Eight years after the Nigerian authorities introduced a programme to deepen financial penetration among the citizens, the country is still far off from achieving its ambitious target. In a new report, the Central Bank of Nigeria admits that the country is not on track to meet its lofty objective of bringing in more Nigerians into the formal financial net. With high hopes, the CBN and the Enhancing Financial Innovation and Access, a research and advocacy organisation, teamed up in 2012 to reduce Nigeria’s high incidence of financial exclusion. Seeing that the goal has not materialised, the regulator and its partners have to embark on a fresh plan of action, based on critical reviews of the existing approaches and multiple innovations on what else should be done.
Research shows that countries with deeper levels of financial inclusion — defined as access to affordable, appropriate financial services — have stronger GDP growth rates and lower income inequality. Identified as an enabler for seven of the United Nations’ 17 Sustainable Development Goals, the World Bank considers financial inclusion a key building block to reduce extreme poverty and boost shared prosperity. Crucially, more than 55 countries have made commitments to financial inclusion, and more than 60 have either launched or are developing a national strategy, the bank adds. In India, a digital platform is set to cover 1.2 billion citizens. Singapore is regarded as running a highly successful financial inclusion project in South-East Asia. “Digital financial services are expected to generate $38 billion in annual revenue within the region’s six largest markets by 2025; the full potential could increase to $60 billion,” a 2019 report titled, ‘Fulfilling Its Promise – The Future of South-East Asia’s Digital Financial Services Industry,’ stated.
Although Nigeria has taken a step towards improving financial inclusion, things are not working to plan. According to the ‘Assessment of women’s financial inclusion in Nigeria’, instead of the 20 per cent target that the National Financial Inclusion Strategy set in 2012, the exclusion rate for men as of December 2019 was 24 per cent. It puts female exclusion at a bleak 34 per cent. Combined, about half of Nigeria’s adult population is cut off from the financial system. However, the Bank of Ghana estimates that about seven million people are unbanked, which represents 22 per cent of that country’s population.
The regulator blames the setback on multiple factors, including “recession, the precarious security situation in parts of northern Nigeria and slow uptake of digital financial services.” First, banks might not be establishing new branches in the rural areas anymore because of rising insecurity across the country. In large areas of the North-East where Boko Haram holds sway, it is almost impossible to operate physical banking services. The 11-year insurgency has turned as many as two million people there to internally displaced persons. This alone cuts off this chunk from financial services. Banditry has assumed a highly devastating rate in the North-West, but the situation is similarly precarious in the South. Regularly, banks are attacked, forcing branches to close down, even in major towns across the region.
The first step towards financial inclusion is to have a transaction account, economic experts say. In other words, citizens should have a basic bank account. There were 111.53 million accounts in Nigeria as of May, the Nigerian Inter Bank Settlement System reports. That is just above half of the country’s 200 million population. When corporate accounts are segmented and those with multiple accounts factored in, clearly, a high percentage of Nigerians are still excluded from the financial system.
For many others, banking is irksome. Digital banking services are erratic and lack security, bank charges are prohibitive and ATM card operations are epileptic. According to the CBN data, about 23 per cent, or 309,016 of 1.3 million transactions failed during the 2020 Eid el-Kabir on July 31. On August 1, the failure rate increased by 16.98 per cent. Withdrawing cash from the ATMs can be time-consuming; PoS transactions are debited without being credited to the destined accounts. The debited sum takes a cumbersome process to recover. For account owners in the rural and semi-urban areas, they have to travel long distances to consummate tedious banking transactions.
There are some problems with regulation, too. Although his predecessor, Lamido Sanusi, cancelled the charges for withdrawing through other banks’ ATMs, the incumbent, Godwin Emefiele, restored a N65-debit charge after the third withdrawal. This was reduced to N35 last December. To transfer money using the mobile phone, banks charge as high as N50 per transaction. Yet, physical transactions in banking halls are hellish. All this discourages financial inclusion.
At a base official rate of 11.5 per cent, lending rate is high, denying SMEs and citizens access to financial services. Conversely, the CBN crashed the interest rate on savings to a minimum of 10 per cent of the monetary policy rate in September. The inflation rate, at 13.22 per cent, eviscerates any benefit secured on savings. Lack of access to insurance products is equally a sign of financial exclusion.
To build momentum and reverse the trend, the CBN should review the prohibitive bank charges, especially on current accounts. It should re-examine the charges on the use of other bank ATMs.
Of greater importance are security and the deployment of appropriate technology in banking operations. Banks have become easy targets for armed robbers. The Federal Government, which is in charge of security, has to do its utmost to provide security for banks. This will ensure that the banks can operate freely in all parts of the country.
The future of banking is high levels of Information and Communication Technology adoption; it has the capacity to integrate all the strata of society seamlessly. For Nigeria, there is no avoiding this tested path to an all-encompassing financial inclusion.