The chief executive of the Enhancing Financial Innovation & Access, Mrs. Chidinma Lawanson, in this interview with Obinna Chima speaks on how micro, medium and small-scale enterprises can leverage on digital financial services to grow their businesses. Excerpts:
How will you describe Nigeria’s journey towards becoming a digital economy?
Well, I will like to focus on the financial inclusion aspect of it because there are digital services that you can utilise in different ways – in the health sector, education, etc. but we are focused on the financial services industry. And the main thing is that in Nigeria, the deployment of digital financial services (DFS) in meeting up the goal of ensuring that people are financially included, I would say have been successful. Those financial services operators, deposit money banks, microfinance banks, mobile money operators, found out that since technology, especially in the form of holding phones by individuals across the nation has spread widely and they are many Nigerians that own phone.
If the operators can piggyback on those phones and make it possible for any individual, where he or she is to access financial services on his phone, then the footprint would have gone a lot. Some operators understand it and they have made large footprints in that area. Some others are beginning to understand it.
That is the way to go because you can’t reach the entire adult population in Nigeria to touch financial services on a physical model. It is expensive to set up branches in rural areas. There is also rural telephony. If you piggyback on rural telephony services, then there would be more people that would touch financial services and it would have a positive contribution to the Gross Domestic Product (GDP) of the economy. So, I would say positive somewhat, a long way to go, but it is the way to go.
So, what do you think are the benefits of DFS to Nigeria?
First of all, from EFINA’s access to financial services in Nigeria survey of 2014, of the adult population of over 90 million, 36.9 million are financially excluded. That means a lot of funds are outside the system that we call financial services. And for a lot of those who are low income people, if they do not touch financial services, they will continue in a cycle of shock and poverty. They may not have savings mechanism and monies might be under the pillow that might be stolen or they get lost.
There is no information about them within the financial services industry. So, they can’t even get access to micro credit, because it is when you have information that you can give loans to the person. So, if we use digital financial services method to bring them into the financial services industry, through micro savings, micro insurance, etc, you will have their information and funds. Then, there would be sufficient funds to lend out to other stakeholders who run micro, small and medium scale enterprises (MSMEs).
Think of where those MSMEs have those funds in terms of loans, they can create more employment, manufacture more goods and have a lot that would make them compete and the economy would have more products in the non-oil sector. All those activities add to the GDP of the country. So, obviously, DFS matters a lot in reaching previously unbanked people, bring them into the ecosystem and assist them to reduce the shocks in their lives, make more funds available to the economic system and build more activities around the MSME sector.
So what role has EFInA played in supporting small businesses through DFS?
For EFInA, we are funded by the Department for International Development (DFID) of the United Kingdom government and the Bill & Melinda Gates Foundation. First of all, we hold four pillars which we focus on. This include research – once e
very two years, we carry out EFInA Access to Financial Services in Nigeria survey which goes round the country and gathers more than 24 thousand respondents to talk financial services. With that information, the regulators use that data to set up policies, financial services operators use that to see where they can locate low income products.
For example, they see how the people in Kano behave, how the young demography, may be 18 to 23 years, what they are thinking about, mobile money and even insurance. With that, they can detail products for that sector. That is for research. Secondly, we also give out innovation funds to the financial services operators – banks, microfinance banks, mobile money operators, to ensure that they role out products for low income people. And MSMEs fall into these low income category.
So, when we have given funds to financial services operators, the impact we are looking for is that those operators would turn around and create products, they could be lending products, they could be savings products, to these low income groups, which includes MSMEs. We also do capacity building on these same operators. Recently, in July we brought in well known consultants from outside the country to teach about 28 microfinance banks how to use DFS to reach their customers. That was fully funded by EFInA.
So, we did that to ensure that when those people are trained, they would find products that suit MSMEs because we have enhanced their capacity to think of how to use DFS to deploy their products. Fourthly, we also do advocacy. We work with regulators and policy makers to ensure that regulations surrounding the financial services sector do not have adverse effect on low income earners.
Whenever we say low income groups, you have the individuals, the mum and pop shops and the MSMEs. So, being an enabler for the financial services sector, the impact we have seen would be for the small scale holders. So, that is how EFInA has affected them positively. We don’t deal with them directly, but we deal with the providers who now deal with them, and we measure that impact.
The grants you give to organisations, how do you monitor to ensure that they are always utilised for the purpose(s) they were given out for?
In fact, when our guarantees who are operators get the grants, they find out that it is really the footsteps they take along with EFInA that assists them, more than the actual monies. First, we do quarterly disbursements. Remember, that those guarantees also bring their own counterpart funding. So, they don’t just throw out a project that is only funded by EFInA. So, we co-fund it and we have key performance indices at the beginning of the grants. For example, you want to impact 24,000 women in the northern parts of the country, you want to ensure that you have a particular number of agents, we support you.
This is because if you are able to have agents to touch financial services, it means individuals wherever they are don’t have to enter a bank branch. They can go to agents of the bank to do their transactions. We must agree with the key performance indices and what we measure is those you have impacted. So, every quarter we get the reports from the guarantees, we look at reports with them and we do site visits to check what the impact is. At the end of that project, we bring in external consultants to carry out total impact assessment.
So, if you say you have impacted 12,000 Nigerians who are low income groups in a certain state, we would go in and use our methodology to carry out independent assessments of what they have done. And since 2009 that those impact assessments have been done, we have not found that they were different from what the guarantees submitted. So, it has actually met the targets that we envisioned. So, we don’t just throw out the money because it is non- returnable grants that is why we ensure that they are utilised for what they were given out for
In terms of reforms, what are those things you would like to see the regulators do to promote DFS in the country?
The good thing is that the regulator, mainly for the financial services sector bring the Central Bank of Nigeria is very open to discussion. There is a lot of good relationship between the regulator and the financial services operators. We have initiated meetings where both sides talk to each other in that ecosyst on how to understand each other better, in other to move regulation forward.
If there regulations that are adversely affecting the promotion of DFS, we make sure that the operators come back with those feedback to the regulators so that both sides understand. The danger in digital financial services is electronic fraud. So, that is always the head ache of the regulator. But the inregulator is aware that if they tighten the conditions, then nobody may want to touch DFS. So, both sides are working hard to ensure they achieve a balance. So, the regulators are trying.
We really need to commend them. So, the reforms are happening across the divide and the regulators are also saying that the providers always ensure that their systems are properly structured not to allow electronic fraud so that their customers don’t lose money.
