Finance works best when it is embedded in economic pathways

BRUSSELS (ILO News) - The ILO shared three key lessons learned from its work across fragile and displacement-affected contexts at a workshop on “Financial inclusion and investment promotion for forcibly displaced people, migrants, returnees and their host communities in fragile contexts”, organized by the European Commission’s Directorate-General for International partnerships. The workshop explored opportunities for EU-led innovative financing mechanisms.

First, building the capacity of financial service providers (FSPs) is a necessity. “If we want refugees and host communities to genuinely access finance, financial service providers need the capacity to serve them well,” said Yousra Hamed, Technical expert in Social Finance at the ILO. This means understanding refugee markets and segmentation, adapting products and outreach strategies, and managing risk appropriately.

This approach allows to build a pipeline of investment-ready FSPs that can responsibly scale up their piloted strategies, especially through blended finance instruments. In turn, this enables a more sustainable and durable access to capital for micro, small and medium enterprises as well as cooperatives and other social and solidarity enterprises, and bolsters entrepreneurship and job creation.

Second, access to finance alone is never enough to create jobs. ILO experience shows that the risk for financial actors is reduced not just through instruments such as guarantees or grants, but by strengthening the entrepreneurial and financial capabilities of refugees and hosts; linking finance to skills, jobs, and market opportunities; and rebuilding trust between borrowers and providers.

Third, partners along the humanitarian-development-peace nexus need to work together in an integrated manner, going from policy and regulation to capacity and investment. This is where Team Europe can have the strongest additionality.

The ILO gave the example of how it is currently working with partners along this nexus, with UNHCR contributing to economic intelligence and regulatory frameworks, the ILO promoting capacity building for financial service providers and refugees, as well as decent work and market access, and Proparco, a development finance institution, Kiva, an asset manager for institutional impact-first investments, and other development finance investors scaling impact investment into FSPs which serve refugees.

An estimated 81 million forcibly displaced persons live in fragile contexts, where humanitarian and development assistance is often declining, and in many cases, insufficient to ensure sustainable livelihoods. In this context, forcibly displaced people need employment opportunities to earn a living and access basic financial services, to regain autonomy and dignity.

“The challenge now is to design mechanisms that are not only innovative on paper, but operationally grounded in what has proven to work in fragile settings,” Hamed concluded.