Financial inclusion in Nigeria: Which way forward?
Nigeria is now the poverty capital of the world! An unflattering award to say the least but does it hold true? The signs are visible. Achieving very high or full financial inclusion could help. India previously held the award but has since used financial inclusion to bring several millions out of poverty.
This piece is not about India but it examines the status of financial inclusion in our beloved only country and proposes that the Nigeria Postal Services (NIPOST) can lead the charge to deepen financial access and use in rural areas, where the poor really are. We must also not give up on the very challenging work of organising financial inclusion around the informal “esusu” or “ajo” or other informal social groupings across the country – they must be linked (not converted) to formal financial services. Lastly, on financial literacy, why teach financial education to the poor in any of our 250 or more Nigerian languages, when they mostly, if not, all understand and rightly identify emotionally with “pidgin?”
After banks, postal operators and their financial subsidiaries contribute the most globally to financial inclusion. Postal offices around the world have no less than 662,000 contact points, making them the largest network of contact points in the world, albeit underutilised for financial inclusion. In particular, in order for posts to become pivots for financial inclusion, they must have extensive networks, qualified and trained staff, financial capacity, technology-driven processes and most of all public trust. There are successful postal financial inclusion models for NIPOST in China, Brazil, Japan, Namibia, Senegal, Bangladesh, India, Serbia and Papua New Guinea.
NIPOST has already sunk the cost of an established postal network and is supposedly not seeking to maximise profit. Therefore NIPOST represents a good option in making financial services accessible and affordable for the rural and even urban poor. However, NIPOST’s network would require close examination of the state of its physical and non physical (if any) network vis-a-vis investment requirements, IT connectivity and staffing with a view to assuring modernisation and suitability for the role of champion of financial inclusion.
The Banco Postal business partnership with Bradeso, a private bank, is a successful model in Brazil, having brought millions of unbanked individuals into the formal financial system. Banco de Brasil subsequently paid an entry/partnership fee of US$1.7 billion to Banco Postal which highlights the financial payoff that public private postal partnerships can generate.
Operationally, NIPOST can choose to start from the base of the ladder as a cash-in-cash-out merchant and then move up the scale to eventually either own its own postal bank or enter into a JV with a financial services provider to secure financial expertise and mobile network operators (MNOs) for electronic financial communications. Overall, the more investment and participation NIPOST has in the operating model, the higher the revenue it generates.
CBN’s 2012 National Financial Inclusion Strategy makes mention of cooperatives and informal clubs and self help groups (together referred to as non bank micro finance institutions) as stakeholders. That group needs to move from simply one being monitored by the CBN to one that becomes an anchor for achieving full financial inclusion in Nigeria – that group of new clients is represented by the almost 40 million adult Nigerians that are excluded from financial services.
It is instructive to leverage such clubs across the country by linking them to formal financial services at scale, possibly through transfer of savings mobilised into specialised accounts with micro finance banks (or other formal financial inclusion agents.) Whatever operating model is adopted for such linkages will not be 100% right or fit-for-purpose the first time. Patience, resolute commitment and continuous improvement will be key.
Research by Accenture in 2016 indicates that informal savings & loans groups are an effective entry point for linking financial institutions to the financially excluded. The community savings and credit cooperatives in Rwanda, SACCOs are a model to examine because they exist successfully in every administrative sector in the country. As at 2016, the country had already achieved 89% financial inclusion which is expected to reach 90% by 2020.
More than 90% of Rwandans live within a 5km radius of a SACCO – a financial cooperative set up legally as savings banks and run by members that live in the 416 administrative sectors in the country with sole aim of maximising benefits to its members. SACCOs which were created in 2009, benefited from subsidies for operating cost. The subsidies ceased once the SACCOs reached break-even. It is important to note that the Rwandan authorities simultaneously with propagation of SACCOs, pursued strategies such as policies to further the expansion of bank and MFI branches, agency banking, mobile banking/money and roll out of ATMS.
The national financial literacy strategy may require re-examination for the simple reason that the basic language of national communication must urgently shift to or at least incorporate pidgin. Pidgin needs to rank side by side formal English language because it immediately and quickly removes the psychological barrier for our vast non English speaking poor population. There is some market wisdom behind the thinking of the likes of WAZOBIA FM radio station and the more recent BBC Pidgin.
Financial literacy programmes must also take advantage of socially cohesive groups where members can assist one another to acquire the necessary skills and behaviours required to thrive in a formal financial services setting. FMCG distributors, retail companies and telecommunications operators can also assist in imparting financial literacy. India even went further when in 2014 it licensed such companies as payment banks to serve solely the poorest members of society offering easy access to bank accounts, fund transfer, digital debit cards and interest rates on savings accounts. There has been rapid uptake – Pay TM one of the most popular such businesses had attracted 300 million customers within just two years of operations.
A shared responsibility and shared interest approach creates a virile circle of growth and general economic well being for Nigeria as a whole. Every Nigerian can live a decent life. Yes, we can!
Mayowa Amoo is an investment banker based in Lagos.
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