Academic Director at both the Lagos Business School and Pan-Atlantic University, Dr. Olayinka David-West, who also has over two decades experience in the ICT sector, spoke to Obinna Chima on the benefits of having more Nigerians in the financial system. Excerpts:
According to a recent report by a multinational communication technology and services company, 53 per cent of Nigerians are in the banking system. Is that an indication that the country’s financial inclusion strategy is yielding results?
Yes, the findings actually tally with what the Enhancing Financial Innovation & Access (EFInA) report is also saying, where at the moment; we have 60 per cent in the financial system. However, how do we now increase that number is actually the issue we are trying to address. When they say financial included, it is not just the banks, there is also the informal and other sectors. It is growing, but don’t forget also that our population size is also growing by the year. So, we need to continue engaging people so that we would continue to grow it.
A major component of Nigeria’s population is its informal sector and there are data to adequately capture economic activities in that sector. How do you think financial inclusion can support these vast individuals who run micro and small businesses across the country?
The way it can support them is to have them use mobile money services to accept payments. So, rather than accepting cash, they can be accepting payments through mobile money. This would also ensure that they can see their monies coming in. It would also help them maintain their monies better because sometimes when you have cash, unplanned exigencies come, family matters come and you are spending out of that cash when you are supposed to be investing in your business. And you might find out that when you now need a business investment, you are going to third parties or expensive loans credit sources, when you had actually earned some monies that you ought to have used in your business. So, if we can have systems in place where micro SMEs and individuals can also receive remittances and payments, then that would also help and it would increase the amount of cash flow that we can account for and see.
In order to attract the informal sector, the CBN has introduced agency banking and recently licensed some super-agents, how do you view that?
To be honest with you, that is the only way. If we want to get inclusion done, we need to take it to people’s door steps. Right now, that is the biggest burden they have today, in the sense that access to financial services either by paying a lot of transport money, inconvenience, etc. So, if there are agents in every location, then we are easing access to finance. That is a similar concept to what is called Land Mile in telecoms because you want a service to be available to people at their point of need, not that they have to travel to it. When you look at poor people already, if you look at the cost that they have to incur to get to the location of the financial service, they would choose an alternative and the alternative is something that they can resolve within their village area. So, when you look at various rural areas, sometimes, the nearest service point is in the town. Yet, there is a cost to get to the town. So, they would rather take an alternative that is more expensive. So, we have to ensure that every rural area has service points that can meet the needs of those people. And this should be service points that can do cash-in-cash-out. When you look at Kenya for example, the country has about one service point for 350 people, but in Nigeria, the number is one to 2500. So, we are disadvantaged in that area.
When you look at some highly populated areas in Lagos for example Obalende, Ajah, do you see any mobile service point? So, when you don’t see something, how do you know how to use it?
So, if a young person has a job, he would rather collect cash because of the absence of mobile service points. So, we need to use it across streams.
How best do you think the agents can take these financial services products to the rural areas?
It is about how they want to deploy the agency banking. There are different models and different ways. Sometimes what people do is that they have a hub and spook model which they use to disperse their services. Don’t forget that these agents need to deposit and access cash. So, they still need proximity to a banking system that helps them do that. We have a lot of geographical systems today and so we can map a lot of these things visually. So, we have strategically look at these things and make we put agents in areas where there are business. If we put agents in areas where there are not going to make money from the business, they may quit. So, we have to ensure that we are locating agents in strategic locations where there is business and where there is traffic. That means we need to understand the flow of money in every location so that we can deploy the services to enhance those flows.
Access to finance for women has been topical in recent times. What do you think are the barriers to access to finance by women?
One of the biggest barriers is identity. In some culture and some cases women are denied access to identity. Even in some homes, women are not allowed to own mobile phones. They have access to one, but they don’t own mobile phones. So, all these things are inhibitors because the woman would still need to go to her husband or whoever is the head of the family or the household to access finance. What has been tested and proven empirically in Africa is the fact that when you empower a woman, the money is invested in the family. But when you empower a man, the money might not be invested in the family. Sometimes, the man might also decide to go into polygamy and that also impoverishes the family because you are using few resources to feed more people. That also creates tension. But the woman’s role is to invest in the family and women are better in repayment because they keep a track history and they are more diligent in the repayment process and in ensuring that they meet their obligation because they always want to go back for more. So, that is the difference between men and women.
Despite all these good qualities you have identified in women, why is it that a lot of banks still deny women loans for their businesses?
It is also the issue of documentation and access to collateral. You will find out that a lot of women don’t have anything in their name. They don’t have landed property, etc, and even if you want to put up your car up for a loan, you may find out that the documents of the car are not in your name. So, you find out that women don’t have assets that they could put down. So, it is unfortunate. Again, we live in a male dominated society and we have to accept. But it is getting better, although not in all classes of our society. I was reporting in a report on somewhere in India where teenage girls are not allowed to have telephones. So, it is not just in Nigeria, but it is different cultures. So, cultural issues and beliefs are part of the factors inhibiting financial inclusion.
In terms of mobile money, why is it that the rate of penetration in Nigeria has remained very low while other channels are growing?
