Nigeria’s financial inclusion commitment of 80 per cent by 2020 was upon signing the Maya Declaration in 2011. The jury is still out on the 2020 financial inclusion level, (at the time of this writing, we await the findings of the 2020 Access to Finance (A2F) survey), but from the 2018 results, we know 48.6% of 99.6 million Nigerian adults get financial services from a formal financial institution. Even if we hold the highest of hopes, previous survey results show that recessions affect financial inclusion. Hence, the country's macro-economic stability is an enabling factor for financial inclusion, which the covid-19 pandemic disrupted!
However, despite our inability to achieve the coveted target of 80%, it is important to note and celebrate the progress so far. In this piece, I review Nigeria’s financial inclusion timeline, highlighting the highs and lows.
A trip down memory lane
The antecedents of financial inclusion emerged through efforts to promote rural banking and rural credit in Nigeria’s local government areas (LGAs). These interventions later developed into Microfinance banking popularised by the Grameen Bank model of Bangladesh. The lack of data on the progress of these interventions led to the establishment of a financial services development agency in 2007 and the birth of the bi-annual national access to finance (A2F) surveys. In the first A2F survey of 2008, 47.5% of Nigerians utilised financial services, with 23.6% using formal services (financially included) and 23.9% using informal services (financially served).
With this knowledge and the rising mobile penetration, we embarked on the mobile money (or mobile financial services) approach, spurred by the successes of the East Africans. In this period, we joined the Alliance for Financial Inclusion (AFI), committing through the Maya Declaration 80 per cent inclusion by 2020. With a 9 year deadline, the challenge seemed possible. The ecosystem witnessed the birth of new non-bank actors (today known as Fintech’s), mobile money operators (MMOs) and enabling policies like the cashless policy, the tiered account structure (know-your-customer guidelines) and bank verification number (BVN) to mitigate issues of identity poverty and frameworks to address consumer protection, financial literacy and distribution networks. Finally, the CBN established a secretariat dedicated to managing Nigeria’s financial inclusion strategy.
However, Nigerians did not get on the mobile money train and the low adoption rates affected the sustainability of MMOs. Notwithstanding, promoting vertically differentiated financial services like credit, insurance and pensions continued alongside basic transaction accounts and payments services. Likewise, there were interventions to address agriculture industry constraints of agribusinesses and small holder farmers, and also attract youths into the sector.
With 2020 on the horizon, there was a refresh of the National Financial Inclusion Strategy (NFIS), prioritising 5 segments - youth, women, rural locations, northern regions and micro, small and medium enterprises (MSMEs). Regional country benchmarks advocating the inclusion of mobile network operators (MNOs) in the financial services ecosystem amplified, citing the lack of progress in financial inclusion. To ramp up national distribution, a capability boasted by the MNOs, the banks introduced the shared agent network expansion facility (SANEF). Because distribution is only one limitation, we settled for the Indian payment bank model, licensing MNO subsidiaries as financial services providers through the payment service bank (PSB) guidelines. Further developments promoting women’s financial inclusion, deviceless payments, reducing loan defaults and supporting innovation through test and learn sandbox environments have emerged.
Financial inclusion greatest hits
Despite missing our 2020 target of 80% financial inclusion, there are wins worthy of mention on Nigeria’s journey.
On the regulatory side, establishing the Financial Inclusion Secretariat (FIS), the financial inclusion strategy and the national management structures validate the importance and attention required. Other regulatory changes introduced to advance financial inclusion include:
Account tiering: Access to identity is a barrier to the mass adoption of financial products and services, whilst attempting to protect the financial integrity of the system. Thus, introducing tiered accounts where transaction volumes depend on differing levels of customer due diligence (CDD) addresses the gap.
Promoting DFS: As a mobile-first market, promoting mobile money and introducing the mobile money operations guidelines confirmed the need to rethink financial services delivery. Even though the rate of adoption of mobile wallets differed from other African markets, the mobile device, using apps and protocols like unstructured supplementary service data (USSD) prevail in the market. Nigeria thrives on mobile banking, not mobile money.
