Solving Nigeria's Unbanked Population Problem

Eight years after, Nigeria is yet to achieve the desired financial inclusion target as over 40 million adult population are outside the country’s financial system.

High poverty rate, cost of account maintenance, lack of trust in financial service providers, and proximity to service points are key reasons why half the country’s adult citizens are excluded from the formal financial system.

Financial inclusion means that people have access to basic financial services like a savings account, credit, and insurance. A higher exclusion rate in Nigeria could lead to a poorer population as lack of access to credit and insurance puts them at an economic disadvantage.

Through its National Financial Inclusion Strategy (NFIS) of 2012, the Central Bank of Nigeria (CBN) set a target to ensure 80 percent of Nigeria’s adult population have access to financial services by the end of 2020.

But the March 2021 data from the Nigeria Inter-Bank Settlement System Plc (NIBSS) shows that Africa’s most populous nation had 47 million Bank Verification Numbers (BVN)-an 11 digit number that acts as universal ID for bank holders in Nigeria, this means that more than half of the country’s adult citizens are still without bank accounts.

The NIBSS data also shows that Nigeria may have failed to meet its 80 percent financial inclusion target of 2020 (Enhancing Financial Innovation and Access- EFInA, the organization responsible for Nigeria’s biennial financial inclusion report is due to release the 2020 figures in April).

Even though Nigeria’s population is 2.6 percent of the total world population, the World Bank Global Findex Report 2017 estimates that 3.4 percent of Nigerians are among the global 1.7 billion adults who are unbanked and financially excluded.

The CBN had in a circular in 2018, lamented that Nigeria was not meeting any of the financial inclusion targets agreed and contained in the 2012 Financial Inclusion Strategy. Not only was the country not meeting its targets, but it was also declining in growth.

For instance, while Nigeria achieved a 60.3 percent financial inclusion rate in 2012, it declined to 58.4 percent in 2016 against a target of 69.5 percent translating to financial exclusion of about 41.6 percent.

The World Bank Global Findex Report 2017 estimates that of the 1.7 billion adults who are unbanked and financially excluded worldwide out of the estimated world adult population of billion, Nigeria has 3.4 percent even though its population is 2.6 percent of the world population.

In a bid to grow the number of financially included people, the CBN released an exposure draft in October 2018 in which it proposed Payment Service Banks (PSB) aimed at deepening financial inclusion in Nigeria.

More than two years after the Central Bank of Nigeria gave an official node to non-financial companies to apply for the mobile banking licences to assist in deepening access to financial services, not much has changed.

While two smaller Telcos and a payments company have been given mobile money licences, the country’s largest mobile operators, MTN and Airtel are yet to receive the licence.

Before now, only banks and licensed financial institutions were allowed to provide financial services (bank-led financial inclusion model). Although telecom operators and other fintech companies indicated interests to operate in the market, the CBN policy would not allow them.

In July 2019, the Central Bank Governor, Godwin Emefiele set a new financial inclusion target geared at giving access to 95 percent of Nigeria’s adult population by 2024. According to analysts, Africa’s largest economy can bank its unbanked population by doing the following.

Policy review

Analysts recommend that the CBN considers policy review to enable more financial service providers to contribute to deepening access, especially for the underserved rural communities where the exclusion rate is highest.

Conditional Cash Transfer (CCT) Programme Policy reviews in favour of digitization for improved effectiveness, proportionate licensing and requirements for large scale and early-stage fintech firms to provide an open and level playing field for DFS deployment and clarification of legal frameworks to promote the uptake of digital platforms by MSMEs are some of the solutions recommended by EFInA.

The rapid registration and licencing of Telcos to enable them have clearance to offer mobile money services was another solution cited by industry analysts.

The telco-led financial inclusion model has played a significant role in the level of progress reported in some African countries as the telecommunication companies in the countries leveraged on their already existing infrastructure to deepen access to finance.

Kenya has over 60 percent mobile money service penetration, while Ghana has about 40 percent service penetration, and Nigeria with a lot more population remains at 1 percent owing to its bank-led model.

Ghana’s decision to have a Telco-led financial inclusion model resulted in a 73 percent increase in registered mobile money customers in just one year, according to World Bank data, an initiative that lifted the financial inclusion rate in the West African country to 58 percent in 2017 from 41 percent in 2014.

With a customer base of over 200 million and a combined presence in the 774 local government areas in Nigeria, the telecoms industry in Nigeria which has the largest subscription for any sector in the country shows it has the facility to take financial services to the hard-to-reach areas in the country.

Industry giants like MTN and Airtel are still awaiting the licence from CBN, though they have applied since the apex bank first made the announcement 2 years and five months ago.

From a regulatory perspective, one basic requirement for mobile money to succeed is to create an open and level playing field that includes non-bank mobile money providers such as Mobile Network Operators (MNOs), London-based Group Special Mobile Association (GSMA) said.

If Nigeria wants to deepen financial inclusion with the right oversight, then the banks and Telcos should work together to drive it, Yewande Adewusi, a Lagos-based financial inclusion consultant said.

“It is obvious that what the country has been doing in the past is not working,” Adewusi said.

Inclusion should be beyond the bank account

According to the World Bank defined financial inclusion means that individuals and businesses have access to financial services that meet their needs – transactions, payments, savings, credit and insurance – delivered responsibly and sustainably.

Meaning financial inclusion is not only having access to a basic bank account instead it includes other value-added services that serve as an incentive for the excluded to be on board in the formal financial system.

For example, a small business owner should be able to access credit to expand their business from operating savings or transactional accounts with a bank. But the high cost of credit and the many paperwork coupled with the collateral the banks request from small businesses are reasons many are unable to access loans.

In rapidly advancing economies, access to an account (of any kind) is not enough to become financially empowered, Mats Granryd, Director General, GSMA said.

Rather, Granryd said “access is simply a stepping stone to financial inclusion. With account registrations likely to plateau in the next decade, it will become even more important to understand how actively and frequently mobile money is being used.”

Affordable/tailored product

While banks and financial technology service providers have evolved and advanced the value of services rendered to banked customers, the industry players have been unable to reach the most excluded segment of the population, especially those in the rural community.

Analysts believe tailored financial services products that serve the demand of the various segment of the country’s population will go a long way in deepening the country’s financial inclusion drive.

According to Ashley Immanuel, Chief Executive Officer, EFInA, when banked Nigerians start using more or additional digital financial services, it is beneficial for the Nigerian financial system and economy but “does not drive financial inclusion in the sense of helping unbanked or financially excluded adults access formal financial services for the first time.”

The World bank also explained that “useful and affordable financial products and services” that meets the needs of the consumer is the way to go in deepening access.








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