The battle for the things that are important cannot be won in a day. There is a process of planning and testing and execution, tweaking and, sometimes, admitting mistakes.
Back in 2012, the Central Bank of Nigeria set 2020 as an initial deadline within which to meet the goal of 80 percent inclusion. Since that time, the apex bank has implemented a series of policies aimed at achieving that goal – some haphazardly, others more determinedly. While a great many things have had a desirable effect, others have not. This piece could not hope to explore them all.
Exclusion rates have fallen by just around 10 percent in the decade since that target was set, but progress has been driven largely by an increased access to informal financial services – that is, by those individuals who rely on non-regulated financial products or services such as savings clubs, esusu, ajo, and moneylenders – who are less able to catalyse the improvement of socio-economic outcomes in the way that digital financial services can, for the poor.
In addition, intractable conflicts within the digital financial services ecosystem have been allowed to fester. This continues to stagnate inclusion levels and stunt the potential of what could be achieved – even as various regulators across the sector continue to hand down policies and guidelines largely in silos. The most recent example is the debate around charges for Unstructured Supplementary Service Data (USSD) within the financial system.
Contrary to common industry belief, there is no indication that serving lower income customers hurts financial performance. Indeed, a study conducted by Mastercard and the Grooming Centre revealed that 300 market women turned over N1 billion in just six months. An EY report showed that excluded populations could generate incremental annual revenue of $200 billion for banks. In addition, while compelling, innovation is not enough. A key challenge to inclusion over the past few years has been poor product-market-fit. Service providers hitherto have not had a clear understanding of the underserved/excluded consumer segment and how best to approach it. The increasing pressure on banks and other service providers to bring new functionality to market quickly has – relatively speaking – improved user experience for Nigeria’s already savvy included population, but further alienated un-served and marginalised Nigerians. It is not enough to simply strip down an existing financial service to its bare minimum and offer it as a ‘micro’ service to the bottom of the pyramid personas. A hi-tech digital assistant launched by a microfinance institution is of little use to a market woman who speaks Tiv but whose business deals in the sorts of volumes that make her a prime candidate for credit.
For financial inclusion – and indeed the economic development of any nation- infrastructure is central: from physical brick and mortar institutions to the road networks which enable proximity to financial institutions. Increasingly, however, the absence of digital infrastructure is weighing heavily on Nigeria’s inclusion goals. In addition, the gaps in telecoms infrastructure – ubiquitous as mobile phones are – and an insufficient national social register remain fundamental obstacles to inclusion.
The Scorecard
From inception, telecoms companies who have historically had the largest consumer base have been excluded from the provision of mobile money services. However, over the course of the decade, the flaws with this strategy have become all too evident. One of the outcomes of the efforts by traditional banks and emerging fintechs to maintain a monopoly on financial services was the establishment of a Shared Agent Network Expansion Fund Initiative (SANEF) designed to introduce extra 500,000 agents by 2020 – in order to extend financial services to a further 60 million Nigerians in rural and underdeveloped areas. However, the agency banking promise has not delivered as planned. Agency exclusivity has been restricted and caps on agent fees have been minimal – compounding the challenge of access to those services by lower income groups.
Despite the elaborate and lengthy licensing process preceding the introduction of mobile money services, around 2 percent of the adult Nigerian population now rely on mobile money services. Also, and depending on how you see things, you might say that the CBN’s refocus on inclusion towards the end of the past decade has driven it to embrace a more superior role as an enabler of wider participation in financial service deepening. However, despite clear evidence suggesting the need for wider participation in financial services and despite the CBN’s introduction of payment service banking licenses in 2018, it has taken the apex bank another two years to issue full approvals to three players – a poignant reminder of the bank’s sentiment around wider participation in financial services.
True financial inclusion is also economic inclusion, which is the ability for one to lift oneself out of poverty by leveraging the suite of available tools to do so. And so more than just financial service access, we must assess the performance of other financial tools and services. For example, despite an increasingly maturing financial services sector, there are still inadequate microcredit products/services for individuals at the bottom of the pyramid. Past CBN decisions handed down to players in the sector signalled renewed efforts to accelerate inclusion – particularly as the 2020 deadline approached. For example, the CBN in June 2019 instructed each branch of all microfinance banks to acquire 64 new customers each month (774 new customers each year). Outcomes or progress as a result of this instruction are still unknown, however. Another circular issued by the apex bank in August 2019 mandated all deposit money banks to maintain a loan-to-deposit ratio (LDR) of 60 percent – and subsequently, 65 percent. While some of these interventions have been timely and noble, others have also been distortionary and largely unable to drive the sort of leaps that Nigeria must attain to meet its inclusion goals.
