Assessing Nigeria’s Financial System Strategy 2020


Obinna Chima examines efforts by the Central Bank of Nigeria towards achieving its Financial System Strategy 2020

Globally, the relationship between the financial system and development remains very critical for any economy to realise its potential. Financial system development depends largely on the flow of funds from the banking system.

Patrick Honohan of the Trinity College, Dublin, in a paper titled: “FSS 2020: Finance and Growth – Can the Engine Work for Nigeria?,” had pointed out that the financial sector helps growth and lowers poverty. He stressed that Nigeria (as other African financial systems) has much to gain from energetic financial policy development combining modernism.
Financial development is clearly an important cause of growth and financial sector development can be a powerful agent for growth and transformation.

That was one of the reasons why the Central Bank of Nigeria (CBN) developed the Financial System Strategy 2020 (FSS: 2020), which has less than three years to the target year.
The CBN had in August 2009, launched the Financial System Strategy 2020. The FSS 2020 is aimed at strengthening and deepening the domestic financial market, enhancing the integration of the domestic financial markets with the external financial market, supporting the real sector and promoting sustainable economic development.

Based on the recognition of the linkage between financial deepening/growth and economic developments, the vision of the FSS 2020 is to make the Nigerian financial sector the fastest growing financial system among the emerging economies while the mission is to drive rapid and sustainable economic growth primarily in Nigeria and Africa.
From the onset, the FSS 2020, which forms an integral part of the national vision was designed and developed with strategic objectives that will enable the Nigerian economy become one of the world safest and fastest growing economies by the year 2020.

The CBN has constantly evolved appropriate regulations to achieve its objective. Some of these include policies such as the three-tiered Know Your Customer, gradual phasing out of the commission on turnover (COT), cashless Nigeria, which kicked off yesterday, revised bank charges, creation of a secondary market for the mortgage sector through the Mortgage Refinancing Company amongst others.

By the end of 2012, the FSS 2020 was reviewed and refined to strategically make use of the various structures within the financial sector to achieve its goals. Its focus was redirected at the pension, mortgage, and insurance industries as well as medium, small and micro enterprises (MSME), the financial market and the entire populace.
Interestingly, the CBN’s Deputy Governor, Corporate Services, Alhaji Suleiman Barau, has been the coordinator of the FSS 2020

According to Barau, in measuring the milestone of FSS: 2020, so far achieved, he looked at them from the existing sectors perspectives.

For the mortgage sector, he pointed out that a robust secondary mortgage had been created with the CBN and the mortgage operators clearly streamlined.

This, he said, led to the establishment of the Nigeria Mortgage Refinancing Company (NMRC).
“Again, the Uniform Underwriting Standard which was non-existent has now been codified and introduced in the Mortgage Industry to regulate their practice. In addition, the framework for the Mortgage Asset Registry has been developed to capture mortgage transactions on a common IT platform,” he explained.

The CBN had also introduced the categorisation of primary mortgage banks into national, state and local.
While speaking on the objective of the FSS 2020 for the housing sector, the Head, Mortgage Sector FSS: 2020 Mr. Patrick Aririyuso, had said the vision under the scheme is for the country to have the safest home ownership rate and most profitable mortgage market among emerging markets.

He said the target is to use the mortgage market as a major agent of positive social and economic change by making finance available and affordable to all class of Nigerians.
Objectives of the FSS2020 in this space, according to him, is to establish a secondary mortgage market, to attract affordable international credit to fund affordable housing programs and to advocate moderate rate for affordable and mortgage housing.

In addition, the Pension asset has grown from about N3 trillion in 2013 to N6.02 trillion in 2017 while the Nigerian Sovereign Investment Authority (NSIA) has been appointed advisers to manage the deployment of Pension funds into long term infrastructure deployment.

Also, in line with the FSS 2020, through sensitisation and mass advocacy, PenCom has stepped up prompt settlement of pension claims for retirees and has continued to embark on massive technical training using the IT platform to ensure prompt service delivery and implementation of the micro pension scheme.
For insurance sector under the FSS 2020, the central bank revealed that the implementation of the micro insurance (Takaful) and compulsory insurance schemes are both in advanced stages of implementation. It also revealed that improvement in the settlement of insurance claims of Policy Holders was being pursued aggressively, saying confidence and trust of the holders which was at lowest ebb had been restored.
There is also capacity building of insurance and inclusion of insurance in the school curriculum for prompt service delivery.

For the MSME sector, there have been several interventions to improve funding and access to finance for small businesses.
This got a major boost with the creation of the National Collateral Registry, for lending and access to finance by MSMEs is a huge milestone, especially with the passage of the Secured lending using movable assets Bill by the NASS.
Notwithstanding this milestone, there are some challenges militating against the achievements of FSS2020 objectives. The includes but not limited to the following: funding and logistics, technical challenges, human capital development, especially the inability to attract talent from abroad to Nigeria, delays in the passage of the identified financial sector bills by the national assembly is a drawback, policy inconsistency and lack of continuity.

Pursuing Implementation
Speaking on what should be done to boost the implementation of the initiative, Barau stressed the need to initiate policies that would ease Doing Business in Nigeria and encourage investment within the country.

“There is need to ensure that there is enabling infrastructure and guarantee maximum peace and security in the country. Also, the development plan of government must have bearing with the needs and realities of the citizenry especially issues of unemployment, microeconomic stability and capacity building in all sectors of the economy.

“The FSS 2020 is just a platform that brings together all the key implementing institutions to achieve a common objective in the financial system. Since actual implementations are being done by these agencies, our attempt is to identify where there are challenges or issues or duplication of efforts, FSS 2020 call the attention of the affected institution to address it in the overall interest of the financial system,” he added.
He further explained that the FSS 2020 initiatives were carefully tailored to align with the mandate of the institutions that have the responsibility to implement the identified initiatives which are within the realm of the strategy.

“For Instance, CBN has achieved a lot in the areas of Payment System Vision 2020 which is an Initiative of the FSS 2020 along with the cashless policy. In the same vein, SEC has been successful in the implementation of the e-dividend policy which has always been one of the initiatives FSS 2020 had been advocating, and so many others. “Also, the funding of FSS 2020 Programme had been solely the borne by the CBN, until recently when some of the implementing institutions like PenCom have started making contribution to the funding of the FSS2020 Activities with others showing interest to do same. Most of the implementing Institutions have been providing technical assistance to the running of the programme in the areas they are more specialised,” he added.