Could financial inclusion be the key to reducing vulnerability to modern slavery?
This post is co-authored by Laura Gauer Bermudez – Director of Evidence & Learning, GFEMS; Shukri Hussein – Country Manager East Africa, GFEMS; Timea Nagy – Founder of Timea’s Cause; Bart Robertson – MEL Manager, GFEMS; and Leona Vaughn – Vulnerable Populations Lead, UNU FAST Initiative.
Released from the grip of a trafficker, you return to your home community.
You lack a documented employment history, your identification documents have been stolen by your trafficker, and you may not yet have a permanent address. Each of these circumstances is precluding you from opening a bank account. Without steady financial footing, you are prone to be exploited again, entering a cycle of lost freedoms and being denied access to the very structures that can help you reclaim your agency and independence.
This is a story of frustration, oppression, and injustice. And it is a story that is lived time and time again by survivors of modern slavery and human trafficking. It is also the basis of what places individuals and communities at risk of exploitation.
Approximately, 1.7 billion individuals – 31% of the world’s adult population is ‘unbanked’, meaning they lack access to formal financial institutions such as banks and lenders. Addressing this issue has been part of broader development and poverty reduction strategies globally for over a decade. Yet, the connection between financial inclusion and reducing vulnerability to modern slavery is a relatively new conversation, one that the Global Fund to End Modern Slavery (GFEMS) and the Finance Against Slavery & Trafficking (FAST) Initiative have identified as critical and are actively mobilizing resources to address.
What is financial inclusion?
Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.
Financial products and services can include bank accounts and savings products as well as loans and insurance. Inclusive digital financial services, spurred by a rise in financial technology (FinTech), is helping to grow access to services such as mobile money which allow banking transactions from the convenience of a personal cell phone.
However, barriers to access remain common. The high cost of opening accounts, expensive transaction fees, complex application processes, and lack of access to digital services, leave many out of the formal financial system. Lack of financial literacy and gender norms that discourage women’s independent access to financial services create additional barriers to service.
These barriers limit the ability of individuals to safely save, invest, or access affordable lines of credit, all with significant consequences. Not only is an individual left with little to no power over their own financial resources, but their exclusion from the system perpetuates further marginalization, as lack of engagement places individuals in ‘high-risk’ categories. Given that a significant level of those who are unbanked also represent those facing social exclusion – based on age, citizenship, race, gender, disability, and socio-economic status – financial and social exclusion become reinforcing.
Here are some ways financial exclusion specifically increases vulnerability to modern slavery and what kinds of products, services, and access to financial institutions can make a tangible difference in reducing that vulnerability:
Financial exclusion limits ability to withstand economic shocks, necessitating risky labor and migration practices
Poverty is, by far, the most ubiquitous and obvious factor driving susceptibility to modern slavery. However, it is the inability to weather economic shocks that is a defining feature. The illness or death of a primary income earner. Financing large but socially required events such as weddings or funerals. Protracted conflict or political instability. Income or job loss due to macro-economic downturns. For those living on the margins, such shocks leave few options. The current economic downturn resulting from the pandemic is a prime example. The devastating effects of climate change are another shock, increasingly witnessed in vulnerable communities reliant on agriculture for their livelihoods.
The economically insecure have very few options to cope with and protect their families from these hardships. Those who are unbanked and with limited access to affordable credit or micro-insurance are often forced to cover these expenses by taking out sizable loans from informal money lenders at usury rates. Alternatively, others resort to irregular or risky migration as a means to meet these financial needs, which can lead to exploitative situations. Some may also receive advance payments or loans from employers, which can facilitate a bonded labor relationship.
Including survivors in the design of products and services is one of the first steps we can take to be more inclusive.
