PATHWAY TO FINANCIAL INCLUSION IN NIGERIA (2)

EFInA launched its AccessToFinance in Nigeria 2018 Survey about a week ago. It came with interesting in-depth local insights on Nigeria’s financial landscape and generated quite some buzz on twitter. I published a 3-minute read titled just as above with insights from EFInA’s previous biannual A2F survey earlier during the year so there will be no need for re-definitions. You can access it HERE to better understand what this is about.

So what’s new? Financial Inclusion in Nigeria has improved from 58.4% to 63.2%. In other words, the population of financially excluded Nigerians is down by 4.8% compared to 2016. It stood at 41.6% in 2016 and is now 36.8% in 2018. Props to CBN’s Financial Inclusion secteriat, the current administration’s Social Investment programs & the proliferating innovative fintechs pushing inclusion in their respective ways but it is still a long shot from the 80% inclusion target for 2020.

Technically about 40 million Nigerians don’t have bank/mobile money accounts so do not have access to formal financial services. Access to formal financial services can especially make a substantial positive difference in improving poor people’s lives.

The main excluded groups requiring dire intervention are identified as women, rural areas, the youth and the eastern & western regions of Northern Nigeria.

Financial Inclusion requirement is best realizable with technology digitization that spans across urban and rural settings, technical know-how and income classes.

USSD and Artificial Intelligence powered tools for instance provide an easily accessible/adoptable platform for struggling users and millennials.

The survey on performance across geo-political zones reveal the North-West and North-East remain the regions with the highest number of Financially Excluded adults in Nigeria.

This isn’t too surprising as barriers to operating a bank account are much higher in those regions. Barriers include Affordability (Low/Irregular income, Bank cost charges), Institutional exclusion (Literacy levels, Proximity to banks), Attitude (Behavioral perception to banks, Non-Islamic finance) etc.

To serve these excluded parts, It is imperative to proffer target-centric solutions that break through these barriers. A better push for adoption would be to deepen financial literacy and deploy affordable, easy-to-operate digital channels without modifying existing user patterns.

“Over 72% in Muslim countries do not use formal financial services because of their beliefs” – Muhammad Zubair Mughal (CEO AlHuda CIBE). I bet this bit applies to a lot in Northern Nigeria. Financial service providers need to build products and services that doesn’t contradict their culture and beliefs.

Moral/Ethical/Social factors such as non-interest financing, shariah compliant products as exhibited exclusively appeal to majority up north and to the lot in the south that are aware of how it works.

Islamic finance is but a system and not the religion. It could be utilized and operated by both Muslims and non-Muslims at microlevels for poverty alleviation in communities and overall for inclusive social and economic development. An example is the ongoing 2nd tranche of Sukuk bonds floated by the Federal Government. You can read on the debut sovereign sukuk HERE.

Another interesting insight from the survey is the mode of adoption of mobile money. Of the 3.3% of adults who operate mobile money accounts, the most of this percentage(3%) are banked while 60% are still unbanked nor have a mobile money account.

This tells that mobile money is growing off the back of banks which is expected given that funds flow from bank platforms to other formal non-banked channels. But the issue here is that it is hardly penetrating the excluded populace, Hence the need for financially excluded focused mobile money products that serve requisite segments.

Digital payments has increased by 4% from 2016 to 2018 and I dare say its usage has mostly been driven by Fintech applications on banking platforms, e-commerce platforms and payment processors like Paystack & Flutterwave. Mobile money usage is inadvertently driven by the banked population so gives slow room for penetration to the unbanked. The CBN’s exposure draft on Payment Service Banks inviting Telcos (through subsidiaries) and Mobile money operators as stakeholders will be a game changer in this direction.

“We all should watch out for PSBs. It will be a monster” said Abolore Salami (CEO RibyFinance) at EFInA’s RFP9 workshop. I totally agree they will be a monstrous avenue to the penetration Nigeria needs to achieve its targets at Financial Inclusion. He also hinted the need for regulation, so they do not cannibalise other fintechs. I believe the CBN corporate governance guideline for banks extended to PSBs will limit their operations and allow room for focused fintechs to act.

Just 10% of Nigerian adults receive their main source of income into their bank or mobile money account. This statistic is rather staggering, but it is noteworthy that about 95% of the over 44 million business owners in Nigeria are MICRO-enterprises mostly operating unstructured payment systems.

These businesses would likely only be open to easier/inexpensive digital payment solutions to avoid extra charges and perceived stress. G2P programs like CCT to poor women, wages paid to food vendors and farmers under the national home-grown school feeding program, collateral-free TraderMoni loans to petty traders employing direct payments into bank accounts and mobile wallets are drivers to this cause. Such direct account payments should be adopted for government benefit programs with provision of infrastructure and channels to ease transactions for the receiving end.

“My aspirations for Financial inclusion will pass when I can digitally pay for Gala on the road with no hassle” Such were the words of Dr Olayinka David-West (Academic Director, LBS) at EFInA’s Financial Inclusion conference. I share these sentiments and it is the premise on which I cofounded Biyabot.

An AI-focused entity proffering easy payments somewhat like China’s Wechat and Kenya’s Mpesa rolled into one but localised, better operated and secured with AI, for the banked and unbanked(via mobile money).

To truly unlock Nigeria’s potential, Financial Inclusion is a necessity. Only then can we make the most sense of our numbers and market size.