Nigeria’s Financial Inclusion Journey

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Having access to financial services is a critical step towards reducing poverty and inequality, writes Obinna Chima

Financial inclusion is on the rise globally and has been accelerated by mobile phones, the internet and other alternative banking channels.

This is because having access to financial services has been identified as a critical step towards reducing both poverty and inequality.

That is why in Nigeria, the Central Bank of Nigeria and other stakeholders have continued to develop initiatives that will raise the level of financial inclusion in the country.
Since the launch of the National Financial Inclusion Strategy in 2012, stakeholders had innovated various interventions in its implementation process.

The Financial Inclusion Steering and Technical Committees were established across the states in January, 2015 along with the Channels, Products, Financial Literacy and Special Intervention Working Groups.

Owing to these measures, the hope for Nigeria to achieve its 80 per cent financial inclusion rate by 2020 received a major boost recently, when the Enhancing Financial Innovation & Access (EFInA), released the result of its 2018 survey figures.

The survey showed that 63.6 per cent of Nigeria’s adult population now has access to financial services and only 36.6 per cent are presently financially excluded.

EFInA is a non-governmental organization and a financial sector development organisation funded by the Department for International Development (DFID) and Bill & Melinda Gates Foundation towards promoting financial inclusion in Nigeria.

The latest report covered 750 respondents in each of the 36 states and the Federal Capital Territory (FCT), and 27,470 interviews, which represented 97 per cent of the target sample of 28,380.

The survey was anchored on several indicators including banked population; remittances; savings with a bank; payments; received income; loan with a bank; and banking agents, among others.

Beside these, card payments on Point of sale (PoS) terminals in Nigeria have also grown from a paltry 5,000 monthly volume in 2011 to 30 million in November 2018, all thanks to the success of the cashless Nigeria initiative.

According to Acting Managing Director/CEO, Nigeria Inter-Bank Settlement System (NIBSS) Plc, Niyi Ajao, 45.3 per cent of the PoS transactions occurred at supermarkets and similar retail outlets, 14.1 per cent at fuel stations and 10.1 per cent at fast foods and restaurant locations.

A further breakdown of the PoS transactions showed that 3.4 per cent were consummated at hotels, motels and resorts and two per cent at telecommunication service centers. Another two per cent took place at drug stores, pharmacies and sundry locations.

In all, the number of installed PoS terminals has also grown from 10,000 in 2011 to 200,000 in November 2018. All this proves the indisputable success of the Cashless Nigeria campaign over this eight years period.

The Bank of International Settlements (BIS) payment cards and terminals publication reported 380,000 POS terminals in use in South Africa, up to 1.6Million terminals in the UK and 620,000 terminals in Argentina.

Survey Findings

The EFInA report showed an increase of 1.4 per cent in the banked population from the 2016 to 2018 was found, which was a decrease of 2.2 per cent in remittances in two years, and another decrease of 6.7 per cent in Saving with a Bank within the period.

The report however showed a decrease of 1.6 per cent (from 30.1% in 2016 to 28.5% to 2018) in the non-bank indicators of pension; savings through other formal institutions; mobile money; mobile money agents; insurance; remittances and loans with other formal institutions.

The EFInA survey report concluded that three factors of affordability, institutional exclusion and lack of awareness were the biggest obstacles to financial inclusion.

According to EFInA, while 60.1 million Nigerians do not have/use a bank account, 96.3 million do not have/use mobile money and 97.9 million do not have insurance.
On the digital usage in the country, the EFInA report revealed that mobile money, which was thought to be useful in the financial inclusion drive, was found to only deepen rather than expand financial inclusion.

In addition, the report revealed that while 35.5 million Nigerians (36.6% of the adult population) use bank accounts only three million adults have both mobile money and bank accounts, whereas 59.4 million (60.0%) neither have mobile money nor bank account.

Similarly, the study showed that while 82 per cent of Nigerian adults, comprising of subsistence farmers and small business owners, receive their income in cash, 10 per cent of those adults receive their own income via mobile money or bank account, while another eight per cent did not receive any income at all.

Savings in the country, according to the report, dropped by 13.3 per cent, while savings in assets, property, and livestock had risen from 47.4 million to 54.7 million since 2016.
Other decrease in respect of this indicator was that of borrowing, which went down by two per cent and remittances to one per cent.

