Stronger financial systems can lay a foundation for resilience, inclusion and peace

For countries experiencing fragility, conflict, and violence (FCV), access to cross-border payment systems is a challenge. It often requires intensive and costly due diligence, making the financial system a bottleneck for crisis response. Even as fighting is ongoing in places, such as, Palestine, Sudan and Ukraine, measures to strengthen the financial system should be a priority for policymakers, to facilitate delivery of aid and to support economic activity and contribute to resilience. This should happen during conflict, with redoubled efforts as soon as conflict eases. 

The stakes are high. Humanitarian aid saves lives but needs reliable payment systems to function. Access to money and credit gives people the means to care for families, fuels economic activity and contributes to recovery and stability. But it needs fundamental governance and institutions strong enough to oversee the financial sector. Yet, engagement with financial institutions, supervisors and regulators is often neglected when it comes to supporting conflict-affected countries. Effective financial systems need the central bank to be an anchor, and private financial services providers are essential in keeping payments and remittances flowing – this makes it both possible and necessary to put in place fundamental institutions and “rules of the game” to make the financial system more resilient. It is even more so important in places where government is fragile. 

A decade ago in Somalia, vital remittance flows were under threat as global banks were restricting business with Somali financial institutions, because they lacked compliance with global standards for anti-money laundering and counter-terror financing (AML-CTF). We worked with the Central Bank to improve compliance and secure access to correspondent banking networks in the UK. UK regulators supported the effort by issuing guidance and clarifying regulatory expectations for UK financial institutions. This increased their confidence and enabled a resumption of payments from Somalis working abroad to their families back home. In the years since, Somalia has built on this progress with the development of a national digital payments system. Today, almost all Somali people have access to mobile money accounts. Improving access to credit and formal banking services, especially for women, is a focus moving forward.

In Burkina Faso, Burundi and the Democratic Republic of Congo, digital transformation of non-bank financial intermediaries, such as microfinance institutions and savings and credit cooperative societies, is expanding access to formal banking, access to credit and to savings and insurance. These institutions often remain operational longer than commercial banks during conflicts, offering a financial lifeline to their communities. They play an outsize role in providing financial services to micro- and small-sized businesses, which account for a large share of employment and income in conflict-affected countries. The creation of shared information and management systems has helped connect these vital service providers into the broader financial system.  

Cross-border credit reporting is helping Ukrainian refugees rebuild their lives. IFC’s Digital Data Corridors initiative brings together a coalition of credit information providers, financial institutions, and industry experts to allow financial institutions to work electronically across borders and receive international credit histories, identity verification, and bank transaction data in real time. With this information, Ukrainian refugees in host countries will be able to get easier access to credit cards, loans, and other services.

In these examples, the first step in the World Bank Group’s support was a sound diagnostic, to thoroughly understand the issues and players in a system. This enabled us to work with countries in designing solutions tailored to their specific situations, either ongoing conflict or post-conflict reconstruction. In one country, the problems may be internal, such as the lack of appropriate regulations. Another may struggle with external problems, such as accessing international banking networks, as in Somalia.

We also accepted that second- or third-best solutions could be the best fit in some cases and sought to avoid locking in place financial infrastructure that might be sub-optimal later when political conditions are more stable. This still leaves a lot of space for concrete action, with direct benefits for the local population and firms.

The World Bank helps by connecting different parts of the financial system—banks, financial services providers, central banks and other supervisors in client countries and in the advanced economies—and facilitate access to international standard setters and development partners. In these conversations, common diagnostics and customized and pragmatic solutions emerge. Experience has shown that solutions must be tailored to the context.   We must accept that medium- and long-term solutions may take more time in FCV settings, but inaction today can make things more challenging tomorrow. The potential for saving lives, helping people and firms cope and contributing to peace and stability is worth the effort.