The Many Roadblocks to Financial Inclusion (2)

The Many Roadblocks to Financial Inclusion (2)

The reason is because the world has become intensely financial and not much happens without finance taking the pride of place. Fortunately, this is one fact that the Nigeria government has taken to heart and pursued with vigour.

Over the past several decades, but particularly from 1977, when the Rural Banking programme of the federal government was launched, the pursuit of financial and, by extension, economic inclusion has received serious attention in Nigeria. That programme had its roots in the desire of the Nigerian government of the time to give the citizens a fair opportunity to participate in their economic affairs.

It was part of the global programme of domesticating the economy and giving Nigerians control of the commanding heights of their economy. The arrow head of this programme of empowerment was the Indigenisation Programme, which was very successful in transferring the ownership and control of major foreign companies in Nigeria to Nigerians. Although criticised for excluding those sections of the country that just came out of the civil war, in particular the South-east, whose citizens had neither the contacts nor the finance to participate in the exercise, it marked a major shift in capital ownership in Nigeria.

Under the rural banking programme, commercial banks in the country were obliged to establish functional branches in the rural areas. The target clients were the rural farmers and petty traders in the villages who saved their money by putting them in bottles and burying them in secrete places; those who save by hiding their funds under pillows because they had no access to any kind of banking services. The programme was intended to offer them both credit and savings facilities and to help in boosting the rural economy.

To show its seriousness, government offered a number of incentives in the areas of tax and the period needed to write off certain costs relating to rural branches. The programme took off very well as bank branches began to spring up in the hitherto unbanked local communities. Unfortunately, due to a combination of factors, some of them still key players in our economic setback. They include lack of basic infrastructure like telephones, insecurity, and epileptic power supply. Others were lack of skilled workers to man the rural branches and inexperience on the part of banks in dealing with rural financing and the entailed micro nature of the transactions.

Moreover, the banks were required to lend a certain proportion of the deposits they mobilise from a locality to the businesses in that community. The banks could not find adequate vent for the deposits they mobilised from the rural areas as most of the business entities around were micro, unregistered and essentially unbankable. The result was that banks took deposits from the poor in the local communities and passed them to the more endowed urban customers. The aim of the programme became finally defeated when banks began to worry about the poor bottom lines of their rural branches, and turned them literally to observatories they visited at irregular intervals for reasons other than commercial banking.

But Nigeria never gave up on the idea of banking the rural communities and indeed the economically active poor. The strategies adopted might have changed but the objective remains the same. It has now taken new forms and manifested in the establishment of new financial institutions and instruments, geared towards financial liberalisation and inclusion. The introduction, in 2005, of the Framework for a national microfinance practice, marked a watershed in our financial and economic inclusion efforts.

Other efforts in that direction include the introduction of agency banking and mobile money strategies. On the financing part, the Central Bank and the Bank of Industry have led the way in providing all kinds of financing packages, including the SMEIS, Anchor Borrowers’ Fund for farmers, Graduate Entrepreneurship Fund for NYSC members, Cottage Agro Processing Fund also for farmers, Nolly Fund for actors of Nollywood and even Fashion Fund for designers. The financing space is awash with cash. But the huge issue is that much of the funds remand in the providers’ vaults for many reasons. 

The question is to what extent these funding opportunities have helped the large SME sector in the country. How much have we achieved in our financial inclusion project? If we consider the Rural Banking Scheme as the beginning of our financial inclusion project, we are looking at a project that has been on for forty years. There is no doubt that some progress has been made but we are looking at a programme on snail speed movement. An honest opinion will be that there is room for improvement. However that room is a bit too large. Clearly, the fact that 39.7 per cent of Nigeria’s adult population is still excluded financially after 40 years of effort says something negative about our financial inclusion efforts.

Why are we making very slow progress? The answer is not farfetched. The country’s financial infrastructure is very poor. For instance, even with all the efforts on the deployment of POS around the country, the adoption has been slow. Apart from Lagos, FCT and Rivers other states recorded less than N2million transactions in 2016. Worse still, over 50 per cent of all POS transactions took place in Lagos. And this number is even after the use of the POS had recorded a 123 per cent cumulative average growth rate between 2012 and 2016.

Without doubt we need to work more seriously on a number of things including the power sector, the charges on bank services and the deployment of equipment. Perhaps a new form of rural baking programme focusing on POS and ATM machines deployment and use might be considered and if necessary compelled.

Emeka Osuji

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