The Central Bank of Nigeria’s (CBN’s) financial inclusion target of getting 80 per cent of adult population into the financial system by 2020 remains a herculean has for stakeholders. Certain challenges have made it difficult for banks, regulators and even governments to bring financial services closer to the people. E-fraud, poor quality of service, excessive bank charges and banking security are impediments to bringing more people to the financial system.
Nigeria’s informal sector is a sleeping giant. The potential of the sector, estimated at $240 billion, is largely untapped. The billions of naira that circulate through the informal sector has a negative impact on the country’s economic growth and development.
The Enhancing Financial Innovation and Access (EFInA), a financial sector development organization that promotes financial inclusion in Nigeria survey revealed that 23 million adults save at home. If 50 per cent of these people were to save N1,000 per month with a bank, then up to N138 billion could be incorporated into the formal financial sector every year.
Also, 34.9 million adults representing 39.7 per cent of the adult population were financially excluded. Only 28.6 million adults were banked, representing 32.5 per cent of the adult population.
The CBN through its National Financial Inclusion Strategy (NFIS) plans to ensure that 80 percent of Nigerian adults are included in the financial net by the year 2020. The 2018 data by EFInA put Nigeria’s financial inclusion rate at 63.2percent, meaning that as much 36.8 percent or about 40 million adults still lack access to financial services.
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Unlike the formal economy, the informal economy has grown faster in size at an annual average rate of about 8.5 per cent between 2015 and 2019. This growth seen in the informal sector and an increase in employment it provides implies higher household income and lower poverty. This underground economy is particularly large in Nigeria, with the International Monetary Fund (IMF) estimating it to constitute about 60 per cent of the entire Nigerian economy, representing about $240 billion.
To capture the underground economy the CBN, National Pension Commission, other financial institutions and government agencies are providing financial products and services to the low income population represents a large business opportunity for the private sector.
This report was supported by the US Embassy via the ATUPA Fellowship by Civic Hive to help promote grassroots banking and economic empowerment for the people, especially in worst hit regions in the country.
Worst hit regions
The The Shared Agent Network Expansion Facilities (SANEF) report showed that despite the campaign to get more people into the financial system, Northeast and Southeast regions have the least access to banking based on financial access touch-points data.
With about five per cent financial access touch-points for the Northeast and seven per cent for the Southeast, both regions remain disadvantaged in access to financial services despite efforts by the CBN, Bankers’ Committee and commercial banks to take banking to the grassroots.
Southwest is leading on financial access touch-points with 54 per cent; Southsouth 12 per cent; Northcentral 11 per cent and Northwest 10 per cent.
Other details showed that southwest is leading on financial access touch-points with 54 per cent; Southsouth 12 per cent; Northcentral 11 per cent and Northwest 10 per cent.
What stakeholders are doing
The CBN’s policies on mobile money, agency banking, Know Your Customer (KYC), insurance, and recently, Payment Service Banks (PSBs) have helped to bring new customers to the financial system.
The National Pension Commission (PenCom) identified with this informal sector with the launch of the Micro Pension Plan (MPP), which has enabled artisans such as photographers, caterers, hairdressers, motorcycle service operators, tailors, fashion designers, carpenters, painters among others to embrace Contributory Pension Scheme (CPS) and protect their future and businesses.
The CBN, in furtherance of its mandate to promote a sound financial system in Nigeria and the need to enhance access to financial services for low income earners and unbanked segments of the society instituted the PSBs.
The PSBs are to accept deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme and carry out payments and remittances (including inbound cross-border personal remittances) services through various channels within Nigeria.
The PSBs were licensed by the CBN to enhance access to financial services for low income earners and unbanked segments of the society through digital services. Three operators-Hope PSB is a subsidiary of Unified Payment, Globacom’s Money Master and 9Mobile’s 9PSB are to provide cheap and affordable finial services to the unbanked.
The guidelines, signed by CBN Director, Financial Policy and Regulation Department, Kelvin Amugo, said PSBs shall maintain not less than 75 per cent of their deposit liabilities in CBN securities, Treasury Bills (TBs) and other short-term federal government debt instruments at any point in time.
