Financial inclusion has been a goal that the financial services community in Nigeria has worked assiduously to achieve for about a decade, as a way of ensuring that the unbanked populace is no longer excluded from the many benefits of being captured in the system.
At the Committee of eBusiness Industry Heads (CeBIH) retreat which held in Abeokuta last week, collaboration was the key word as banks, Telcos, and FinTech operators noted that effective progress will be achievable by complementing one another in the value chain, and not as a competition or threat.
“I think we are more optimistic than ever before that the FSS 20:2020 objective will ultimately be achieved,” Dele Adeyinka, chairman of CeBIH told BusinessDay. “We are down to the 42 percent threshold right now and our plan is to drive it down to 20 percent as per the target, and we have two to three years to achieve this”.
According to Adeyinka, this will be done through a combination of strategies, and coming up with product offerings that will digitize and liberate consumers from going to physical locations. There will also be solutions and offerings that will not just depend on internet but also USSD offerings that will allow people without smart phones to perform transactions without walking into a bank. And of course, the agent banking will have to be expanded, using all of these combinations, to achieve the FSS 20:2020 goal.
Ronke Kuye, founder, Payment Card Advisory Services Limited also noted that “a lot has been done in achieving financial inclusion, and particularly now, more is being done than before.”
Kuye highlighted the importance of collaboration across sectors, saying “Telcos cannot do it alone, neither can the financial institutions. There are the Fintechs as well who will like to play in that space and they also need to collaborate as they don’t have the capacity of either banks or Telcos.”
In 2014, the Access to Financial Service Survey revealed that 36.9 million of Nigerian adults representing 39.5 percent of the adult population are excluded from financial services. In the 2016 survey, 40.1 million Nigerian adults, representing 41.6 percent of the adult population were financially excluded.
Bridging the gap started, more or less in 2007, when the Central Bank of Nigeria launched the Payment Systems Vision 2020 which identified series of recommendations to increase the resilience of the payments system infrastructure and work-streams to encourage the usage of electronic payment methods were inaugurated. The objectives of the vision are varied. The CBN and the Payment community sought to use the framework of the vision as a strong catalyst for the adoption of electronic payments, particularly in eight industry verticals identified as offering particular opportunities for adoption of electronic payments. The overall objective was to use this approach to drive adoption thus increase the pace of financial inclusion in the country.
However, exactly ten years after the launch of this initiative, even with the incursion of Fintech and other payment facilitators into the payment equation in Nigeria, a significant number of eligible Nigerians are still outside the payment and banking system.
Financial inclusion, a social phenomenon that affects more than 2 billion individuals globally, is defined as the lack of access to financial services using the bank account as a proxy. Since the evolution of mobile communications systems and the high penetration rates amongst the underserved, financial inclusion rates have grown with the evolution of mobile money systems. Hence, as opposed to the ownership of a bank account, individuals that own and operate mobile wallets are also considered as financially included.
A major deterrent for many unbanked people is the cost of using the formal financial systems. The under banked individuals nonetheless do conduct transactions, typically using cash. Their reluctance to using formal financial services offered by incumbent financial institutions such as banks include cost of account maintenance and transactions, distance to financial service points (FSPs), lack of trust in financial institutions, inability to meet the requirements of the financial institutions etc.
Nonetheless, these underserved utilize informal and more expensive financial service providers for group savings and credit. Another inclusion constraint is their lack of government-issued or recognized identity documents required for mandatory Know Your Customer (KYC) or Customer Due Diligence (CDD) protocols. This is often the case with displaced persons (refugees) in temporary camps/settlements.
Finally, cash-based transactions that leave no footprint dominate the commercial world of under-banked and unbanked individuals and small businesses. The unrecorded nature of cash transactions reduces access to affordable credit from formal institutions that rely on risk-based credit scoring.
As explained by Ayekina, CeBIH’s chairman, the “take away from the retreat is that we need to reach out to the financially excluded, be with them, understand their thought process and design products and offerings that will meet their needs where they are. Allowing them to feel our presence and when this is done, with us also understanding how they do things, then it becomes easier to bring them into the net.”