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Business News of Saturday, 6 May 2023

Source: thenationonlineng.net

Over 50% Nigerians financially excluded - Report

File photo to illustrate the story File photo to illustrate the story

More than one in three Nigerian adults are financially excluded – with no access to useful, relevant, and affordable formal financial services such as payment, savings, and credit.

This was the damning verdict by experts who should know. The event was at the CIO Club Africa annual Summit 2023, held last Thursday with the theme, “Digital Economy and the Nexus between E-identity, connectivity, and financial inclusion” where stakeholders noted that Africa’s most populous country lags in financial inclusion rate adoption.

The Director General of the National Identity Management Commission (NIMC), Aliyu Abubakar Aziz, who led other policymakers, entrepreneurs, innovators, investors and others critical stakeholders in the digital and fin tech industry explored digital economy and the nexus between e – identity, connectivity and financial inclusion.

Firing the first salvo, the DG of NIMC, who spoke on importance of harnessing digital identity management for economic transformation as well as financial inclusion globally and in Nigeria and Africa, looked at trends like risks, challenges, opportunities, regulations, and general market governance mechanisms and instruments for enhanced access to Information Technology that will enable Africans to meet its net zero commitment and achieve sustainable socio-economic development.

“The importance of this conversation lies in the fact that it brings together a diverse group of stakeholders in the tech industry, including policymakers, entrepreneurs, innovators, investors, and civil society representatives, to discuss the challenges and opportunities of the digital economy, and to explore new ways to leverage the power of technology for the benefit of all.”

By examining the role of e-identity, connectivity, and financial inclusion, the summit can help identify the key drivers of growth and innovation, as well as the key barriers and obstacles that need to be addressed to ensure that the benefits of the digital economy are shared by all.

Lending credence to the foregoing, Torsten Wezel and Jack J Ree in a report tagged, Nigeria—Fostering Financial Inclusion through Digital Financial Services, observed that “Financial inclusion in Nigeria has had undeniable successes, with the onboarding of residents to the banking sector consistently progressing.

“But the overall exclusion rates continue to exceed official targets, not least due to low financial literacy. Going forward, Nigeria’s financial inclusion strategy should more systematically leverage rapidly developing digital instruments.

“Uptake of digital financial services, notably mobile money, is still lower than in peer countries, and overcoming this would require improving digital financial literacy, upgrading digital infrastructure, and promoting incubation and sound practices of fintech firms. Nigeria’s CBDC also has an enabling potential if accompanied by a comprehensive package of supportive policies.”

In a related development, Joshua Okoduwa, Associate Advisory Unit KPMG Nigeria, Nene Odiboh, Experienced Analyst Advisory Unit KPMG Nigeria, noted that operators in the financial technology (fintech) space say 50 percent of the Nigerian population are financially excluded from various financial services despite economic growth and technological advancement.

The duo argued that the best way to describe financial inclusion is welcoming new members into an exclusive club or religious body and providing them with essentials like access, an onboarding session, and empowerment to be perpetual members of your exclusive club/body, the difficulty level usually progresses along each activity.

Financial inclusion is described by the World Bank as the provision of useful, relevant, and affordable financial services such as payments, credit, and insurance to the financially excluded including individuals and SMEs.

“To understand financial exclusion better in the Nigerian context, think of the pop shop down the road, the “mallam” who is a gateman but sells low-value groceries through the window of room, or the smallholder farmer in Northern Nigeria or the woman who sells tomatoes at the open market in southwestern Nigeria.”

These personas, Okoduwa stressed, “face different degrees of financial exclusion under a cocktail of factors such as illiteracy, social class, location, employment type, economic inactivity, inability to use digital products and so much more. “These individuals are financially excluded, that is, they lack access to affordable, useful, and relevant financial services such as payments, credit, basic insurance, etc.”

Citing a report, they said of the 106 million adult Nigerians in 2020, 44.8% were banked, while 5.7% and 13.6% were served by other formal channels and informal financial service providers such as ajo, esusu (this is the current reality of Nigeria’s financial inclusion campaign, 10 years after the big push for financial inclusion began in 2012).

It may be recalled that in 2010, EFInA’s maiden financial inclusion survey revealed that 36% and 54% of Nigeria’s adult population were formally included and financially served respectively. Fast forward to 2012, following EFInA’s stark revelations and consultations with the World Bank Group, Nigeria developed a National Financial Inclusion Strategy – to guide the collective effort of market operators seeking to make access to finance more inclusive.

Despite the struggle to close the financial inclusion gap, financial services providers including fintech, banks, and insurance companies saw the pool of excluded persons as an opportunity. Banks reduced the table stakes to owning a checking/current account, leverage credit scoring models, and offering micro/nano loans to new bank customers with no credit history.

