Tajudeen Taiwo, a 35-year-old entrepreneur, said the continuously rising cost of living is affecting his daily use of financial services for transactions.
“I’ve had to use my bank way less than before. I need to have money there to bother with it, and I’ve not come across so much money this year.”
“I’m trying to save my life, so it’s not so easy to save at the same time. I’ve even had to visit PoS operators less this year because I am trying to save every bank charge I can. However, before, I didn’t mind the charge, but now I take every naira into consideration,” he said.
For Ayomikun Adeola, a writer, survival in this economic downtime is more important than savings.
He said, “I’ve had to take out my savings for survival and limit my use of financial products. These days I save in my kolo just to avoid numerous charges, unlike before when I used to use traditional banks,” he said.
Even tech bros are not left out as the rising cost of living hits everyone. Paul Adams, a 39-year-old software engineer who earns in dollars, reduced his saving capacity to meet up with daily expenses.
He said, “I earn in dollars. So, honestly, my pay hasn’t been affected despite the cost of living crisis. I still use my fintechs, especially PiggyVest, but I’ve just reduced my savings a bit because I now have to spend more money on daily expenses.”
Taiwo, Adeola, and Adams are not alone in this challenging period. Across Nigeria, many people can no longer keep up with the use of financial services because of higher charges, regulations, and the cost of living longer.
Enhancing Financial Innovation and Access (EFInA) in its latest report, “High Cost of Financial Services: A Barrier to Formal Financial Inclusion in Nigeria,’ highlights the cost of transactions as a significant issue affecting many Nigerians’ use of financial services.
The report disclosed that “33 million (30 percent) adult Nigerians, which comprises 31 percent of formal financial service users and 28 percent of those excluded from formal financial services, feel that bank charges are not affordable.”
According to the report, this suggests that a significant portion of the population, particularly the poor and financially underserved, are already struggling with the cost of financial services.
Apart from the 0.05 percent cybersecurity levy circular that was withdrawn by the Central Bank of Nigeria recently on May 17, 2024,.
Nigerians are still faced with other charges, which include SMS alert fees, stamp duty, transfer fees, PoS transfer fees, ATM transfer fees, and value-added tax, among others.
The authors of the report stated that the impact of any price increase on accessing formal financial services is felt more by Nigerians who are financially served, as they are sensitive to transactions and infrastructure costs.
“This lack of transparency is further highlighted by the fact that only 30 percent of customers are notified of fees for financial product changes.”
However, 28 million (25 percent) adult Nigerians have used a financial product or service only to be surprised by hidden fees later. This lack of transparency is further highlighted by the fact that only 30 percent of customers are notified of fees for financial product changes.
“Customers may feel deceived or misled when unexpected fees arise, eroding trust in the institution and leading to dissatisfaction and potential disengagement from formal financial services,” it disclosed.
“Some digital payment providers are not transparent about their fees, with many hidden charges not disclosed to customers. As a result, users often notice these discrepancies only after using the service, leading to a loss of trust in the system,” Chika Nwosu, CEO of PalmPay, said in a recent report by BusinessDay.
Why Nigerians don’t use financial services?
The Access to Finance (A2F 2023) survey by EFinA disclosed that Nigerians don’t use financial services as a result of various reasons.
The survey conducted between 2020 and 2023 in Nigeria, a country with over 111 million adults, revealed that the percentage of adults citing irregular income as a reason for not using financial services increased significantly from 31 percent in 2020 to 49 percent in 2023.
Despite a slight increase in bank access (33 percent in 2023 from 31 percent in 2020), there’s a concerning trend of negative attitudes and perceptions towards financial services.
This barrier has grown even more significant, rising from 31 percent in 2020 to 33 percent in 2023. This suggests that even with greater access, Nigerians might be hesitant to use financial services due to underlying beliefs or a lack of trust.
A BusinessDay correspondent reached out to various Nigerians, who disclosed their reasons as well.
Tope Bello is a trader who has never used any financial services nor has a bank account as a result of access to or distance from any branch.
She said, “I’ve never used fintechs. I do Ajo, and I’m fine with it. The bank is too far away, so I don’t even bother with it.”
Rukkaya Musa, a farmer who is illiterate and does not know how to open a bank account, later got an account with agent assistance. However, she closed her account because of the difficulties in funding it and accessing the services.
Halima Mustapha, who is also a farmer, doesn’t have a bank account because she has no money.
According to Mustapha, “Lack of money—not enough money to save—is the reason why I don’t have a bank account.”
