Creating a financially-inclusive ecosystem: What will it take?
by Otisi Ukaha
May 16, 2018 | 12:45 am| | | Start Conversation
Anyone who lives in a third world country can attest to the fact that they are always one emergency away from a catastrophe. Due to lack of certain infrastructure, poor systems, lack of planning and barely contained chaos, there are many ways in which Nigerians are just managing to keep their heads above water every day. At a business meeting last week, someone got a call from her driver who was on the way to pick her up. He had a flat tyre and upon inspection realized the source of the problem was a hole, but luckily, he had found a vulcanizer to fix it. The issue was that the vulcanizer was asking for N2,000 upfront, and he had no money to pay for it. She asked the driver if he had his ATM card as she could transfer him the money. He replied that he usually kept his card at home and only took the amount of cash he needed daily for food and transport. She then requested for the vulcanizer’s account details; again, he responded that he didn’t own a bank account and ran a cash-only business. A simple problem with a simple solution had suddenly become a complication and source of frustration.
This is the reality of an estimated 60 million unbanked and under-banked Nigerians today. That is a staggering amount of people excluded from the digital financial ecosystem and almost 50 percent of the population being excluded from basic financial services. The barriers to entry for the poor and uneducated in opening formal bank accounts often lack appeal for those who are not of a certain financial status, and due to lack of knowledge, there is a general mistrust of formal banking systems, with most opting instead for informal solutions. There is also the issue of living in areas where the closest banks are not easily accessible. All these factors contribute to low-income earners keeping their money in the form of cash which in turn cripples economic activity, while stunting their capital growth and investments.
The Central Bank of Nigeria (CBN) recently announced its goal of 80 percent financial inclusion for Nigerians by 2020, but what does an inclusive financial ecosystem really look like? According to a report compiled by the International Finance Corporation, a World Bank group, even in developed countries, many only have access to a limited menu of cost-effective products from financial institutions for addressing their financial needs. Billions of unbanked adults in the world lack access to basic financial services and another 57 percent have basic accounts but do not have access to diversified investment and savings options, low-cost payments systems, core household and business insurance, or credit. This means that it is not enough for Nigerians to simply make their money digital, other financial services must follow for them to truly be included financially.
Financial inclusion has been touted to become the major driver of economic growth in poorly-developed countries with high levels of poverty. In this part of the world where mobile money has been met with a higher level of success than the west, the advent of the digital age, access to internet and mobile phone penetration has created opportunities and opened the mass population up to possibilities that were previously out of reach. CBN has pledged to partner with banks and financial institutions to grow a 500,000-strength agent network, an independent network of petty traders, small business owners and popular sales outlets that are well trusted within certain communities to carry out financial transactions on behalf the providers. Paga, the first mobile money company in Nigeria to begin operations officially in 2012, has been ahead of the curve on growing agent networks, now boasting an impressive roaster of 15,000+ agents, the largest in Nigeria. As one of the partners of CBN’s SANEF initiative (Shared Agent Network Expansion Facilities), they should be able to rapidly expand their reach across Nigeria, especially the grossly underserved Northern regions. In a bold move, Paga recently announced its venturing into more digital service products, the first of its offering being a flexible savings wallet which garners interest even as you transact, with more offerings to come down the line. This is the right step towards financial inclusion for Nigerians. It is not enough to simply make and receive payments; everyone must be empowered with the tools for managing and growing capital, at a low cost. Over the next few years, it will be interesting to watch the developments in the mobile money space to see if any of the key players will be able to replicate the success of Mpesa in Kenya.
The fact that stands clear is that for there to be great strides in financial inclusion for the under-served population, mobile money services are just a piece of the puzzle. The rise of other financial institutions solving the problems of financial inclusion is also a key factor. Financial institutions such as micro lenders and micro insurers provide products that vastly improve the lives of low-income earners and micro, small and medium business owners. The gaps in financial literacy must be addressed, and similar products and services found in formal banking must be made available. This will result in proper financial management and growth and productivity for the individual, and increased economic stimulation. Low-income earners need to be further incentivized with customized plans and fees that match their income level, and products that will be tailored to their specific needs so they are able to integrate fully into digital financial services.
Ukaha, a financial analyst, writes from Lagos.
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