Sixty-five million people worldwide are displaced by conflict and war.
Developing countries host 95% of them.
Displaced people need help. But so do their host communities, which face enormous sudden pressures on their infrastructure, public services and markets. These pressures have the potential to undermine political stability.
This is why international development institutions are rethinking how to approach humanitarian crises, and no longer consider humanitarian assistance and development interventions as two separate, sequential responses. We, at the World Bank, have been ramping up our support to both people and communities affected by fragility, conflict and violence as well as disaster risk, which can exacerbate instability.
Being able to provide quality financial services before, during and after periods of humanitarian crises can improve people’s resilience and help sustain livelihoods.
But more than three-quarters of adults in countries coping with humanitarian crises are outside the formal financial system and are likely to rely on informal networks instead.
Diaspora communities tend to act fast, but they often lack an effective way to get money to affected populations.
Emergency cash transfers, particularly through digital mechanisms, can help address immediate vulnerability and mitigate the impact of crises. In general, when people have access to formal financial services, they can build assets, mitigate shocks related to emergencies, illness, or injury, and make productive investments.
. Yet .
Payment systems are particularly important in a crisis as humanitarian and financial sector actors may have to distribute cash transfers to thousands of people in short time.
An example of their importance was evident during the Ebola epidemic. As the virus spread, it became challenging to continue delivering Ebola response workers’ hazard payments in cash. The World Bank and donors worked with governments in the affected countries to move these payments from cash to electronic payments.
However, a financial system may lack the appropriate access points and liquidity management to do this. For example, it may lack simplified customer due diligence (CDD) regimes and clear agent regulations to facilitate digital transfers.
Non-profit organizations (NPOs) are often at the forefront of providing aid in humanitarian crises. But recently, many NPOs have started to face problems in accessing financial services, because of a mistaken idea that all NPOs pose a high money laundering/terrorism financing risk. We are working with banks, NPOs and regulators to change that perception and ensure NPOs can maintain their bank accounts and move funds to humanitarian hotspots.
If there is damage to physical and financial infrastructure (roads, telecommunications networks, power grids, bank branches or payment and settlement systems, credit bureaus), the financial system’s ability to handle a crisis is further compromised.
A joint CGAP-World Bank report, “The Role of Financial Services in Humanitarian Crises,” examines the role of financial services during humanitarian crises, and provides recommendations on how development agencies, governments and financial players can bridge short-term humanitarian assistance with longer-term financial inclusion and overall development efforts.
- Donors should integrate financial service providers into emergency assistance that aid agencies provide, and embed financial inclusion objectives into humanitarian assistance.
- Governments in crises-affected countries should make it a public policy priority to invest in financial systems that can manage crises, and develop crisis-adaptable regulations. For example, review customer-due-diligence (CDD) requirements that impede financial access for displaced populations and expedite regulatory reforms to enable mobile money.
- Financial service providers should commit to helping to mitigate humanitarian crises. Developing contingency plans, building reserve funds, diversifying client bases, and investing in staff training are important to maintain business continuity during crises. Donors could support market players by incentivizing preparedness and risk management through targeted subsidies and liquidity support.
The World Bank’s focus on humanitarian assistance is part of the institution’ trajectory toward becoming “better, stronger, and more agile” to be able to confront major global challenges over the next 15 years.
Through our Global Concessional Financing Facility we provide financing for development projects in middle income countries impacted by refugee crises. With the UN we’ve launched the Humanitarian Development Peace Initiative to work across the humanitarian-development-peace nexus in countries affected by fragility, conflict and violence. We finance innovative approaches to state and peace-building in regions affected by fragility, conflict and violence through our multi-donor trust fund State and Peacebuilding Fund.
Continued collaboration across sectors, institutions and borders is the only way for the global development community to be able to sustainably address the immense challenge of forced displacement.
Photo © Dominic Chavez/World Bank