In the insurance industry, while the regulator, National Insurance Commission, has indicated willingness to evolve the regulatory environment and advance penetration goals, its refusal to license new players for several years inevitably had a detrimental impact on the market – notwithstanding its lofty goal of consumer protection. In addition, the industry does not appear to have the capacity to roll out microinsurance offerings. Only in 2019 did Goxi become the pioneer standalone microinsurer in the country, with operations in Lagos State alone. Early in 2019, President Muhammadu Buhari launched the Micro Pension Plan, designed to drive micropension penetration and achieve coverage of 30 million people in the informal sector by 2024. However, challenges with identification and awareness of the programme continue to hamper uptake. In any case, the regulator has not had a permanent director general for the past few years and its board has remained largely unconstituted and unavailable to provide corporate governance direction – with attendant implications for pension penetration.
Taking Stock of the Gains
Part of progress is taking stock of our mistakes and crafting new ways forward. For example, over the past decade, there has been a historic misunderstanding of what civil registration and identification are, and how to approach them. Policymakers have, hitherto, generally favored identity registration for the purpose of issuing an identification document – in the mistaken belief that said document represents one’s identity. That policy and decision makers appear to be moving from that belief, to an understanding of the urgent need for a foundational identity database represents significant progress. Additionally, the most vulnerable members of our society, more often than not, struggle to provide the documentation required to meet financial service know-your-customer (KYC) provisions. Here, the CBN’s efforts to lessen financial service access barriers have been notable- from introducing ‘tiered KYC’ requirements in 2013 to Bank Verification Number (BVN) Lite for excluded customers who could not meet the new BVN requirements introduced in 2015.
Looking to 2024
The Central Bank has set a new, somewhat aggressive target of 95 percent inclusion by 2024. This means that each year, inclusion must grow by around 8 percent yearly until then – or by nearly 8 million people every year. Contrast this with the fact that exclusion rates fell by a little over that amount over a decade and you will find that the goal is ambitious but laudable, and it demands focus on certain key areas. First, known risks can be assessed, but unknown risks cannot. If we do not collect disaggregated data on the important things, we lose sight of the opportunities to catalyse inclusion and risk being trapped in a cycle of failed policy making / poor product-market-fit. Also, it must be said that there is a role for government that does not have to be distortionary. We cannot discount the impact of moral suasion by government regulators and decision makers on private actors. This, accompanied by better information, can be expected to put Nigeria on course to achieving the 2024 goal.
Next, there needs to be greater understanding and acceptance of the fact that traditional financial service infrastructure is expensive and often difficult to deploy at scale in large countries like Nigeria. As such, private actors must be encouraged to play in spaces hitherto deemed unprofitable, but they cannot do that in a vacuum. This means a significant degree of regulatory certainty must be established quickly. Guidelines, once issued, must form the basis on which regulatory oversight and/or approvals are undertaken/handed down. On a related note, in the face of fiscal constraints, the federal and some state governments appear to consider taxation of the digital economy as the solution to revenue challenges – a classic example of mistaken belief that nations can tax themselves into prosperity.
Lastly, one of the most critical determinants of the attainment of Nigeria’s inclusion goals is regulatory cohesion. The overlaps between regulators over the last decade may not have a direct impact on the poor, but certainly can cause significant delays in the development or passage of regulations that might affect them. The NCC and CBN appeared to have reached an understanding in 2018 on ways to work together. However, that understanding has yet to translate to broader collaboration.
Time and again, the benefits of greater inclusion – of increased participation in the formal economy- have been extolled. However, this recognition has done too little to accelerate the pace of inclusion. And, perhaps, a warning is more fitting: If nothing else, COVID-19 has exposed some of the worst of our vulnerabilities. As the seasons come and go, so too will other pandemics. Today presents a meaningful opportunity to make our most marginalised groups more financially resilient to withstand the inevitable shocks of such humanitarian and health emergencies. As we proceed into the next phase of Nigeria’s inclusion journey, let us consider more holistically, the potential for a more equitable and resilient Nigeria, where families and individuals are able to hold insurance against key risks, transact safely and affordably, access the capital they need to scale – or simply accumulate long-term wealth against retirement.
Bello is an independent journalist based in Nigeria.
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