“PSBs shall have the privilege to make their investments from the CBN window. All funds in excess of the PSB’s operational float should be placed with DMBs. PSBs shall participate in the payment and settlement system and have access to the inter-bank and the CBN collateralised repo window for its temporary liquidity management,” it
Accordingly, PSBs are envisioned to facilitate high-volume low-value transactions in remittance services, micro-savings and withdrawal services in a secured technology-driven environment to further deepen financial inclusion and help in attaining the policy objective of 20 per cent exclusion rate by 2020.
Former Executive Director at Keystone Bank and expert in mobile money services, Richard Obire, said the new entrants should take immediate steps to strengthen Nigeria’s financial inclusion drive through mobile and digital channels, while offering their services at reduced cost.
He said that evidence worldwide shows that access to financial services contributes both to economic growth and wealth creation in the economy.
“For me, there is no time to waste. The new entrants are already providing similar services before the official licensing and should hit the ground running immediately. I also expect them to increase their transaction volumes and offer affordable services to the people,” he said.
Speaking on the success and future of the MPP, Acting Director-General of PenCom, Mrs. Aisha Dahir-Umar explained the gains of understanding how this aspect of the Micro Pension Plan (MPP) works and how it can deepen the CBN’s financial inclusion project. She said the introduction of the MPP by the Commission is a major step to promoting financial inclusion at the grassroots.
According to her, Section 2(3) of the Pension Reform Act, 2014 (PRA 2014) provides that employees of organizations with less than three employees as well as the self-employed persons shall be entitled to participate in the Contributory Pension Scheme in accordance with Guidelines issued by the Commission. Majority of these categories of persons covered are in the informal sector and have generally low and irregular incomes.
Agency banking is an important driver of financial inclusion and very useful in providing access to financial services, especially in underserved/unserved areas.
Financial service providers, government and policy makers, regulators have been making efforts at global, sub regional and national levels to increase access of excluded populations to finance. And one of the shortest routes to achieving this is Agency Banking.
The banking model, which the CBN and banks have been promoting is cheap, easy to embrace and attracts low cost to serve. Agency banking takes financial services to customers through a third party (agent) on behalf of a licensed deposit taking financial institution and/or mobile money operator.
It however require the deployment of right technology to achieve desired results. There are about 307,000 Point of Sale (Pos) machines in Nigeria, 30,000 Automated Teller Machines, and over 6,000 bank branches but only 167,000 of the PoS are active and agency banking helps to bridge the gap.
The objective of agency banking is to through the different agent channels, enhance financial inclusion, make financial services delivery channel efficient and take banking to the grassroots. According to the CBN, commercial banks have continued to embrace agency banking to improve their customer base and support their cost-saving strategies.
For instance, within its first 100 days, Polaris Bank’s agency banking initiative, SurePadi, serviced over half a million customers impacting directly an estimated two million households across the seven business regions of the bank nationwide.
Beyond the direct impact on customers and households in Nigeria, the sheer volume and value in financial numbers on the gross earnings of the bank has been significant as the agency recorded giant strides in the number of services and transaction volumes it processed which was valued N10 billion.
Its Chief Digital Officer (CDO), Dele Adeyinka, explained that, in the first 100 days of introducing SurePadi, it had carried out over 500,000 services, and transaction volume above N10 billion directly servicing over two million households, giving them easy access to cash for businesses and family needs.
Access Closa provides access to financial services right within the neighbourhoods. Access Bank’s authorised agents process transactions quickly and easily via platforms such as Pos terminals or mobile phones, helping customers to carry out transactions without visiting a branch.
Speaking at one of the Access Bank’s ‘Compliance Engagements with Agents’ in Lagos, its Deputy Group Managing Director, Roosevelt Ogbonna, said the bank is through agency banking, setting standards for sustainable banking practices and delivering value to customers.
He lauded the agents for believing and partnering with the bank, adding that the lender will also ensure that the business relationship remains mutually benefiting. Ogbonna described the agents as credible partners who will continue to support the lender in realizing its financial inclusion target.
