By Tolu Oyekan, Partner, BCG
Financial inclusion is increasingly becoming an area of priority across the globe among policymakers, researchers and development-oriented agencies. Its importance comes from the promise it holds as a tool for economic development, particularly in the areas of poverty reduction, employment generation, wealth creation and improved welfare and general standards of living.
The Nigerian government launched the National Financial Inclusion Strategy in 2012 (NFIS 2012), to achieve 80% inclusion by 2020. The NFIS framework was leveraged by the Central Bank of Nigeria (CBN) to effectively regulate the Nigerian financial sector. This drive necessitated the introduction of the cashless policy, the proliferation of agency banking, the growth of microfinance banks and increased adoption of fintech solutions; especially digital payment products.
However, these positive outcomes could not help achieve the target of 80% inclusion by the end of 2020. Barriers that hampered this target were irregular income, illiteracy, lack of proximity to access points, lack of required documentation, inadequate awareness, high service fees, and a high affinity for cash.
The Impact of COVID-19
In addition to the bedevilling barriers, came the COVID-19 pandemic. In its wake were the falling prices of crude, the halt in economic activities and the loss of income by many Nigerian households. The unemployment rate rose to 27.1%, inflation increased and the purchasing power of the people dropped.
Interestingly, despite these negative impacts on the economy, there was growth within the entrepreneurial sector. According to the EFInA Access to Financial Services in Nigeria 2020 Survey, about 86 million Nigerian adults’ livelihoods were negatively impacted by the pandemic. However, the survey showed that about 49.1 million Nigerians turned the situation around to start their businesses either in agriculture or service delivery. These new businesses employed about 33.2 million Nigerians, thereby creating about 70.3 million jobs.
The Revised NFIS
While the NFIS 2012 may not have delivered the 80% inclusion target, it has however provided grounds to evaluate progress and identify the barriers and insights in developing a refreshed document for the new target. Upon review of the NFIS 2012, the CBN and its stakeholders came up with the Revised NFIS document which targets a 95% financial inclusion threshold in Nigeria by 2024.
This is ambitious given that the financial inclusion index moved from 57.3% in 2010 to 60.3% in 2012 and 63.2% in 2020, a growth of about 5.9% in 10 years. Achieving a 31.8% increment in 4 years is indeed ambitious, but not impossible.
The Revised NFIS identified five priority areas as key to achieving the new target, namely; an enabling environment for the expansion of Digital Financial Services (DFS), rapid growth of agent networks for last-mile delivery, harmonization of KYC requirements, conducive environment to serve the excluded; and incentivizing the adoption of cashless payment channels.
The Revised NFIS also examines other salient issues such as increasing awareness and knowledge of financial products, channels as well as trust. There is also the need for frequent review of the implementation of the strategy so as to take lessons faster and adjust the strategy to fit prevailing realities.
After All, Said and Done
Though the pandemic might have spelt doom for a lot of businesses and economies, it has however thrown up a few positive indicators for the financial inclusion drive in Nigeria. As earlier mentioned, while people lost their jobs, there was an upsurge of micro-businesses which created employment opportunities, thus reducing the impact of unemployment in the country.
The pandemic also led to the increased adoption of DFS and financial agent services. According to the Nigeria Inter-Bank Settlement Service (NIBSS) report, the monthly use of digital channels rose from 45 million transactions valued at N5.4 trillion at the end of 2017 to over 287 million valued at N23trillion in June 2021. This represents a growth of over 530% in the last 5 years. Thus, the volume of digital transactions rose from 75% in 2019 to 135% in 2020. Another report by ACI shows that digital payment transactions grew to over 1 billion, representing a growth rate of over 45%.
There has been an increased uptake of banking products and services, the banking sector being the biggest driver of the financial inclusion agenda in Nigeria. Between 2018 and 2020, the banked population grew by 5%, savings accounts by 6% and banking agents by 16%. There has also been an increased adoption of non-banking products and services such as financial services agents, pension, insurance and mobile money.
To ensure that the targeted 95% inclusion is achieved by 2024 amidst the drawbacks thrown up by the pandemic and other peculiarities of the Nigerian economy, the CBN and its stakeholders have their work cut out for them. The following are some of the areas they should focus on:
Increasing access to financial services
This should be viewed from two different lenses; the consumers’ and the service providers’. From the view of the consumer, it is important that the tiered-Know Your Customer (KYC) documents be harmonized to reduce the limitation to having a transactional account. A transaction account is the bedrock of financial services.
Increased awareness for DFS and other banking products will improve access to these products and services. Banking and DFS transactional fees should be reviewed to encourage massive uptake especially among rural dwellers and the poor.
From the service providers’ perspective, the bottlenecks associated with acquiring the Payment Service Bank (PSB) license should be reduced. The process should be democratized to allow private investors other than telcos, fintech companies and banks.
The CBN should facilitate the actualization of the Shared Agents Network Facility (SANEF) to enable the proposed 500,000 agents provide financial services in the under-served areas, especially the Northern region.
More importantly, improving the economic and financial status of Nigerian households and firms will enhance the possibilities of a financially included Nigeria. With a thriving economy, the households will save and embrace other financial products services as credit, insurance and pensions.
The prevailing security challenges across the country should be addressed as it hampers economic activities and consequently the financial inclusion figures.
Capturing the over 40 million MSMEs in the formal financial sector is critical to improving the economy. This group employs over 80% of the country’s population and contributes about 50% of the country’s GDP. When formally served, progress is easier to monitor and track.
With more women being financially excluded- 41% female and 33% male- it suffices to say that concerted efforts should be channeled towards ensuring that more women are empowered to carry out more economic activities and consequent financial transactions.
Efforts should be made in advancing the National Financial Inclusion Special Intervention Working Group’s (a subcommittee that looks into gender-related financial inclusion issues) recommendations. Financial products such as low-interest loans, grants and employment opportunities should be extended to women.
The CBN needs to collaborate with critical enablers such as the Nigeria Communications Commission (NCC). Initiatives such as the Infrastructure Companies (InfraCos) project- an initiative expected to provide broadband fiber and connectivity to every Local Government Area of the federation with a minimum speed of 10 Gbps- should be implemented to ensure delivery of services by agent banks, even in rural areas.
The Nigerian postal service’s network also provides a wide reach that the CBN can leverage to achieve last-mile delivery.
Incidentally, legislative provisions for the financial inclusion strategy could be strengthened. Collaborating with policymakers to effectively implement and track the financial inclusion strategy, makes the 95% inclusion target less daunting.
A BCG report commissioned by Telenor, a multinational telecommunications company, stipulated that a 1% increase in financial inclusion increases the real Gross Domestic Product (GDP) per capita by 3.6 per cent. This, therefore, underscores the socio-economic impact of financial inclusion as a critical driver to foster economic development, reduce poverty and achieve inclusive economic growth.