Dealing with Barriers to Financial Inclusion

CBN Governor, Mr. Godwin Emefiele

Uche Uwaleke

A few days ago, the Central Bank of Nigeria unveiled a revised National Financial Inclusion Strategy with emphasis on best practices in financial inclusion. Having joined member-countries that formed the Alliance for Financial Inclusion Initiative (AFI) to encourage national commitments to financial inclusion following the signing of the Maya Declaration in 2011 at the Global Policy Forum (GPF) in Maya Mexico, Nigeria had adopted, the following year, a National Financial Inclusion Strategy which spelt out objectives, priorities and principles for achieving financial inclusion in the country with the CBN on the driving seat. The revised edition, which is consistent with the Maya Declaration, became necessary owing to the fact that a lot of changes have taken place in the Nigerian socio-economic and technological space since 2012 when the CBN first put together a strategy for improved access, by a significant percentage of adult Nigerians, to a broad range of financial services at affordable costs be they payments, savings, loans, insurance, pension and capital market products.

Indeed, the benefits of financial inclusion cannot be overstressed. Empirical studies have shown strong correlation between financial inclusion and poverty reduction. There is also research evidence to show that countries with high rate of financial inclusion experienced higher macroeconomic stability since monetary policies tend to be more responsive. In fact, access to appropriate financial services at affordable costs can spur aggregate demand, improve household welfare, boost enterprise activity and promote economic growth and development.

Regrettably, these upsides have eluded Nigeria due chiefly to low level of financial inclusion. An analysis of financial inclusion status as at 2016, contained in the revised NFIS report, showed that a total of 40.1 million of Nigeria’s 96.4 million adult population were financially excluded. Whereas about 55 per cent of the excluded population were women, over 80 per cent resided in rural areas. Again, while the South West Geopolitical zone had the least exclusion rate of 18 per cent, financial exclusion rates were highest in North East and North West regions at 62 per cent and 70 per cent respectively. Another interesting demographic is the age dimension to financial inclusion in the country which indicates that ‘’the most banked brackets are ages 26 to 35 and 36 to 45 as the percentage of banked stood at 44.2 per cent and 45.6 per cent respectively. Conversely, the least banked age bracket were 18 to 25 years followed by 56 years and above as they recorded 27.5 per cent and 34.2 per cent banked rate respectively’’. The major goal of the revised NFIS is ‘’to reduce the proportion of adult Nigerians that are financially excluded to 20 per cent in the year 2020 from its baseline figure of 46.3 per cent in 2010’’.

In order to achieve this target, key barriers to financial inclusion, also identified in the report, must be dealt with. These include challenging macroeconomic environment characterized by poor infrastructure that makes the provision of financial services very costly and unprofitable to financial service providers, the insecurity situation in some parts of the country especially in the North East which has adversely affected livelihoods of smallholder farmers in the region who constitute the majority of the population, low or non-patronage of financial products owing to cultural and religious factors, limited agent networks insufficient to allow for expansion of financial services especially in rural areas as well as the slow off-take of Digital Financial Services as most Micro Finance Banks lack the funds to execute a DFS infrastructure.

Other constraints include insufficient national identity cards making it difficult for many adult Nigerians to access a full range of financial services, inadequate products which are tailored to key excluded groups such as women and micro enterprises, low financial literacy which constrain the ability of MSMEs to make bankable proposal and access finance on favourable terms as well as high unemployment rate of youths which explains, in part, their high rate of financial exclusion. According to the National Bureau of Statistics labour report, 53.3 per cent of the youthful population (ages 15 – 35) are unemployed in Nigeria.

As a key stakeholder, it behoves the government to invest in creating an enabling environment for the expansion of Digital Fianacial Services which have proven to be a low-cost approach to reaching the unserved and underserved population, strengthen digital infrastructure to reduce network challenges especially in rural communities as well as massively deploy resources to tackle the security challenges in the country. The importance of the adoption of cashless payment channels, particularly in government-to-person and person-to-government payments cannot be overstressed.

On its part, the CBN should champion the promotion of branchless banking including through enabling the rapid growth of agent networks (the use of business correspondents to reach customers in rural and remote areas) with nationwide reach. It is gratifying to note that the CBN, in collaboration with Deposit Money Banks, Mobile Money Operators and Super-Agents have designed, according to recent reports, a programme for aggressive rollout of a network of 500,000 Agents (about 476 Agents per 100,000 adults) by 2020 who will offer basic financial services including cash-in/cash-out, funds transfer, bill payments, airtime sales among others. Equally heartening is the improvement in the regulatory environment with the CBN making available guidelines for agent banking and mobile money operations in the country. Efforts should also be geared towards reducing the Know Your Customer hurdle to financial inclusion by simplifying KYC requirements for opening and operating accounts/mobile wallets on all financial services platforms. Effective implementation of the three- tiered KYC guideline issued by the CBN will be a step in the right direction.

The revised NFIS recognizes consumer protection as a key enabler that lowers barriers to financial inclusion. It not only ensures that clients are not exploited by service providers therefore boosting consumer confidence, it also enhances the soundness of the financial sector. To this end, the CBN and other regulatory authorities should strengthen implementation of existing Consumer Protection Frameworks. What is more, the apex bank should adopt innovative means of conducting financial sector oversight in order to mitigate the risk of fraud and promote confidence. It should equally scale-up efforts aimed at addressing the low levels of financial literacy in the country. Furthermore, since verifiable ID is a prerequisite for accessing formal financial services, the National Identity Management Commission is challenged to meet its target of rolling out a unique national ID for all Nigerians by 2020 which will be an acceptable identity document for accessing financial services.

On the supply side, financial institutions should continue to innovate and tailor financial product characteristics and distribution methods to meet the needs of the unserved. In view of the high exclusion rates of MSMEs and the large informal sector, the development and delivery of micro savings, credit, pensions, micro and agricultural insurance products for excluded groups will go a long way in on-boarding these groups. In this regard, the plan by the National Pension Commission to commence the micro-pension scheme for the informal sector is laudable. Indeed, dealing with the barriers to financial inclusion is not an easy task. It requires the support of all stakeholders including the government, the CBN, other Regulatory Bodies, Financial Institutions Development Partners as well as all Nigerians

Uwaleke of Nasarawa State University Keffi, is Nigeria’s first Professor of Capital Market and the President of the Association of Capital Market Academics of Nigeria