This opinion piece was written by Mayowa Agbelusi, assistant manager at the Central Bank of Nigeria. It also appears in our work and inequality newsfeed.
A report by the Brookings Institution in June 2018 showed that 86.9 million Nigerians live in extreme poverty. Access to basic financial services can help reduce this number.
An estimated 40.1 million adults do not have access to financial services. Without it, the economy suffers, as much-needed capital is stored outside the financial system, starving financial institutions of credit and making accessing it difficult and expensive. In 2016, Nigeria saved only 13.2% of GDP, lower than the Sub-Saharan Africa average of 15.3% — clearly this level of savings is inadequate for economic growth.
Improving financial inclusion through regulation
To address the lack of access to financial services, in October 2012 the Central Bank of Nigeria (CBN) launched the Nigerian Financial Inclusion Strategy (NFIS), with the aim of reducing the adult financial exclusion rate from 46.3% in 2010 to 20% by 2020.
As part of the NFIS, in February 2014 the CBN introduced the Bank Verification Number (BVN), a centralised biometric identification system. It then began actively enforced it in March 2015 to address the lack of proper identification for lower income individuals. The BVN is unique to each individual and is linked to all accounts opened. It also includes the customers’ Know Your Customer (KYC) details, which Deposit Money Banks use to authenticate and verify their identity, and which strengthen the money laundering detection system in the financial sector.
Also introduced was the cashless policy, aimed at reducing the use of cash and the cost of banking services. This set daily cumulative withdrawal limits: any withdrawal over this limit attracts a charge of 3% for individual accounts and 5% for corporate accounts. This initiative led to an increase in the use of POS terminals and online fund transfers as an alternative to cash.
The rise of Fintech in Nigeria
The birth of Fintech in Nigeria was made possible by two key policies. The Payments System Management Bill drafted in 2009 governs payments, clearing, and settlement systems in Nigeria and seeks to establish a legal framework for its management, administration, operation, regulation and supervision. The Mobile Payment Regulatory Framework (2009) specifies requirements for various participants in the mobile payments, services industry in Nigeria.
The Fintech landscape in Nigeria is largely focused on payments. According to data from Nigerian Bureau of Statistics, 462 million transactions valued at N29trillion ($79billion) were recorded on electronic payment channels in the fourth quarter of 2017, with 240 million ATM transactions.
A major form of mobile money in Nigeria are Unstructured Supplementary Service Data (USSD) codes. Mobile apps also provide mobile phone based money transfer and bill payment services. The number of transactions performed using the USSD service has more than doubled the number of transactions on mobile banking platforms for banks that offer it.
Pagatech, a CBN approved mobile money agent, has the single largest network of financial access points in Nigeria. With 11,600 agents, this is more than double the number of branches Nigeria’s banks have combined. This helps to further increase financial access points, especially in the rural areas.
Fintech is also being used to solve the problem of inadequate capital for Nigerian farmers
Fintech is also being used to solve the problem of inadequate capital for Nigerian farmers. A good example is Farmcrowdy. With Farmcrowdy, a digital platform connects investors to farmers through sponsorship packages, which allow them to fund higher yields for a share of the returns.
Sponsors can invest in screened agricultural opportunities by produce type, funding amount, contract duration, and expected returns on an investment. Farmers, meanwhile, can see what the sponsorship funds offer, from farm inputs and technical advice, to logistical support.
To date, FarmCrowdy, founded in 2016, has planted 8,550 acres of rice, maize soyabeans and cassava; it has over 2000 farm sponsors and over 7,000 direct and indirect rural farmers.
The next steps
While Fintech is undeniably helping Nigeria reach its financial inclusion target, the ecosystem needs more funding. Research and development are key, and no industry succeeds without quality research.
International donor agencies such as the Bill and Melinda Gates Foundation already provide grants to assist in achieving the financial inclusion target. While this is commendable, it is inadequate. The Nigerian government should consider funding research and providing incentives for interested parties to fund research into finding effective methods to achieving financial inclusion. Government can help further by providing finance to Fintech startups, universities, and think tanks.
For financial inclusion to become a reality, the population has to have basic knowledge of how financial services benefits them
Telecommunications companies are currently excluded from delivering mobile money services under the CBN’s guidelines — only banks and other financial institutions are allowed to operate them. M-Pesa, a very successful mobile money platform in Kenya, is owned and operated by Safaricom. Such telecommunications companies have a large, diverse customer base especially in the rural areas making them ideal mobile money operators.
Finally, for financial inclusion to become a reality, the population has to have basic knowledge of how financial services benefits them. This can be achieved through targeted placements in popular TV and radio shows on local language channels. The local language radio stations reach a very wide audience, and skits could be developed to educate and encourage formalised savings and improve access to microcredit for entrepreneurs.
Improving access to basic financial services through Fintech can help reduce the high rate of people living in extreme poverty in Nigeria. — Mayowa Agbelusi
(Picture credit: Flickr/Conflict & Development at Texas A&M)