The easiest route to grassroots empowerment and poverty reduction is improved access to financial services especially at the informal sector dominated by grassroots savers. The Central Bank of Nigeria (CBN) is taking major steps to ensure that 95 per cent of adult population have access to financial services from 63 per cent.
Although there are challenges making it difficult for stakeholders to bring financial services closer to the people but the activation of Payment Service Banks (PSBs) has further expansed access to financial services to grassroots population.
Bank account ownership is quite compulsory in many developed countries of the world. Research shows that nearly half of the world’s unbanked population live in developing countries.
Though China and India have relatively high bank account ownership, they have some of the largest numbers of the unbanked population globally due to their population size.
China has the largest number of unbanked people at 225 million adults followed by India’s 190 million. Pakistan has an unbanked population of 100 million and Indonesia has 95 million unbanked persons.
These four countries together with Nigeria, Mexico and Bangladesh are home to nearly half the world’s unbanked population.
The grassroots population is the biggest target in banks, governments and multilateral institutions drives to bring financial services closer to the people.
Hence, the benefits of improved access to financial services to the population and economy cannot be underestimated.
Between PSBs and financial inclusion
Payment Service Banks (PSBs) are also at the centre of proving financial services to the grassroots.
That explains while the CBN approved the sale of foreign currencies realized from inbound cross-border personal remittances to authorized foreign exchange dealers using the PSBs.
The supervisory framework for Payment Service Banks released by the CBN authorized the PSBs to accept deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme; carry out payments and remittances (including inbound cross-border personal remittances) services through various channels within Nigeria.
The framework says the operators are expected to leverage on technology to provide services that would be easily accessed by the unbanked population and those who are in hard-to- reach areas of the country.
The framework focuses on corporate governance, risks management of the PSBs, and safety of funds to the consumers of the Payment Service Banks’ products.
This Framework also aims to ensure that sound risk management practices are embedded in the operations of the PSBs.
The PSBs are required to comply with relevant extant regulations and CBN’s prudential guidelines and circulars which are issued periodically. The CBN said PSBs are to operate mostly in the rural areas and unbanked locations targeting financially excluded persons, with not less than 25 per cent financial service touch points in such rural areas as defined by the CBN from time to time.
They are to enter into direct partnership with card scheme operators. Such cards shall not be eligible for foreign currency transactions; they can also deploy ATMs in some of these areas; deploy Point of Sale devices and be at liberty to operate through banking agents.
The PSBs have also been authorized to roll out agent networks with the prior approval of the CBN; use other channels including electronic platforms to reach-out to its customers and establish coordinating centres in clusters of outlets to superintend and control the activities of the various financial service touch points and banking agents.
The CBN also authorized the PSBs to accept deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme; carry out payments and remittances (including inbound cross-border personal remittances) services through various channels within Nigeria; sale of foreign currencies realized from inbound cross-border personal remittances to authorized foreign exchange dealers.
The CBN said the PSBs cam also issue debit and pre-paid cards on its name; operate electronic wallet; render financial advisory services; and invest in Federal Government of Nigeria and CBN securities.
CBN said the PSBs were licensed to enhance access to financial services for low income earners and use technology to reach Nigerians in remote places where commercial banks find it difficult to operate.
According to the CBN guidelines, the PSBs are to offer smaller-scale banking operations and the absence of credit risk and foreign exchange operations.
In addition to operating current and savings accounts they can also offer payments and remittance services, issue debit and prepaid cards, deploy Automated Teller Machines (ATMs) and other technology-enabled banking services to the people, majority of whom cannot be reached by the conventional banks.
The PSBs are 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.
With N5 billion minimum capital requirement, the apex bank also authorised PSBs to sell foreign currencies (forex) realised from inbound cross-border personal (remittances) to licenced foreign exchange dealers.
EFInA on financial sector diversity
The Enhancing Financial Innovation and Access (EFInA) says an inclusive financial sector is characterized by the diversity of financial services providers, the level of competition between them, and the legal and regulatory environments that ensure the integrity of the financial sector and access to financial services for all.
Also, evidence worldwide shows that access to financial services contributes both to economic growth and wealth creation and is therefore key to tackling the ‘poverty’ trap in Nigeria.
“It is critical for regulators and policy makers to create an enabling policy environment to actively promote both the demand for and the supply of financial services to the unbanked and under-banked,” it said.
The banked and underbanked, are however expected to protect their accounts from e-fraudsters to avoid loss of their hard earned resources by keeping their confidential account information away from their parties.
The impact of having more people save their funds in banks or other financial services or have more access to credit on the population and businesses especially at the informal sector cannot be overemphasized.
For instance, 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 95 percent of Nigerian adults are included in the financial net by the year 2025.
The data by EFInA put Nigeria’s financial inclusion rate at 63.2 percent, meaning that as much 36.8 percent or about 40 million adults still lack access to financial services.
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.
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.
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.