In 2020, 21.3 million adult women, representing 20% of Nigeria’s adult population compared to 17 million men, are yet to be included in the financial system.

Of the 69.7 adult Nigerians in rural areas, 44% are exempted from the financial system, while 16% access finance through informal channels. This shows that the presence of financial services access points is skewed to the largest and most populated areas, while the most peripheral areas lag.

Whilst being consistent with the lags and challenges, it appears that the NFIS, FinTechs and currently available financial services have their shortcomings to the group of people they claim to provide financial access to. The NFIS may need to be revamped to capture the current realities and strategies to navigate through the noise.

“The incentives to use financial products that have helped speed up financial inclusion in urban areas must be replicated in rural areas and integrated in the lives of rural dwellers.”

The account/wallet for transactions is expected to catalyse access to other financial services. When basic financial inclusion is achieved, market operators can work to ensure that the excluded transition from owning wallets/account to account usage – possibly, the most difficult facet of financial inclusion.

Some of the recommendations by the World Bank being implemented in Ghanaian government include enforcement of digital payments for government and utility bills, promotion of agent banking and other lowcost models to increase the footprint, financial literacy programs, and the introduction of policies and frameworks to encourage data sharing.

Mexico and Colombia both experienced economic and financial crises in the 1990s leading to severe recession, poverty, and unemployment. To combat this, the World Bank partnered with these countries to issue conditional cash payments to alleviate the masses from poverty. These payments are still ongoing and have contributed to a better standard of living among the poor.

“When we know the status quo of Nigeria’s financial inclusion journey, we pay better attention to the leaking faucets and seek ways to get better,” Okoduwa and Odiboh stressed.

To close the yawning gap therefore the analysts said there was need to introduce regulations aimed at enforcing low-cost retail accounts in Tier 1 banks to boost inclusion numbers.

“There must be defined laws encouraging an inclusive ecosystem. One is the enforcement of Tier 1 Banks (having lower cost to income ratios and a larger number of branch and agent operations than other banks) is to utilise their resources towards creating low-cost retail accounts and target the financially excluded.

“To achieve this, CBN must create a policy on this initiative as well as regulate and recognise banks that achieve and surpass their targets. This regulation would see banks partnering with small scale merchants to achieve their targets thereby creating an enabling environment for these merchants.”

For Telcos, this model will potentially unlock network effects (the more it is used, the more people get to use it as users turn advocators) i.e. dominant quasi-monopoly position. Partner cum settlement banks earn interest income on deposited funds and microloans delivered to newly minted financially included persons.

The CBN must starve off possible opposition from incumbent banks and set out to ensure macroeconomic stability and a sustainable pricing regime – that makes commercial sense to operators and attracts the target market.

This is just as a one third of Nigerians have low financial capability, less than 30% of adult Nigerians have or use products or services from non-bank formal financial institutions, and 78% (13.2 million). Nigerians aged 15-17 are financially excluded. Hence, a good understanding of finance/ money management should be table stakes in secondary and tertiary institutions, to ensure that teens have a healthy financial life as they transition to adulthood.

To address this, private and public sector stakeholders in the education sector should update the curriculum of secondary and tertiary institutions – such that students are better equipped to understand the nuances of finance and digital. The deployment of financial management training using a blended approach (classrooms and feature phones) will likely be key to ensure that those aged 15 -17, who are financially excluded, become financially included.

Over the past 10 years, Nigeria witnessed growth in its financial inclusion numbers from 30% 2010 to 45% 2020. This figure is less than perfect as it is clear that Nigeria needs to do more to meet up with countries like Ghana, Mexico, Columbia, Rwanda, and Jordan.

In its financial inclusion report unveiled few years ago at the Lagos Business, the Academic Director, Dr Olayinka David-West, who leads the Sustainable and Inclusive Digital Financial Services initiative, said customer segments presented in the report provided insights into the behavioural and attitudinal traits of the bottom of the pyramid population, which is currently estimated at 75 percent of Nigeria’s population.

She stated that the report aimed to provide financial service providers with correct information to create fit-for-use, segment-aligned digital financial products.

“There is no one-size-fits-all approach to dealing with consumers. We need a paradigm shift in how we view these customers and how we can make their lives better through financial services,” David-West added.

A Partner/Nigeria Director, Dalberg, Nneka Eze, said they carried out the research in Nigeria as well as five other countries to determine what made people interact with finances in Nigeria.

According to her, financial inclusion is beyond opening or owning a bank account, but entails how often the account is accessed and used, and how the financial service providers assist or influence the individual’s life.