On financial access by gender, the report indicated that out of 99.6 million adults in the country, 33.5 million male adult Nigerians were financially included compared with 29.4 million female adults. This represented a decrease in the exclusion rate of 4.3 per cent and 5.7 per cent in the male and female gender respectively, and a decrease of 4.8 per cent for both gender compared with the 2016 figures.

On financial access by age groups, the report revealed that Nigerians in the age bracket of 36 to 45 (19.5 million and 30.6% exclusion) have more access to finance than all others. This group was followed by those in the age bracket of 26 to 35 (30.3 million and 31.5% exclusion) and 46 to 55 (10.9 million and 32.4% exclusion).

The exclusion rate between the urban and rural areas showed that only 21.6 per cent Nigerians in the urban areas were excluded compared with 45.6 per cent Nigerians in the rural areas.
The gains recorded on this indicator revealed a decrease of 2.8 per cent and 6.6 per cent exclusion rate in the urban and rural areas respectively, as well as 4.8 per cent exclusion rate recorded in total since the year 2016.

Regional Assessment
Regionally, the South-west and South-east, the two zones with the least financial exclusion rate in the past, had underperformed in the last two years.

The zones recorded exclusion rate of 18 per cent and 28 per cent respectively in 2016, compared with 19 per cent and 29 per cent exclusion rate, respectively in 2018.

All the other zones however recorded significant decrease in exclusion rate in the last two years with the south-south zone improving from 31 per cent in 2016, to 23 per cent in 2018, and the north-central achieving 31 per cent in 2018, from 39 per cent in 2016.

The north-east and north-west scored 55 per cent in 2018, from 62 per cent in 2016 and 62 per cent in 2018, from 70 per cent in 216, respectively.
The regional breakdown showed that Kano, Jigawa and Katsina States in the North-west zone failed to achieve the region’s average of 62.4 per cent, with Kano having the highest exclusion rate of 75.2 per cent.

Gombe, Bauchi and Yobe States fell below the average in the north-east region (54.5%).
Gombe for example, had the highest exclusion rate of 76.1 per cent, Bauchi 60.8 per cent and Yobe 60 per cent.

Taraba had the least exclusion rate of 30.9 per cent in the region. Four states in the north-central region failed to score an exclusion rate below the regional average of 30.6 per cent.
Nasarawa led the pack with 39.5 per cent. It was closely followed by Niger, Plateau and the FCT with 38.1 per cent, 37.8 per cent and 31.9 per cent respectively.

Similarly, in the south-east zone, Ebonyi emerged the only state that failed to achieve an exclusion rate below the average of 29.3 per cent.
The state recorded a financial exclusion rate of 43.6 per cent. In the south-south zone, Bayelsa, Akwa Ibom and Edo State were the states that had an exclusion rate more than the average in that zone (22.7%) as the states had 35.3 per cent, 29.1 per cent and 25.4 per cent respectively.

Also, in the south-west where the current exclusion average was 19.1 per cent, three states of Ondo, Oyo and Ogun recorded the highest rate of 28.8 per cent, 22.8 per cent and 21.8 per cent respectively.

Osun emerged the state with the least financial exclusion rate of 14.6 per cent not only in that zone, but also in the country, according to the latest EFInA report.

Furthermore, the report indicated N15,000 as the median income of the 99.6 million adult Nigerians, whereas 71.3 per cent of that number did not have access to mobile money accounts, and a mere 17.5 per cent as the borrowing rate among Nigerians.

Some of the observations the report made were that the labor market in the country was not absorbing enough graduates while reduction in the formal employment often led to reduced disposable income and reduced savings.

It also noted that adult Nigerians now resort to small businesses for survival even as it observed that day-to-day expenses was the most important financial need of Nigerians while planning for unexpected shocks as well as planning for the future goals become second and third priorities respectively.

EFInA also observed increase in the number of adults relying on informal mechanisms for employment even as payments in the country were mostly cash-based and driven by the size of the informal sector.

The SANEF Initiative
Also, in line with their drive to enhance financial inclusion, the Nigeria Interbank Settlement System Plc (NIBSS), the Central Bank of Nigeria (CBN), Chartered Institute of Bankers of Nigeria (CIBN), commercial banks and other operators in the payment system, last year developed an initiative to aggressively roll-out 500,000 agent networks to offer basic financial services across the country.

