One major benefit of the planned N30.1 billion National Identity Management System is the reduction of financial exclusion. An identification system has been a major setback to promoting access to credit to Nigeria’s unbanked population.
Enhancing Financial Inclusion & Access (EfInA) lately put Nigeria’s unbanked population at 34.9 million adults. In a report ‘Promoting Access to Credit for MSMEs through Effective Government Interventions’, EfInA noted that the ability to provide a national identity system “is [an] important national project that will bring enormous benefits to the financial sector”. Nevertheless, the number of financially excluded adults reduced between 2008 and 2012 by 10.5 million. But a number of self-employed Nigerians – mostly farmers and traders – remain financially excluded.
In its Access to Financial Services in Nigeria 2010 survey, EfInA noted that 38.1 million Nigerian adults were self-employed; almost three-quarters lived in rural areas; 77.4 percent were unbanked, and over half were bread winners of their families.
Beyond financial inclusion and compliance with regulation – e.g., know your customer and anti-money laundering/counter-terrorism financing – a national identification system can be used to implement a phased removal of “costly, untargeted and inefficient” energy subsidies. Higher income groups have been shown to be the main beneficiaries of fuel subsidies. And withdrawal or reduction has always been contentious. Nigeria lacks a transparent, cheap and convenient way to disburse subsidies.
“Withdrawal of costly blanket subsidies typically requires providing disadvantaged households and communities with special help. The best approach would be to have targeted (cash) subsidies, but most countries find this difficult to implement,” argues the Regional Economic Outlook for October 2012 by International Monetary Fund (IMF).
India, from January 2013, is looking to implement the world’s largest cash transfer. The ambitious Aadhaar-enabled system Unique Identity Authority of India project will directly transfer cash ($720 a year) to 720 million citizens. The project, which will start with healthcare and scholarship programmes, is leveraging on technology and branchless banking. Direct cash transfers will replace fuel, food and fertiliser handouts that hardly reach the beneficiaries.
Nandan Nilekani, chairman, Unique Identification Authority of India, describes the $30.42 billion Aadhaar (“foundation”) project as “the world’s largest and most complex biometric identity system”.
Like Nigeria, India considers financial inclusion “a high priority”. Though the Indian version will not issue smart cards, each citizen will receive a unique number that can easily be accessed and, through a secure infrastructure for payments and remittances, will enable hassle-free banking and disbursement of social benefits.
Manmohan Singh, India’s prime minister, highlights the benefits: “Direct cash transfers, which are now becoming possible through the innovative use of technology and the spread of modern banking across the country, open the doors for eliminating waste, cutting down leakages and targeting beneficiaries better.” Other benefits include provision of a clear proof of existence, thus curbing illegal immigration, marginalisation and anonymity.
Nigeria’s version, if successful, should save the government money, and put an end to duplication and falsification – a veritable tool for exorcising the ghost-workers that have continued to haunt the payroll of federal, state and local governments.