Nigeria Targets Real Financial Inclusion

There is good news on financial inclusion in Nigeria, the country with the largest population and second largest banking industry on the African continent. Between 2008 and 2012, the number of financially excluded adults dropped by 10.5 million. Forty three percent of Nigerian adults now have access to or use formal financial services and another 17% rely on informal services according to the Access to Financial Services in Nigeria 2012 survey of EFInA, the Nigerian financial sector development organization funded by DFID and the Bill and Melinda Gates Foundation.

This trend is an encouraging one for the Nigerian government, which has launched a new National Financial Inclusion Strategy in 2012, following Nigeria’s commitment to the Maya Declaration of the Alliance for Financial Inclusion one year earlier. Despite the progress since 2009, about 40% of the adult population remains without formal or informal financial services. The rate is even higher in rural areas where half the population lives. (see MIX analysis from 2011). The government wants to bring financial exclusion down to 20% by 2020.

A woman smiles at a local market

Commenting on the survey results, the Governor of the Central Bank of Nigeria (CBN) acknowledged: “There has been some improvement in the move to drive financial inclusion in Nigeria; however we still have a lot of issues to cover, such as access to financial services and to the right financial product. In addition, consumer protection and financial literacy are critical issues…..”

Consumer protection and financial literacy can contribute to (re)building confidence in the financial system and improving people’s knowledge of financial services. The survey identified opportunities for more people to use financial services – not just savings and credit, but even more so for mobile money and insurance - if they better understood how these services worked and what their potential benefits were.

Nigeria has seen several banks fail in recent years, both large commercial banks and microfinance banks (MFBs). A lack of trust is among the key challenges to get people banked.  To address some of the weaknesses the CBN introduced more stringent capital requirements for MFBs under the 2011 Microfinance Policy Framework with a deadline for compliance at the end of 2012. The CBN has reminded the banks it intends to withdraw licenses where needed. These measures, together with support to strengthen and consolidate remaining MFBs and stimulate alliances with other service providers, should help to improve their image, performance and outreach.  Nevertheless, many MFBs remain small and local. Today MFBs serve only 5% of the banked population.

EFInA reports distance to a bank branch as the third biggest barrier to having an account, after irregular income and unemployment.  The emergence of agent and mobile banking in Nigeria has potential to reduce costs and get closer to the customer. But the number of transactions through mobile phones and point-of-sale (POS) machines is still very low. Only 0.5% of the Nigerian adult population is registered with a mobile money operator. The CBN has licensed multiple mobile money operators in the last two years, but has thus far prohibited Mobile Network Operators (MNOs) from issuing electronic money.  While the CBN is actively promoting a cash-lite society, the jury is still out on the incentives and policies it has put in place to get there.

In the meantime, alliances are being built among commercial banks, microfinance banks, MNOs and mobile money operators to get services in the hands of the people. In addition, the Nigerian Post (Nipost) can  play a role in expanding access given its country-wide presence – especially in rural areas. The Central Bank of Nigeria and the Ministry for Information and Communication Technologies are keen to turn Nipost into a “super agent for mobile money”. They are assessing the cost of such a transformation.

The national microfinance strategy identified the lack of a reliable citizen ID system as one of the main obstacles. The Government is planning such a system, which make it easier and cheaper to meet know-your-customer requirements for small transactions.  It will also allow better targeting of direct cash transfers, eliminating waste and leakage. Opening bank accounts to receive electronic payments could  bring many more low income people into the financial system. Another recently announced measure towards this goal is the distribution of 10 million mobile phones to farmers, including solar-powered chargers.

In 2012 Nigeria committed itself to clear financial inclusion targets. This effort is part of Nigeria’s ambition is to be among the top 20 economies in the world by 2020.  It will be interesting to see how these commitments unfold into coordinated public and private action in 2013 and beyond.

------ The author is the regional manager for Sub-Saharan Africa at CGAP.