Imperative of Financial Inclusion

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‘Niyi Ajao

The United Nations Development Programme (UNDP) measures human development across countries in three basic dimensions: a long and healthy life, access to knowledge and a decent standard of living.
Financial Inclusion on the other hand focusses on citizens’ access to financial services in such a manner that enables every adult citizen to realise his/her full potential and life aspirations.

Therein lies the obvious correlation between financial inclusion and human development, and this explains the recent buzz and increased activity, in Nigeria and the rest of the world, on growing financial inclusion as a means of lifting citizens out of poverty, improving citizens quality of life and enhancing the capacity of citizens to contribute meaningfully to national development.

In the words of the Consultative Group to Assist the Poor (CGAP), a global partnership of leading development organisations, “Poverty. Inequality. Migration. Financial services are foundational to addressing some of these pressing global issues and achieving a wide array of development goals, as evidenced by an expanding body of research. Numerous studies have demonstrated that access to bank accounts and payment services have a measurable impact on poverty.”

With the reported high poverty level in Nigeria in particular, it is imperatively urgent to enhance financial inclusion.
The objective of this piece is to simply the meaning of financial inclusion, to explain why there has been so much talk and writing on the subject lately, and to challenge readers and indeed all adult Nigerians to go ahead, without delay, and take full advantage of the benefits that financial inclusion offers.
Kajole Nanda and Mandeep Kahur of Indian Guru Nanak Dev University defined Financial inclusion simply as “where individuals and businesses have access to useful and affordable financial products and services that meet their needs that are delivered in a responsible and sustainable way. Financial inclusion is defined as the availability and equality of opportunities to access financial services”.

The financial inclusion agenda is that every adult must have access to banking services as a matter of right. The system must provide a lot of convenience to the process of:
a. Opening transaction accounts i.e. bank accounts or mobile money wallets;
b. Saving money in the account to earn interest;
c. Sending and receiving money in a convenient and affordable manner;
d. Very convenient and low cost means of paying bills and making daily purchases;
e. Access to finance to meet personal obligations and to establish and operate businesses i.e. loans at affordable rates and under friendly conditions;
f. Investing in instruments for higher returns(fixed deposit, mutual funds, bonds, stock, etc);
g. Insuring risks around assets;
h. Savings for Pension.

Levels of Financial Inclusion/Exclusion
Whoever is taking full advantage of the eight services enumerated above is said to be financially included, the individual who uses a few of the services is said to be financially underserved, while the person who does not use any of the services is said to be financially excluded.

The goal of financial inclusion advocacy is to get every adult Nigerian to be financially included i.e. financially served.
There are 35 million BVN at the moment. Estimated 10 million of this number are adjudged to be financially included and financially served, this being the BVN holders are actively engaged in financial transactions through banks, microfinance banks, etc, while the remaining 25 million are generally considered to be financially underserved.
Also an estimated seven million financially underserved individuals do not own bank accounts but enjoy limited financial services through informal arrangements such as cooperatives, esusu, etc.

It follows therefore that only about 42 million (42%) of the estimated 100 million adult Nigerians enjoy some form of financial inclusion while about 58 million (58%) adult Nigerians are financially excluded.
EFiNA in a separate study of 2016 estimates that 41.6 per cent of 96.4 million adult Nigerians are financially excluded.

According to the World Bank Global Findex Report 2017 “Financial inclusion is on the rise globally. The 2017 Global Findex database shows that 1.2 billion adults have obtained an account since 2011, including 515 million since 2014. Between 2014 and 2017, the share of adults who have an account with a financial institution or through a mobile money service rose globally from 62 percent to 69 per cent account ownership has remained largely unchanged in developing economies where it was already about 70 percent or more in 2014, such as Brazil, China, Malaysia, and South Africa.”

Financial inclusion holds so much promise and benefits for all.
A recent study by McKinsey Global Institute estimates that financial inclusion has the potential of boosting world GDP by $3.7 trillion by 2025 (6% growth), $4.2 trillion in new deposits, $110 billion annual reduction in government leakages, and $2.1 trillion new credits/loans.
The World Global Index 2017 report indicates that an estimated 1.7 billion adults are unbanked and financially excluded worldwide out of estimated world adult population of five billion.
The poor, women, rural dwellers, and refugees constitute a large percentage of the financially excluded worldwide.
The urgency of growing financial inclusion cannot be overemphasised given the stack reality of the situation if we must advance the cause of eradication of poverty and improve the quality of life of the generality of our people.

Impediments and Solutions
The EFiNA survey of 2016 provided some insights into factors that may be responsible for the high level of financial exclusion in Nigeria in particular e.g. 56.1 per cent of the survey respondents attributed their exclusion to irregular income and unemployment.

It showed that 30.7 per cent of the respondents complained that bank branches are too far from them, while 11 per cent cited inability to read and write. Also, 10.5 per cent complained about bank charges and 10.1 per cent did not have a means of identification and also complained that banks demand too much documentation.
It is noteworthy that financial services industry stakeholders are responding to these financial inclusion impediments.
The various government and private sector job creation and other empowerment initiatives including vocational training and improved access to loans will go a long way to attract the 56.1 per cent who complained of irregular or no income.

As regards the scarcity of bank branches particularly in rural areas, the Nigeria banking industry has embarked on the Shared Agency Network Expansion Facility (SANEF) project to rapidly grow the number of financial services agents from the present 60,000 to 500,000 by year 2020.
These bank agents are providing basic banking services to the populace and they would be located close to homes and offices including rural areas where there are no bank branches.
This, in fact, presents job and entrepreneurship opportunities to individuals and retail businesses who meet the minimum agent banking criteria. The 11 per cent who can neither read nor write are encouraged to take advantage of the formal and informal adult literacy programmes provided in many communities.

Stakeholders continue to seek various ways to reduce operational costs to engender more friendly service fees, to address the bank charges concerns. Also, banks now open no-frills accounts with the requirement of just a mobile phone number or phone number and a means of identification only, to address the complaint of too much documentation.

Conclusion
In this modern time, being financially included is not a choice. Every individual who desires to live life in full and to realise his/her potentials must take advantage of various financial services that Central Bank-licenced financial services providers have made available, leveraging appropriate technologies such as the internet, mobile phone, ATMs and kiosks and indeed bank branches and appointed financial services agents.

That young school leaver who wants to run a startup will easily realise his/her dreams by latching onto the benefits that financial inclusion brings. Likewise, the apprentice who is ready to start his/her trade, the petty trader who wants to grow the business, and that farmer who needs a small loan to start or expand his/her farm. The financial services industry is wide open with innovative financial services designed to meet the needs of the diverse groups of people in our country, to enable everyone realise his/her full potential towards improving quality of life and ultimately growing the national economy.

Ajao is the Acting CEO, Nigeria Inter-Bank Settlement System Plc and Financial Inclusion Thematic Group Lead of the NESG Financial Inclusion & Financial Management Policy Commission