The Financial Exclusion Problem Facing Ukrainian Refugees and What Can Be Done  


By Mikkel Velin, co-CEO, YouLend

With the tools and resources available today, it should be a given that refugee entrepreneurs should be able to flourish no matter where they live. But for refugees arriving from Ukraine, many of whom will be entrepreneurs and small and medium enterprise (SME) owners that can add significant value to economies, this will not be their reality. 

This issue is not only solvable, but will have lasting impact, supporting both these refugees and the broader UK economy. Now, the financial sector must uncover the root cause of this financial exclusion, and what it can do to overcome it. 

Examining the cause 

Refugees often arrive in their new country without most of the documents needed to enter the financial ecosystem. When fleeing war or disaster, documents that show a good credit history are unlikely to make the journey. Many may even arrive without a passport or official identification. 

Stringent identification requirements for Know Your Customer (KYC) compliance means that it is extremely difficult to open an account at a traditional bank if you are a refugee without any KYC-recognised identity documents, such as a passport. Accessing finance is almost impossible with no financial history in a new country, a lack of data-sharing by financial institutions (FIs), or use of wider data sources. This has negative consequences for newly settled entrepreneurs, who are more likely to take expensive loans with little support structure, as a result of this lack of accessibility. 

What’s more, in the case of many traditional finance providers there is a misunderstanding around what data is available to judge whether someone is eligible to access financial services such as banking and financing. The majority of financial services firms that act as gatekeepers to the UK financial system use outdated, backward-looking data points. This is particularly true for financing providers, who rely on factors such as credit repayment history or business trading history – of at least two years in many cases. As a result, refugees looking to start a business – for which financing in the initial years is so crucial – are excluded. This not only impacts the economic independence of newly settled entrepreneurs, but also the wider UK economy.  

The hit to the wider economy 

Financial exclusion is often a major barrier to economic independence – and in the case of refugees in the UK, their ability to succeed once they settle. But the consequences are far greater than the individual impact on refugees that arrive in the UK as previous or future entrepreneurs: financial exclusion creates a significant loss of potential in the economy.  

Refugees often bring new skills, new business practices and fresh perspectives to countries they enter. All in all, they can contribute significantly to the diversity and vibrancy of the UK SME community – which is such an important contributor to the wider economy. In 2021, estimated total SME turnover in the UK was £2.3 trillion.  

It doesn’t stop there. Untapped economic potential from financially excluded refugee entrepreneurs impacts key economic metrics such as GDP and employment rates.  

Cracking the code to financial inclusion 

In order to harness the economic and cultural benefits that newly settled entrepreneurs can offer the SME community when arriving in the UK, the financial services industry needs to leverage key technology and wider data sources.  

Those arriving without official identification or reliable identification (by KYC standards) should be issued digital identification as an industry standard. Through digital identification, FIs can monitor a refugee’s financial activity to make informed decisions as to whether a refugee entrepreneur is suitable for other key financial services such as business financing. 

What’s more, wider, forward-looking data sources are available today, and proven to be effective in broadening the pool of those eligible for financing. Some revenue-based financing fintechs are already leveraging them, alongside traditional data points, to drive financial inclusion for entrepreneurs and small business owners.  

The use of broader and more objective data points, including repeat customer metrics, alongside traditional metrics such as credit checks, could prove to be the key in unlocking more financing flows for newly settled entrepreneurs once they have bank accounts – particularly in today’s increasingly digital economy. The pandemic provided unique stress tests for financers, meaning alternative financers now have proven risk assessment techniques. But they are the new kids on the block, and much of the UK financial services industry is averse to change. 

As the main gatekeepers, traditional finance providers can better utilise their existing strengths, such as strong understanding of the market and wide pool of existing customer data, to ensure that their products are more inclusive. For example, they might look at incorporating alternative eligibility criteria, such as online presence, spending habits, or recent transaction growth into their already well-established models. Using wider data sources, such as the above, and open data technology , banks and lenders will be better placed to make more inclusive and accurate risk assessments.  

Alongside banks and traditional lenders, there is a new trend emerging. Increasingly, businesses are accessing financing via non-banks providers. Our research revealed that two thirds of people would consider applying for a financial product through a technology company rather than a traditional financial institution. As a result, e-commerce platforms and payment service providers must leverage the vast amounts of data that is increasingly at their disposal to make decisions that support newly settled entrepreneurs and drive inclusion. 

All in all, it has to be a collective effort. But if we want to look at the first steps to building a system that allows newly settled entrepreneurs to thrive, policy and influential lenders’ need to evolve with the ever-changing market in order to cater for the new breed of entrepreneurs striving for growth today.

About the Author

Mikkel Velin - AuthorMikkel Velin is founder and co-CEO of YouLend. Prior to founding YouLend, Mikkel spent 7 years as partner and high yield portfolio manager at a UK-based global asset manager, which was bought by Allianz Global Investors. Mikkel originally qualified as a lawyer working in M&A and finance in Denmark. YouLend enables e-commerce, tech companies and Payment Service Providers to extend their value proposition by offering financing to their merchants. YouLend’s technology-first approach is based on the belief that the future of financial services will be delivered by customer-orientated tech companies that embed finance into journeys. Extra data streams from partners allow YouLend to provide more accurate financing assessments and drive financial inclusion for entrepreneurs.


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