There are several factors responsible for that. For example, Nigeria has 21 licensed mobile money operators, which is more than anywhere in the world, yet we have less than a million active accounts. Now, the challenge for that is multiple. First of all it is the lands mile, how do I know where to use my money? This is because if I have money in this system and I want to cash it out, who do I go to and where do I go to? Secondly, there is the issue of reliability and trust. Reliability and trust because we have all used the ATMs and electronic banking, yet we know that those systems still give problem. I know many people who have lost money through non-dispense of cash by ATMs. You spend money for weeks going to reclaim your money at the bank. Now, the poor people don’t have that luxury. So, we realised that we need to fix the technology and have the right infrastructure to ensure that these things can work reliably all the time. We must remember that mobile payments are small value payments. We are still complaining of quality of service by the telecoms, yet we are still relying on the same infrastructure we are putting more on the same infrastructure that can’t meet the basic service demand that it was created for. So, are we going to start building financial services infrastructure separate from data and voice infrastructure? This is because if you want to send N5,000 to your mother in the village, you want to be sure that within some minutes, she will get it. Again, the level of awareness is so low. People know what a phone can do, but they don’t realise that there is opportunity for doing more with the phone. But awareness is very difficult to build because when you are advertising, you are also advertising for the competition and people are not willing to do that. So, we need to also look at this as a global collective problem. That is where I feel institutions like the Central Bank of Nigeria would drive the process of collective advertisement. There is need to for stakeholders to collectively sensitive everybody. This is because if they put all the advertisement money together and put it in a pool, they would be able to reach more people instead everybody advertising separately because we need to sensitise the whole environment to bring more people to the system. We need to bring merchants into the system; we need to bring utility payment to the system, and so on. So, we all have a lot of work to do because there are lots of opportunities in the system. And that is what our research project is looking at. What are the opportunities in these things? Don’t forget that in every problem, there is a solution and the solution is an opportunity. So, with the support of the Bill and Melinda Gates Foundation, we are looking at several things. We are looking at the networks and the distribution structure. When you think about Coca-Cola, Panadol, and so many other products, they get to very far areas. So how do they do it? You know what, they are moving physical products and they get to their destinations. Yet, under financial inclusion, we are not moving physical products and we are still not there yet. So, how have they been doing it? So, I think there is a lot of learning to be done across various industries. Unfortunately, financial services providers that are providing mobile money services are not good at indirect services. They have always done direct services. A bank want to spread its relationship, it opens a branch. So, indirect channels are not what the banks are used to. This is what the fast moving consumer goods are used to. So, there is need for a mind-set shift. Again, the banks are worried about their brand. They have spent a lot of monies developing these brands and some body would go and put it in one hut in a village. So, we need to help them realise that going into this model of banking is not about their high net worth, but about meeting a need. When we talk about meeting a need, it is about meeting social needs as well. Don’t forget that in the world we live today, we are talking about sustainability banking. How can we be sustainable if we are only serving one per cent of the population? So, banks need to start looking more critical about their approach to these things. Whether we like it or not, I think the people at the bottom of the pyramid do more transactions than any one of us. They buy food; they pay for transportation, etc; and so we need to recruit more merchants and have people provide the service. So, we need to incentivise growth. If there is no incentive in the form of a discount, then you are not offering me any benefit to cash and with that there is no incentive for me to change my behaviour. And if we don’t begin to adjust to that, that means we are not considering those consumers in our market place. So, it is about us coming down to create goods and services which people can use.
So, what is the future of financial inclusion in Nigeria?
I have to be optimistic, the future has to be bright otherwise we would all have failed. This is because when you look at the benefits, they are astronomical. Imagine all the markets in Lagos alone and the markets from those informal sectors coming into a structured system every day. That would be phenomenal. So, when we talk about access to credit and growing the system, all those things are dependent on our ability for us to include those that had been excluded from the banking system. So, we need to look at everything cohesively as one system. So, what we are trying to do in our project is to understand the different players in the industry, their motivations and incentives. This is because without an incentive, there is nothing keeping somebody there. So, the incentives must meet all their own business obligations as well as their social obligations. And if you don’t understand that, you won’t know what lever to pull. For example, with the stamp duty policy, people are running away again. So, with these policies while we are trying to bring in people into the banking system, they are also chasing people away because it is as if we are working at cross purposes. We can make more money when we have more people in the financial system. So, the opportunities are abound. There is the opportunity for economic development, social development because people would have more monies for savings. With monies being digital, we can now build additional credits and services.
How can you get credit if you don’t have a credit history? That is why a lot of people resort to expensive lenders because there is no trail. In Kenya for example, there is a product that has been built on top of MPesa, it is a savings a credit product. What they do is to build your credit history. The more you lend and the more you repay on time, the access to credit you have. So, we need to be looking at these things more holistically. Those are some of the things we want to do. We are looking at the data to know who the consumers are, what they spend on and how we can advise people to develop better products and services to meet those needs. The CBN is now licensing more super-agents, which is good, but again is it more super-agents we need or more agents? Again, when we have more super-agents, we are going to have another problem of interoperability. Interoperability is very important and we need to start dealing with those issues today otherwise we are going to create a future problem that could break the entire system.