This paper examines whether formal micro-credit can meaningfully support self-reliance and financial health among refugees in protracted displacement. The study is set in Jordan, where refugees face legal restrictions or practical barriers that impede their right to work, move freely, own property, and establish businesses. The refugee population in Jordan is largely below the poverty line (86 percent at the time of the study).
The authors define “financial health” if individuals can meet basic needs, manage debt, recover from financial shocks, access lump sums for investment, and extend their planning horizons. Three rounds of in-depth interviews were conducted with the same refugee participants between March 2019 and December 2020, spanning the onset of the COVID-19 pandemic and allowing for observation of how participants’ financial lives evolved over time. Key informant interviews with community representatives and institutional actors were also conducted to complement participant narratives.
The initial sample comprised 89 refugee participants, of which 68 completed all three rounds of interviews; attrition was largely attributable to the pandemic. The sample was almost evenly divided between Syrians and non-Syrians (refugees from Yemen, Iraq, Sudan and Somalia), and between female and male participants. The large majority (72 out of 89) were of working age (18–45 years), 70 had been in Jordan for between three and eight years, and 25 were from female-headed households.
Main findings:
- Most refugees rely on humanitarian assistance and irregular work, which is frequently insufficient to meet basic needs. Most (57 percent) received monthly multi-purpose cash assistance from UNHCR, food support from the World Food Program, or both. Most also had at least one household member engaged in an income-generating activity, predominantly of an irregular or seasonal nature. Less than half of the 44 Syrians and only four of the 45 non-Syrians had income from regular employment.
- Few refugees operate businesses and most are informal. Only 3 refugees had set up formal businesses and only 11 had set up informal, home-based businesses, the latter providing only minor and irregular income.
- Refugees regularly resorted to borrowing for day-to-day consumption smoothing. Borrowing was driven by the need to cover rent, food, medicine, and utilities, rather than by a desire to invest in their livelihoods. Nearly one-third of the participants had accumulated unmanageable debts of more than US$ 700, and one in five had more than US$ 1400 (equivalent to around four to five months of their household income); most struggled to repay debts and a common strategy was to use cash assistance to repay loans.
- Borrowing from family and friends was strongly preferred due to flexible and negotiable repayment terms, the absence of interest charges, and the avoidance of bureaucratic processes. Among Sudanese, Somali, and Yemeni communities in particular, intra-community solidarity represents a meaningful, if fragile, form of mutual insurance.
- Informal credit mechanisms function as the primary financial lifeline for refugees in Jordan. Approximately a quarter of participants regularly relied on neighborhood grocery stores and pharmacies for revolving, trust-based credit to purchase food and household essentials. These arrangements were characterized by flexibility, an absence of documentation requirements, and a willingness by shopkeepers to defer repayment during periods of hardship. Refugees prioritized clearing these balances, often using humanitarian transfers, to preserve continued access to this essential credit line. At the end of the third round of interviews, the average outstanding debt to corner shops across all participants was US$ 340.
- The small number of refugees who access formal loans do so primarily to finance emergency personal expenses, often resulting in unsustainable debt burdens. Only five participants (out of a sample of 44 Syrian refugees) had taken a formal micro-loan from a microfinance institution (MFI). Borrowers with formal micro-loans cited urgent medical procedures requiring sums of $700 or more as the primary motivation, particularly when informal networks were exhausted.
- The pervasive use of informal debt among refugees does not constitute latent demand for formal micro-credit. High levels of indebtedness reflect weak livelihoods and insufficient social protection rather than an unmet appetite for formal financial products. Refugees who borrowed informally at scale were doing so to survive, not to invest, and most were unwilling to incur the costs and risks associated with formal MFI products.
- Legal barriers to livelihoods, not lack of credit, are the binding constraint on refugee economic activity. Participants with entrepreneurial aspirations reported that restrictions on work permits, sectoral exclusions (particularly for non-Syrian refugees), requirements to register businesses under a Jordanian partner’s name, and the absence of a secure or predictable residence status severely limited their ability to invest, grow, or plan. Credit in this environment was described as unable to unlock self-reliance when foundational economic rights remained absent.
- Expanding formal micro-credit in constrained legal environments carries significant risks, particularly for women. Women in Jordan who default on formal loans face the risk of imprisonment for up to 90 days. This legal vulnerability, combined with the inherent income volatility of informal livelihoods, means that formal credit products can increase rather than reduce economic precarity for some of the most vulnerable refugee households.
- COVID-19 substantially worsened refugee financial health and placed existing informal credit networks under acute stress. The simultaneous hardship across entire communities undermined the capacity of social solidarity networks to absorb individual shocks.
The authors conclude that the prevailing humanitarian and development narrative—that formal micro-credit offers a meaningful path to refugee self-reliance—is not supported by the evidence. The authors caution that extending formal credit to economically excluded populations without addressing underlying barriers risks being “damaging”, shifting the welfare burden from states and humanitarian actors onto refugees themselves and increasing the risk of over-indebtedness. The paper urges humanitarian actors to push the micro-credit agenda with extreme caution, and only toward “credit-ready” refugees with stable incomes and genuine investment opportunities. For the majority who do not meet that profile, the authors call for prioritizing access to decent jobs and robust social protection. The paper also recommends that practitioners seek to understand and support existing informal solidarity mechanisms, such as corner store credit and community-based mutual aid, rather than replacing them with formal products, and that savings-oriented approaches be explored as more appropriate instruments for building financial resilience.