Update1: Shrinking disposable income, bank charges threaten FG’s 20% financial exclusion

The financial exclusion rate rose to 41.6 percent in 2016 from 39.5 percent in 2014, raising concerns on the realisation of 20 percent exclusion target by the year 2020 by the Federal Government.

Access to financial service in Nigeria 2016 survey by EFInA revealed that 40.1 million out of 96.4 million adult population was financially excluded in 2016 compared to 36.9 million adult in 2014.

This implies that 3.2 million adult population who were formerly included into the financial services sector, backed out in 2016 as a result of the challenging economic environment in 2015 and 2016 which led to reduction in disposable income.

Household consumption fell year on year in real terms, by 1.05 percent in the first quarter of 2016, and by 6.00 percent in the second quarter of the same year.

Despite the fact that Nigeria has one of the highest banked population (38.3%) in Sub-Saharan Africa, the percentage of financially excluded is the highest at 41.6 percent compared to Kenya 17.4 percent, Ghana’s 25.0 percent, Rwanda 11.0 percent, Zambia 40.7 percent, Togo 40.0 percent and Madagascar 41.0 percent.

Analysts last night attributed the increasing financial exclusion to some government policies which discourage potential customers of financial institutions.

Taiwo Oyedele, PwC head of tax and regulatory services West Africa Tax Leader, was not surprised that the percentage of those who are excluded from the financial system has increased.

“This, in my view, is due in large part to some government policies such as stamp duties on bank deposit, fines on cash transactions with banks introduced by the CBN and also various charges by banks on banking transactions. The combined effect is that some people may have decided to leave the financial system, while those already outside the system may be reluctant to join”, he said in a response to BusinessDay questions.

Looking at the way forward, he said, “I think both government and financial institutions should do more to ensure that their policies do not discourage financial inclusion”.

Uche Uwaleke, Associate Professor and Head, Banking and Finance department Nasarawa State University, said the high rate of financial exclusion is obviously at variance with economic growth and development.

According to Uwaleke, when a significant proportion of the population lack access to basic financial services, as is the case with Nigeria, economic growth is hampered, as savings do not translate to investments, since much of it do not enter the financial system.

Again, he said financial exclusion breeds subsistence, given that productivity is affected when businesses cannot expand due to inability to obtain credit facilities. Also, monetary policies of the CBN will not be transmitting well through the economy, due partly to the high rate of financial exclusion.

Uwaleke said financial institutions can help in promoting inclusion by making their presence felt in rural areas. Micro finance banks in particular, should champion savings mobilisation in rural areas. The experience of countries with high rate of financial inclusion indicate that they placed a lot of premium on financial education, starting from basic education. “We can do same here.

“To this end, the relevant agencies of government, the financial authorities and financial institutions should all work to ensure that financial studies are taught in our school system from the primary, right up to tertiary levels”, he said.

 

HOPE MOSES-ASHIKE