Limitations financial inclusion
Cyber frauds and technology breaches have become rampant globally, with emerging markets worst because of poor corporate governance practices and processes. For Nigeria, the deployment and usage of digital banking channels have been rising and so are customers’ complaints.
Speaking at the Financial Institutions Training Centre/Nigeria Interbank Settlement System Virtual Think_Nnovation Conference held at the weekend in Lagos, CBN Deputy Governor Financial System Stability, Mrs. Aishah Ahmad, said that financial services sector is particularly susceptible to cybercrime given its crucial role of financial intermediation in a highly connected financial system.
Aside significant financial losses, the sector is also exposed to potential compromise and loss of customer data, and disruption of operations, which undermine stakeholders’ confidence in financial system stability.
CBN data showed that Internet/ online-banking and automated Teller Machine/ card -related fraud-types reported constituted 92.68 per cent of all the reported cases worth N15 billion annually. Other miscellaneous crimes such as fraudulent transfers/withdrawals, cash suppression, unauthorized credits, fraudulent conversion of cheques, diversion of customer deposits, diversion of bank charges, presentation of forged or stolen-cheques among others also made the list of malpractices.
The challenge of banking product security and abuse is impacting on products adoption. If people find out that digital channels are getting more secured and that there are opportunities they can leverage when they have challenges, there are more chances that they will embrace the channels. But if they discover that the security of the platforms are reducing, this can lead to reduction in the use and adoption of digital services.
Cyber related risks have been a systemic concern for stakeholders since the turn of the century. The deepening integration of digital technologies into almost every facet of people’s lives has transformed the way they communicate, socialize, learn do business and conduct financial transactions.
Also speaking, Chief Information Security Officer at FirstBank, Harrison Nnaji, said there are two broad components in the financial services sector- the brick and mortar- over the counter transactions and digital transactions. He said that over the last decade, there have been migration to the digital platforms.
“You will not be surprised, that today, there are still some people that do not have payment cards because of fear. You have a situation where customers actually in the real sense do not need security, they need confidence in the digital products that banks offer,” he said.
He said that banks that have not abated a fraudulent transaction, are not supposed to be accountable for any loss due to e-fraud but added that financial service providers are expected to make sure that the products they put up are secured enough.
Way out by stakeholders
CBN Governor, Godwin Emefiele, said new product development, financial education and consumer protection, leveraging of digital platforms, and the proliferation of agent networks are crucial bringing more people to the finial services net.
In a framework for improved financial access by women, the apex bank said the financial inclusion target cannot be reached without closing the 8.5 per cent access to financial services gender gap between men and women.
The regulator said the gap is particularly acute in rural areas where 24 per cent of women in rural areas register ownership of formal accounts, as opposed to 54 per cent of men. There are also significant variations among Nigerians, with the gender gap differing significantly among regions of Nigeria.
“The gender differences in financial inclusion are also apparent in the types of financial services or products available in the market, with the gender gap playing out across the board. Few Nigerians borrow from banks (1.6 per cent of men and one per cent of women),” it said.
Continuing, it said Nigerian men are considerably more likely to save in a bank (25.8 per cent of men; 16.3 per cent of women). “Women are more likely to save with informal mechanisms only (21.9 per cent of women, 15.1 per cent of men). Roughly twice as many men as women are likely to have a pension product (10.6 per cent of men, 5.4 per cent of women). The gap continues in the realms of remittances: 26.1 per cent of men as against 18.6 per cent of women use bank services to receive remittances”.
“The lack of insurance products is striking across genders: only 2.4 per cent of men and one per cent of women have one or more insurance product. These reference points are important ways and opportunities to close specific financial inclusion gaps”.
On its part, EFInA, said this begins with the imperative of increasing overall account ownership by women. “Women’s financial inclusion can create greater economic stability and prosperity for women, their families, and their communities, by building assets, enabling the ability to respond to family needs, and mitigating risk. When a woman has access and, just as importantly, control of formal financial products she not only contributes to her own well- being, but also to the well-being of her family,” it said.
“When a woman saves in a safe place, she saves for her children’s education, her family’s health and their better housing – building both security and prosperity. With greater security and prosperity, she gains greater economic empowerment,” it said.
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