In order to most effectively serve groups at risk of slavery as well as survivors, designers of financial products should consult individuals and groups with this lived experience to understand their needs. For instance, GFEMS invested in SafeStep, an online platform for migrant workers from Bangladesh relocating to Gulf Cooperation Council (GCC) countries for employment.Learn More
Financial exclusion hinders reintegration of survivors
For survivors of human trafficking and modern slavery, financial exclusion represents a continuation of their trauma. Official identification documents such as passports are often stolen by their assailants, and in some cases their identities are used to defraud or amass debt. This can present a barrier to their financial recovery when they have escaped from these situations, as they struggle to open basic banking accounts for wages and even to access legal compensation they may have been awarded. Financial exclusion, a lack of access to financial services and knowledge, is not only a form of re-victimisation, but has consequential negative impacts on survivors’ financial reintegration, advancement to financial independence, and well-being and damages future opportunities for housing, mortgage, credit and employment. This leaves survivors vulnerable to repeat exploitation and abuse.
Financial exclusion perpetuates systemic risk of exploitation
Modern slavery is not only a result of individual vulnerability, but also systemic issues within industry. Market risk and volatility can be pushed down the supply chain to actors who are least prepared to cope. Such is the case in the construction sector in India, representing over 60 million jobs. The sector is highly dependent on low-paid, migrant labor and a system of sub-contracting construction orders to micro-contractors (MC). MCs are the primary employers of these migrant workers. They often operate informally, have limited access to affordable credit, and have to manage day-to-day business operations in a highly volatile market. Delayed payments are common and work orders inconsistent. These and other challenges can limit MC’s ability and willingness to treat their workers ethically. Worker exploitation and withheld wages are the norm.
Financial exclusion limits access to social protection schemes
The unbanked may be limited in their ability to access social protection schemes. Initial evidence has shown that people without bank accounts or access to mobile money were most likely to be excluded or receive far less monetary support from governments than those with digital financial access during the ongoing COVID-19 pandemic. This has a specific impact on rural populations, indigenous communities, young people, and women. These groups, primarily who were in informal work and also more likely to borrow from informal lenders, were placed at higher risk of abuse and exploitation.
Expanding Financial Inclusion – What’s Next?
If financial exclusion can be characterized as a lack of power and control over one’s economic resources, financial inclusion can be associated with greater financial power, control, independence, and agency, all of which are necessary to be fully free from exploitation.
So what are the products, services, and opportunities for access necessary to spur a meaningful reduction in modern slavery vulnerability? Here are our recommendations:
Prioritise financial inclusion as a form of protection against slavery and trafficking
Recognizing the role that financial inclusion plays in reducing modern slavery vulnerability, and explicitly considering this in the wider financial inclusion field, is a key next step for governments, civil society, and the private sector. Institutional funders and philanthropists can play a role in mandating financial inclusion activities within their portfolios to address slavery and trafficking. Governments can integrate financial inclusion activities into their policy strategies for vulnerability reduction and the private sector can consider innovative ways to improve access to financial products and services to workers along their supply chain. Financial services providers should be educated on modern slavery, specifically debt bondage, to understand how their products can best reduce this power dynamic for workers across the globe.
Exponentially expand public-private partnerships to address financial exclusion
NGOs and CSOs working to address slavery and trafficking should intentionally enhance collaboration with financial service providers, mobile money operators, and government agencies that offer safety net programs to design effective and sustainable interventions that increase financial inclusion. Similarly, private sector actors should seek opportunities to pair with NGOs and CSOs to reach and serve populations that have been left out of the formal financial system.
Establish more community-based savings and loans groups as an on-ramp to formal financial institutions
Governments and NGOs can facilitate group savings and loan initiatives such as village savings and loan associations (VSLA) and self-reliance groups (SRG). These initiatives provide access to credit as well as financial literacy training. Group savings initiatives can be effective platforms for delivering important skills training, increasing the social capital and resilience of group members and further reducing vulnerability to modern slavery. For this reason, group savings initiatives are often a part of an integrated suite of services in economic development programming, as evidenced in the Ultra-Poor Graduation approach and many others. While these initiatives tend to sit outside the formal banking system, they exist as part of a continuum of financial services ranging from the informal to formal and can serve as an onramp to formal financial services.
Provide guidance to Financial institutions on how to manage risks to vulnerable populations and ensure financial inclusion, while complying with relevant AML/CFT laws
There is a need to raise awareness in financial institutions about how these issues interact, in a way that also gives reassurance that anti-money laundering/counter terrorist financing laws and regulations are not compromised. Guidance could include ensuring considerations of risks to vulnerable populations, in relation to financial exclusion and heightened exposure to the risk of slavery and trafficking, are within banking risk assessment and management processes. Guidance could also address ‘derisking’ practices, including how and when they are an appropriate response to human rights concerns and also can unintentionally exacerbate risks to vulnerable people.