Transaction fees: Reducing inter-bank transaction fees promotes higher transaction volumes, enhancing the utility of the financial infrastructure. Yet, as most of the transactions use the USSD protocol, the pricing disputes (end-user vs. corporate billing) and the allocation and renewal fees for corporate organisations will affect USSDs utility value.
Ecosystem extension: New market operators (non-bank financial institutions) will deepen the ecosystem of service providers and innovative financial solutions. While the diversity of actors is one that earned Nigeria the bank-led label as opposed to the telco-led model in East African markets, the regulations supporting telco subsidiaries contributing as super agents and/or payment service banks (PSBs) is welcome. Hopefully, these new actors will develop innovative solutions and spread down market to reach the excluded.
Indeed, mobile phones are ubiquitous, but mobile banking is yet to catch up because of poor financial infrastructure (referring to hard and soft infrastructure like physical channels and trust and security). SANEF is providing the capital to expand the physical distribution networks through bank agents providing over the counter (OTC) services. Likewise, telco subsidiaries with payment services bank (PSB) or super-agent licenses exist to ease this gap.
Access to capital is a known barrier to innovation, and those who successfully cross the funding hurdle are under pressure to scale and show results! Hence the new actors focus on supporting existing banked customers, further disenfranchising the under-banked and unbanked. To address this gap, specialised funds for inclusive ventures/offerings are available.
The financial inclusion dilemma is not new. Government's various strategies - from rural banking and community banking and now Microfinance banking - have proven ineffective in closing the gap. Microfinance banking, the poster child for financial inclusion, has failed to meet its mark.
The mass onboarding of customers is one of the arduous tasks in the financial inclusion journey, with financial institutions devoting resources to market activation exercises. Using the conditional cash transfer (CCT) programme as a use case showing how to digitise money seemed like a missed opportunity, especially when research shows that money received digitally is more likely to be utilised in the same manner. Further frustrations arose with the emergence of images showing cash distributions during the Covid-19 crises.
Nigeria, unfortunately, is not homogeneous. Our diversity and heterogeneity spans demographic and non-demographic factors that are yet to be addressed by the available financial products and services. Understanding customers - behaviours and psychometrics - is beyond banking and requires behavioural science insights guiding customer-centric product development. Despite the number of new entrants in the ecosystem, the existence of this gap merely shows that new product and service offerings appeal to existing customers without growing the customer base.
E-money interoperability or open-loop systems is a critical feature that extends the utility of mobile money and payment systems. While the CBN guidelines mandate technical interoperability (i.e., technology integrations), commercial or business interoperability gaps persist.
The digitisation of payments and adoption of new digital channels introduces new technological risks that can lead to customers being inadvertently defrauded. Trust-building strategies that secure digital transactions, improve customer know-how and enforce non-compliance of breaches are non-negotiable. In the event of such breaches and other failures, the actions (or inactions) of market operators in ensuring effective redress affects trust. The complaints process - activities and duration - make rapid redress impossible.
Digital financial inclusion is only possible with three levels of rural infrastructure, namely electric power/telecommunications, financial and socio-economic. The electric power for digital devices and communications infrastructure; mobile networks to provide connectivity to users (individuals and agents). Access to financial services, especially for agents, enabling sufficient liquidity positions to support cash-in and cash-out (CICO) transactions. The socio-economic infrastructure harnessing social systems like healthcare and education, and local economic activity.
The adventure continues
While Nigeria possesses the building blocks for financial inclusion, yet exclusion persists. The efforts address financial inclusion are beyond meeting targets; we require tactics to address the core dimensions of financial inclusion, namely access, use, quality and impact. We need systems and practices that address 1) providing access to diverse financial services by formal (licensed) financial institutions; 2) promoting continued utility of financial products and services; 3) providing financial products and services that meet customers’ needs and expectations (service quality); 4) ensuring the financial services offered change peoples’ lives.
The issues we are addressing through financial inclusion show that there is no panacea, but unique solutions that 1) distribute financial services closer to the customers (in rural locations); 2) building ecosystems and services that support diverse financial flows; 3) using design thinking methods to build customer-centric products and services; 4) ensuring the use of financial products and services is fair and uplifts all Nigerians. That’s the calling, that’s the journey.
Dear Reader, what role will you play?