Financial inclusion is defined by The World Bank as the ability for individuals and businesses to “have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way”.
The World Bank also points out that globally, “financial inclusion has been identified as an enabler for seven of the 17 Sustainable Development Goals. The G20 committed to advance financial inclusion worldwide and reaffirmed its commitment to implement the G20 High-Level Principles for Digital Financial Inclusion”.
In Nigeria, it is estimated that approximately 41.6% of the population is currently financially excluded, with the majority of the financially excluded being from poor, rural and uneducated backgrounds.
While global programmes such as World Bank’s aim to reach Universal Financial Access (UFA) by 2020 might make a global impact on financial exclusion, it is the particular steps that Nigeria is taking to enhance financial inclusion that indicates a far more committed path to ensuring inclusion. While the country’s aim of reaching an 80% inclusion rate by 2020 is perhaps ambitious, regulatory and banking approaches are laying solid foundations for change.
The National Financial Inclusion Strategy (NFIS)
This strategy was put into play by the Central Bank of Nigeria (CBN) in 2012, focusing of four key strategic areas.
- Agency banking;
- Mobile banking/mobile payments;
- Linkage models; and
- Client empowerment.
Four priority areas were identified for guideline and framework development namely, Tiered Know-your- Customer (T-KYC) regulations, Agent Banking regulations, National Financial Literacy Strategy and Consumer Protection.
The NBC states that in the revised strategy, “two overarching principles have been defined to make implementation comprehensive, easy and efficient”. These are:
- An appropriate risk based regulatory level playing field that focuses on both activity and the actors
- Actors should play in their areas of core strength (comparative advantage) to engender high impact.
While the strategy is dependent on a number of role players, risk aversion and regulation working together to create fertile ground for a growth in financial inclusion, it has laid a solid path for success
Read more about the NFIS here.
The Cashless Economy Policy
This policy was introduced by Central Bank of Nigeria (CBN) in December 2011 and is designed to provide value to mobile payment services, break down the traditional barriers hindering financial inclusion of millions of Nigerians and bring low cost, secure and convenient financial services to urban, semi-urban and rural areas across the country.
The perhaps more obvious advantages of reducing the risks of physical cash, including theft, the costs associated with safely keeping and moving cash as well as eliminating inefficiencies are good news for both the included and excluded in the economy.
Where banking has been expensive for those dealing in cash, or for those in outlying areas having to travel great distances at great costs to bank, the drive to a more tech-savvy solutions, will likely spell success, if constant and enhanced efforts to curb crime in the electronic banking space are continued.
Of course, for those who have relied on cash for years and who see little value in using banks, the rise of mobile payment technology and other fintech offerings will mean that financial inclusion is possible through new technology. With a popular shift towards open banking, the ability to use more traditional banking structures alongside new technology adds further benefit.
The NBC believes that Nigeria can also achieve widespread digitisation of government-to-person (G2P) and person-to-government (P2G) payments if the following take place:
- Deliberate efforts are made to create an enabling infrastructure for end-to-end payments.
- A viable business case is presented to banks and agents to provide points of access in remote areas.
- There is political buy in for payment digitisation across the three tiers of government.
- Adequate mechanisms are developed for complaint management and rapid resolution.
Nigerian financial services have great progress in terms of digital offerings, curbing cyber security and risks associated with this, however, it is innovation and the rise fintechs that will likely see means through which the financially exclude will become included.
Embracing open banking – a worldwide shift in how banking is done which was initiated through the The Payment Services Directive
(PSD2) in Europe. In very practical terms, it gives a client the right to share their data with a third party and through the integration of banking services with new offerings via an Application Programming Interface (API).
Clients can make use of traditional banking services and new tech services by integrating their data. Banks are conversely able offer more tech services into their traditional offerings. An example of this would accounting services that integrate directly with banking data making life for clients far more easy.
A PWC paper titled The Case for Open Banking in Nigeria explains that: “Competition is increasing as technology players of all sizes seek to make their mark in the financial services industry. Consumers who have come to appreciate the added convenience of digital services in many aspects of their lives, are now expecting similar experiences from their banks. Also, with concerns about privacy breaches on the rise, consumers are now looking for more control over their own data.
“Open Banking lets customers have increased control over their data while supporting the innovation everyone yearns to see more of.”
In the paper Adedeji Olowe, Trustee, Open Technology Foundation states that “As countries latch on to this need to develop and advocate for open API standards, usually by regulators, some of us in Nigeria have come together to work with stakeholders to do the same. The need for Open Banking in Nigeria is even more critical than just convenience; it is the only hope for over 40 million Nigerians who are financially excluded but who can be included within the formal financial ecosystem by services that are developed by fintechs and powered by Open Banking.
Should open banking become a possibility, a range of services will be provided to those wanting to make use of traditional tool sand fintech as well as those using fintech and wanting traditional banking platforms.
These opportunities become even more optimistic when considering mobile payment systems in the country.
Mobile payment systems
While Nigeria was late in adopting mobile payment services (launching a decade later than Kenya, for example), the NBC has taken significant steps to ensure that milli
ons of Nigerians who don’t have bank accounts are able to participate in the payments system through the use of mobile banking.
According to the Financial Times, “By opening up access to Nigeria’s banking system to non-financial companies such as telecom operators, the central bank hopes to make basic financial services accessible to the tens of millions of people in the country who have no bank account.”
In August last year, the Nigeria Inter-Bank Settlement Systems, MTN Nigeria, sixteen banks and major mobile telcos partnered to relaunch mCash – a mobile payment platform for low-value retail payments designed to extend e-payment options to low-income buyers and sellers who deal in cash – in Nigeria.
This has allowed millions of Nigerians who have access to mobile services but not to formal banking, the ability to be financially included.
A positive view ahead
While there are many role players, policies and regulations in play, the coordinated method in which Nigeria is seeking to address financial inclusion is perhaps the most encouraging aspect of the strategy.
While goals for financial inclusion may be ambitious, the rate at which fintechs and mobile players can create change for financial inclusion, and the regulatory strengths that traditional banks can provide if working hand in hand with the new players, may see these goals met sooner than anticipated.