The benefits of the financial inclusion of all citizens can be phenomenal. It will create such a positive and unstoppable force that will propel a country’s economic growth. The tapping up of the huge and largely idle funds at the hands of the financially excluded would definitely promotes capital accumulation, credit creation, increased economic activity, and increased investment.
Research has shown that over two billion individuals and 200 million businesses in emerging economies today lack access to savings and credit, and even those with access can pay dearly for a limited range of product.
In Nigeria, it is estimated that about 40% of Nigerians are financially excluded. These unbanked and under-banked Nigerians are predominantly women and youth between the ages of 18 and 35. Some estimates suggest that Nigeria could quadruple its growth if all its citizens are financially included.
Since most of the financially excluded in Nigeria are the low income earners and those in rural settings, there is no greater or more effective and efficient tool of taking financial services to them than the use of digital technology or simply the mobile phone, which use has become quite pervasive. Indeed, research and experience has shown that through digital technology, financial services could reach billions of new customers quickly and efficiently. The success of M-Pesa, a mobile payments app in Kenya with 17 million active users conducting more than $50 billion in cashless transactions yearly, is nothing short of phenomenal and demonstrates the benefits of bringing digital financial services to all regardless of status, education or income as well as the power of technology to provide solutions to hitherto intractable problems.
However, Nigeria, with a teledensity of over 108% and 21 licensed mobile money operators have been unable to bring digital financial services to the 40% of Nigeria’s adult population excluded from financial services. This is a significant drawback.
To our mind, the main reason for this failure is the decision of the central bank of Nigeria to adopt a bank-led approach as against the telecom companies being the drivers. The main reason for this, as the CBN later explained, was because, mobile money will still be provision of banking services and it was better banks that are specialists in that field provide the services so people do not lose their money. Meanwhile, the telecom companies will provide most, if not all, the infrastructure for the scheme. But banks are unable to effectively market digital financial services without the cooperation of the telecom companies. Therein lies the dilemma.
In contrast, Kenya that is the shining model of digital financial services, adopted a telecoms company driven model. But the M-PESA actually started as a product from a Micro-Finance bank, which was looking for a cheap platform to reach out to its customers spread all over the country. It eventually struck a partnership with Safaricom and that led to the birth of M-PESA which is now widely used across Kenya by both the financially included and excluded.
In Ghana also, the Bank of Ghana allowed the telecom companies to set up subsidiaries with own boards separate from their parent companies to provide mobile banking services. This has led to the relative success of digital financial services in the country.
Clearly then, the reason for the inability to scale lies with the approach. No matter how the CBN feel about it, the telcos must be involved for digital financial services to work seamlessly and for the millions of financially excluded to be included.
Luckily, the CBN is becoming aware of this challenge and at the BusinessDay Summit on Digital Financial Services held on December 8 at the Eko Hotel, the Governor, Godwin Emiefele, conceded that eventually, telecommunication companies will come on board. Until that is done, all the efforts to bring digital financial services to the excluded in Nigeria may remain just plans on paper and dreams.