To achieve this target, the Shared Agent Network Expansion Facility (SANEF) was created.
SANEF aims to accelerate financial inclusion in Nigeria.

The initiative involves on-boarding 40 million low income and unserved Nigerians into the financial system, increasing financial access points from the current 50,000 to 500,000 by 2020 and deepening access to mobile and digital financial products and services such as savings accounts, micro loans, insurance, pensions by Nigerians.

The project seeks to deepen financial inclusion in Nigeria through an integrated ecosystem with strong regulatory oversight, consumer protection and interoperable payment systems with limited concentration risk.

It intends to create a platform for Nigerian owned financial services companies to grow, whilst empowering and creating jobs for Nigerians.

A member of Technical Committee of SANEF, Bolaji Lawal, explained that the project seeks to deepen financial inclusion through an integrated ecosystem with strong regulatory oversight, consumer protection and interoperable payment systems with limited concentration risk.

“It will create a platform for Nigerian owned financial services companies to grow, whilst empowering and creating jobs for Nigerians,” he said.
He said the project was expected to reduce transaction costs, bring about convenience, create job opportunities, and increased adoption of financial services.

The platform is also expected to handle government’s social disbursements initiatives. It will also lead to reduced cash dependency, better tax collections and reduction in crime rates.

In line with this initiative, the promoters are currently working on modalities to take the Bank Verification Number (BVN) enrolment to the head offices of the 774 Local Government Areas (LGAs) in the country. This is expected to capture the large number of the unbanked population and encourage bring them into the financial system. Also, over 70,000 new financial access points have been created in the country since SANEF was created in March this year.

Lawal, pointed out that the group plan to achieve 70 million registration by 2020.
Furthermore, he said 10,000 remote BVN devices ordered by NIBSS are currently being deployed to banks, mobile money operators and the super agents.

“We are committed to enrol 40 million new unique BVNs between now and year 2020: 10 million in 2018, 15 million in 2019 and 15 million in 2020. NIBSS will pay agents N100 for every unique BVN enrolled,” he said.

Lawal also said nine operators currently party to project have been empowered with N4.5 billion.
He said a savings account product with an array of features (insurance, pension, micro credit) would be created to be a pull factor to attract the financially excluded into the system.

Other Initiatives

The tiered Know-Your-Customer (KYC) framework was also introduced by the Central Bank of Nigeria (CBN) in 2013 to simplify the requirements for opening and operating bank and mobile money accounts for the low income people.

Also, in order to achieve financial inclusion, the Agent Banking Guidelines were released to bring the services near the people by allowing third parties such as pharmacies, filling stations, supermarkets, cooperative societies etc. to offer banking and mobile money services on behalf of banks and mobile money operators.

Similarly, the National Identity Management Commission (NIMC) had vigorously pursued a comprehensive identity management system for Nigeria while the National Pension Commission (PENCOM) pursued a micro pension framework for MSMEs, informal sectors and those whose income do not come in regular streams.

Furthermore, in collaboration with its stakeholders, the Securities and Exchange Commission (SEC) kick-started the process of increasing distribution channels to increase access to capital market products by promoting collective investment schemes, Capital Market Financial Literacy and a Capital Market Financial Inclusion Strategy.

On its part, the National Insurance Commission (NAIC) had been implementing non-interest based products to reach out to more people even as it released the micro insurance guidelines to provide explicit licensing of micro insurance companies and penetration of micro insurance to micro clients.

The Bancassurance Framework was another effort towards boosting inclusion. It was released by the CBN and NAICOM in order to be used as a platform for extending insurance courage to existing customers of banks.

More recently, collaborations and concessions were made to allow more roles to be played by mobile network operators in the delivery of financial services through subsidiaries. Partnerships were forged with the relevant government ministries in order to make use of their structures and instruments to advance financial literacy across the federation.

In the same vein, the CBN recently released the guidelines for the regulation of Payment Service Banks (PSB) in Nigeria. When this comes in effect early next year, it will provide a level playing field for the provision of payment services to the bottom of the pyramid.

These interventions contributed in large parts to some of the positive results in the EFInA report.
They are expected to reduce transaction costs, convenience, create job opportunities and increased adoption of digital financial services across the country.

It is also expected to enhance the integration of the formal and informal economy, stimulate inclusive growth, improve tax collections, reduce crime and make social disbursements more efficient.