Piloting the National Financial Inclusion Strategy

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Arize Nwobu aligns with experts’ positions that increased access to finance by MSMEs will lead to greater productivity and increased non-oil exports

Financial inclusion is a main stream topic among policy makers across the globe. In the lexicon of finance and banking, it has been defined as ‘’the delivery of financial services at affordable costs to serve to sections of disadvantaged and low income segment of society’’. The G20, also defines innovative financial inclusion as ‘’improving access to financial services for poor people through safe and sound spread of new approaches.’’

Financial inclusion is a masses-oriented concept and a key tool to poverty alleviation. It helps to develop habit to save, increase entrepreneurial spirit and national output; engenders faster economic growth and development of a stable financial system funded by non-volatile saving. The operational elements include the availability of a wide range of innovative financial products and services, including payments, savings, credit, insurance and pension products and services within the reach of all groups, and designing of financial products according to the needs of target clients.

The contrast of financial inclusion is financial exclusion where financial services are not available or affordable to the low income group- a situation which has been noted to lead to pauperism. The World Bank estimated that 2.5billion working age adults are financially excluded, and the G20 identified an enabling environment in the respective economies as a critical factor that will determine the speed at which financial access gap will be closed for the financially excluded. Across the globe, all hands are on deck to break barriers and push the frontiers of financial inclusion.

Recently, the United Nation’s Secretary General’s Special Advocate for Inclusive Financing for Development, Queen Maxima Zorreguieta Cerruti of the Netherlands, visited Nigeria and had audience with the Governor, Central Bank of Nigeria(CBN), Godwin Emefiele. The Queen, who is also the Honorary Patron of the G20 Global Partnership for Financial Inclusion(GPFI), focuses on how formal financial services such as savings, credit and insurance can prevent people from falling into poverty. GPFI is an inclusive platform for all G20 countries, interested non-G20 countries and relevant stakeholders to carry forward work on financial inclusion.

CBN is the custodian and project manager of the National Financial Inclusion Strategy which was launched in 2012. The stakeholders are, banks(deposit money banks, primary mortgage institutions and micro finance banks), other financial institutions, Nigeria Communication Commission(NCC), National Deposit Insurance Corporation(NDIC), National Identity Management Commission(NIMC), ATM service providers, Telecommunication firms, e-payment channels, Federal Ministries of Agriculture, Finance, Education, Trade and Investment, and Micro, Small and Medium scale enterprises

The National Financial Inclusion Strategy was launched two years after a 2010 report by strategy consultants, Roland Berger, noted that Nigeria was a mid-level player in the sub-Saharan banking sector and lagged behind some of its peers in Africa with respect to financial inclusion. The report noted that 36 per cent of adults, an estimated 31 million out of an adult population of 85 million were served by formal financial services compared with 68 per cent in South Africa and 41 per cent in Kenya.

Going forward, the International Monetary Fund (IMF), in its 2013 Financial Access survey, noted that African countries are showing the fastest growth in financial inclusion in the world. The parameters for the survey are, number of commercial bank branches per 100,000 people which reportedly grew around 180 per cent since 2004, access to ATMs in low income countries improved more than three- fold, a four-fold increase in commercial bank depositor per 100,000 people, and 40 per cent growth in real GDP per capita income from 2004 to 2012.

And CBN had noted that adult exclusion rate reduced from 46.3 per cent in 2010 to 39.7 per cent in 2012, and that ‘’all the geographical zones in Nigeria equally recorded improvements with the exclusion rate declining between 2010 and 2012 as follows: North East- 68.3 per cent to 59.5 per cent, North West- 68.1 per cent to 63.8 per cent and North Central- 44.2 per cent to 32.4 per cent. Others are, South East- 31.9 per cent to 25.6 per cent, South West- 33.1 per cent to 24.8 per cent and South-South- 36.4 per cent to 30.1 per cent.

The apex bank targets to reduce the number of financially excluded to 20 per cent in 2020 and increase access to payment from 21.6 per cent to 70 per cent in 2020. Major driving tools for piloting the strategy are, Financial literacy campaigns, Entrepreneurial Development Centres, Consumer protection, implementation of the Micro, Small, Medium Scale Enterprises (MSME) Development Fund, Agricultural Credit Guarantee Scheme, Tierred Know-Your Customer Requirement, and credit enhancement programmes such as, Agricultural Credit Guarantee Scheme (ACGS), Commercial Agricultural Credit Scheme (CACS), Small and Medium Enterprises Credit Guarantee Scheme and Entrepreneurship Development Centres.

Experts believe that increased access to finance for MSMEs through financial inclusion( credit made on the back of mobilized savings), will lead to greater productivity and increased non-oil export, with the subsequent demand for the naira which will stabilize its value. MSMEs are engines of growth and hold the key to job creation and poverty eradication. They posses a huge but untapped potential. Some developed countries with successful MSMEs include Japan, South Korea, China, USA, Australia, Switzerland and India.

The OECD had reported that MSMEs contributed 45 per cent and 79 per cent employment in manufacturing sector in Australia
CBN has demonstrated a strong commitment to support MSMEs through the establishment of a N200billion MSMEs development fund which was launched in 2013 ‘’in recognition of the significant contributions of the MSMEs sub-sector to the economy and the existing financing gap.’’ The objectives of the Fund are, to channel low interest funds to MSMEs through the Participating Financial Institutions to enhance access by MSMEs to financial services, increase productivity and output of microenterprises, engender inclusive growth and increase employment and create wealth.

Reportedly, 10 per cent of the fund has been devoted to developmental objectives such as grants, capacity building and administrative costs while the 90 per cent commercial component is being released to Participating Financial Institutions (PFIs) at 2 per cent for on-lending to MSMEs at a maximum interest rate of 9 per cent.
– Arize Nwobu, Business Journalist and Chartered Stockbroker, wrote via arizenwobu@yahoo.com Tel: 08033021230