Integrate financial inclusion and financial literacy initiatives within any economic empowerment portfolio
Financial literacy is an important element in achieving financial inclusion. Yet many economic empowerment programs, particularly in the anti-slavery/anti-trafficking space, fail to include a comprehensive financial literacy training package, either due to funding shortages or limited capacity. This lack of emphasis on financial literacy leaves participants with an inability to save, invest, and protect themselves against economic shocks after the project has ended.
Expand digital financial services and digital financial literacy campaigns
Mobile finance platforms such as MPESA, used by 31.2 million Kenyans, enables users to open a bank account without onerous form filling and provides users with access to a savings account and loan opportunities. This ease of access creates a convenient option for at-risk groups as well as survivors who may lack the necessary papers required to open an account. Mobile finance has been a game-changer for financial inclusion in Kenya and is seen as a model for the rest of the world. Significant expansion of mobile money offerings alongside digital financial literacy has the potential to exponentially increase access and participation in the financial system for individuals and groups whose prior exclusion created notable vulnerabilities and barriers to their own financial independence.
Incentivize ethical business practices through the provision of financial services
Mapping the employment structure of an industry prone to modern slavery can uncover stressors that may be making it difficult for employers to abide by ethical business practices. GFEMS is currently partnering with several organizations to provide micro-contractors in the construction industry in India with business training and conditional loans. Loan provision is contingent on the implementation of a minimum set of ethical business practices by the recipient. An impact evaluation of this project is currently underway, and we anticipate that the loans will help micro-contractors to better manage cash flow and work orders, enabling them to more feasibly adopt ethical business practices.
Invest in savings accounts for survivors and populations at high-risk of slavery and trafficking
Individual Development Accounts (IDAs) have long been touted as a vehicle for increasing assets and hope for the future among low-wealth populations. Matched savings for low-income populations establishes a mechanism for accumulating savings and assets, an opportunity that would otherwise only be available to middle to high-income earners with matched savings through their employers. Governments, charities, and private sector entities should consider establishing IDA accounts for select groups in order to offer the same opportunities for wealth accumulation afforded to less marginalized populations.
Include survivors in the design of products and services
In order to most effectively serve groups at risk of slavery as well as survivors, designers of financial products should consult individuals and groups with this lived experience to understand their needs. For instance, GFEMS invested in SafeStep, an online platform for migrant workers from Bangladesh relocating to Gulf Cooperation Council (GCC) countries for employment. Extensive consultations were held with workers to understand what was most effective to meet their needs, resulting in a comprehensive budget calculator, helping migrants understand the ‘true’ cost of migration. Consulting affected populations on their needs will ensure greater uptake and impact.
The Global Fund to End Modern Slavery is a multi-donor fund launched in 2017 to catalyze a coherent global strategy to end forced labor and human trafficking. GFEMS programs around the world are working at the intersection of financial inclusion and modern slavery, bringing together leaders and innovators from both fields to drive impact. Activities include developing, piloting, and scaling innovative new financial products — be they to economically empower survivors of trafficking, to reduce financial fragility among migrant workers, or to alter employer behavior in the informal apparel and construction industries — and conducting and disseminating studies to increase understanding of the individual-level financial drivers of modern slavery risk.
Finance Against Slavery and Trafficking Initiative, based in the United Nations University Centre for Policy Research, is working to mobilise the financial sector against slavery and trafficking. Part of this work is called the Survivor Inclusion Initiative which in its first phase has assisted survivor support organisations and participating banks in the US, Canada and UK with the opening of over 2,000 survivor bank accounts. This programme operates from the position of addressing survivor needs. It works closely with survivor support organisations to be able to support survivors in navigating the process, this includes being able to ratify survivor identity. It works to empower survivors with choices, in terms of banks and account types e.g. online banking for those not comfortable with face-to-face account opening. It supports banks to address and overcome documented challenges such as ‘de-risking’ and perceived conflicts with anti-money laundering or counter terrorism financing rules.