and in Europe.

All partners must be prepared to commit resources – whether financial or human – towards achieving the common goal, pilot the agreed use cases, share risks, and work towards scalable solutions. However, uncoordinated efforts and silos between stakeholders often prevents the right capital to get to where it’s needed most. Communication and building alliances with local partners can amplify the partnership and enhance sustainability. Local partners are often better at finding and selecting the right partners, and  including refugee-led and other local community organisations is especially important. The assumption that Refugee-Led Organizations are “too risky” is generally unfounded, and both humanitarian and development partners need to be better at engaging with them.

4. Capacity to Deliver Outcomes Sustainably and at Scale

A good partnership needs the right mix of capacities, which may change over time. These capacities include:

• Physical Presence and Networks: On-the-ground presence is essential for reaching forcibly displaced people where they reside. Humanitarian organizations often have field offices and a broad supportive network of Refugee-Led Organizations  and other NGOs, which can provide private sector and development partners with real-life examples of challenges as well as logistical support to reach displacement settings.

• Technical Capacity: Relevant expertise in areas such as financial technology, mobile banking, data analytics, regulatory systems management, and convening power is crucial for designing and implementing effective inclusion programs. Complementary expertise in supportive areas such as financial education and technical support to financial service providers is important. An example of supportive non-financial service is provided by the ILO’s financial education program for refugees and host communities and their trainings addressed to FSPs.

• Financial Capacity: Adequate funding is necessary to support the scaling of inclusion initiatives. Impact investors, development financial institutions and FSPs can provide the resources needed to extend their services and pilot new approaches. Blending concessional capital, commercial capital, and grants is becoming increasingly popular in the development sector. Successful partnerships require a willingness to invest in the agreed use case, share risks, and work towards scalable solutions.

• Sharing the Perceived Risk: Partnerships should include mechanisms for sharing the perceived risks. Governments and development finance institutions can provide subsidies, concessional capital, and other mechanisms to mitigate risk for private sector entities and ensure profitability. The joint blended finance program launched by Swedish Sida, UNHCR and Grameen Credit Agricole Foundation in Uganda in 2019, comprised debt funding and technical assistance, as well as a lender’s guarantee and reached over 120,000 refugee and host entrepreneurs with credit and other financial and non-financial services. New initiatives, like the Refugee Development Impact Bond model in Jordan leverages the complementary resources of private and public actors on a ‘repayment for results’ basis, enabling the testing of solutions beyond the constraints of activity-based annual funding cycles.

• Scalability: The goal is to develop interventions that can be scaled to benefit a larger population of forcibly displaced and their hosts. Partners need to consider how their initiatives can grow beyond initial pilot projects to reach scale across different regions and contexts. For example, KIVA has a large and diverse network of FSPs and has demonstrated proof of concept with the most scalable initiative in the financial sector, additionally reporting a 96% client repayment rate among displaced customers. At the last Global Refugee Forum, Kiva pledged to scale their lending to displaced populations, and by the end of 2025 the organization aims to provide an additional $40m in loans to at least 65,000 people.

• Measuring outcomes: Without measuring outcomes, no partnership can know if objectives are being attained. The Global Partnership for Effective Development Cooperation has recently launched the Kampala Principles Assessment process in Burkina Faso to collect evidence on the challenges and opportunities to improve private sector engagement. Measuring financial wellbeing (or financial health) is still a work in progress, but indicators of the four aspects of financial health have been incorporated and benchmarked in the annual 60-decibel Microfinance Index. These indicators could be disaggregated by population segments, to enable tracking of progress towards better financial wellbeing in displacement contexts, as demonstrated by FIND research across markets.

About the Authors:

Lene M.P. Hansen has worked for 25 years as a field-based consultant in inclusive financial sector development and microfinance. Since 2005, she has specialised in expanding access to finance in fragile and conflict-affected environments. She has focused on financial inclusion of migrants and refugee populations since 2015, when she began the research resulting in the global Guidelines for FSPs, and has since worked with FSPs in Lebanon, Jordan, Iraq, Afghanistan, Mozambique, and Uganda to financially include foreign born and displaced residents. Lene has served in longer-term project management positions in Nepal (1995-99), Uganda (1999-2003) and Palestine (2007) and provides shorter-term technical assistance in ‘refugee-readiness’ for FSPs, project design and appraisals, portfolio reviews and evaluations for donor agencies, investors and central banks; as well as training, performance monitoring and industry building support to microfinance industries primarily in Africa and the MENA region.

Based in South Africa, Lene holds a Master’s degree in Political Science from Copenhagen University and has been a visiting fellow at the Feinstein International Center of Tuft’s University, USA. She served on CGAP’s SmartAid Review Board in 2011 and is a member of the e-MFP Advancing Refugee Finance Action Group and the Danish Microfinance Forum.

Micol Pistelli is a Senior Financial Inclusion Coordinator at UNHCR, where she provides technical support to country operations aimed at promoting initiatives and efforts to ensure that forcibly displaced persons can participate in and benefit from formal financial services. Before joining UNHCR, Micol was the Director of Social Performance at MIX, where she helped shaping the international standards of social performance management for financial service providers in the microfinance industry.  She has also been a board advisor of several initiatives in the financial inclusion sector, a lecturer at the Master in microfinance and entrepreneurship at the Universidad Autonoma in Madrid, and a consultant with the Italian Ministry of Foreign Affairs, and with microfinance institutions in Egypt and Paraguay.

Micol  holds a Master’s Degree in International Economics and Development from the Johns Hopkins School of Advanced International Studies (SAIS) and a Bachelor’s degree in Political Science from the University of Bologna.