“The little money I make from my farming is used to take care of my family; every one of my transactions is done with cash.”
“Even before the economy went bad, I wasn’t using fintechs. I prefer using my normal banks that I’ll always have access to walk into. So nothing much has changed. Although I don’t go into the bank as much as I used to, Aanu Esther, a trader, said.
According to a 2022 report by the National Bureau of Statistics (NBS) as part of the Global MICS Programme, out of the 38,806 women surveyed, 64.6 percent (25,085) don’t own bank accounts. The percentage of women who own bank accounts is 11.8 percentage points lower than the 47.2 percent of men who own bank accounts.
A breakdown of the NBS report revealed that Kano (5.7 percent), Katsina (3.8 percent), Bauchi (3.2 percent), Kaduna (3.1 percent), Jigawa, and Niger (2.6 percent) are the top states in terms of women who don’t own bank accounts.
On the reasons for not owning bank accounts, 14.2 percent of women said banks are not available in their locality, 5.7 percent said it costs too much to reach the nearest bank, 58.6 percent cited unstable incomes, and 22.8 percent cited unemployment or lost jobs.
Others are lack of trust in banks, religious reasons, time-wasting because of documentation, no benefit in having a bank account, and no reasons at all.
Why poverty is a major reason for financial exclusion?
EFinA disclosed in its A2F report that poverty is a major reason for financial exclusion, stating that nearly 50 percent of adults have no financial account because they have no income.
“Exclusion has a human face, which is predominantly in the North and in rural communities. It is more likely to be female, youth, or farmers,” said Chinasa Collins-Ogbuo, Advocacy and Communications Lead at EFInA.
According to Collins-Ogbuo, a female is likely to be poor, likely to be living in a rural community, likely to be living in the North, and likely to be a small-scale trader or small-holder farmer.
The World Bank disclosed in its report that Nigeria’s poverty rate rose from 40 percent in 2018 to 46 percent in 2023 as the number of poor people increased from 79 million to 104 million.
The report noted that more people have fallen below the poverty line due to sluggish growth and rising inflation.
“Sluggish growth and rising inflation have increased poverty from 40 percent in 2018 to 46 percent in 2023, pushing an additional 24 million people below the national poverty line,” the World Bank said.
The report said the number of poor people in urban areas—more exposed to inflation—increased from 13 million to 20 million, while the number of poor people in rural areas rose to 84 million from 67 million within the same period.
However, EFInA recommends that complementary policies to financial inclusion that tackle endemic poverty concerning social investments in education, vocational skills, entrepreneurship, health, and market-friendly economic policies are important to ensure the wider social impact of financial inclusion.
Financial inclusion is when individuals and businesses have access to useful and affordable financial products and services that meet their needs—transactions, payments, savings, credit, and insurance—and are delivered responsibly and sustainably.
According to the 2022 MICS report the importance of financial inclusion, which is a key enabler to reduce extreme poverty and boost shared prosperity, has made it to be identified as an enabler for seven of the 17 Sustainable Development Goals (SDGs) 2030.
“Financial inclusion has been described as an enabler of seven of the SDGs and a vital tool for reducing poverty and boosting prosperity.”
“It helps to reduce the rate of poverty, generates employment, creates wealth, improves general welfare and standard of living, and drives overall economic growth,” it added.
EFInA disclosed that Nigeria’s financial inclusion rate grew to 74 percent in 2023 from 64.1 percent in 2020. However, the Central Bank of Nigeria (CBN) has a 95 percent financial inclusion target for 2024.
The excluded adult population of 28.9 million recorded in 2023 fell from 38.1 million in 2020, meaning 9.2 million adults left the exclusion circle in two years to 2023.
Lessons Nigeria can learn from Kenya and India to improve financial inclusion
Africa’s biggest economy can take lessons from other countries like Kenya and India, which have been successful in including more of their citizens into the financial net, thereby increasing their financial inclusion rate.
This is important for Nigeria with its financial inclusion rate of 74 percent as of 2023 with the Federal government target of 95 percent by 2025.
Evelyn Kilonzo, Senior Manager & Portfolio Lead, Financial Inclusion & Innovation, BSD, Central Bank of Kenya said during the international financial conference last year that their achievement of 83.7 percent financial inclusion rate in 2021 was thanks to mobile phones.
“Our population like Nigeria and other African countries have a lot of people who live in the rural areas but work in the cities. So, the principle of getting money home is what really drove mobile financial services in 2017 with the introduction of M-PESA,” she said.
She further said infrastructure helped the penetration of mobile financial services which uses basic feature phones using the USSD technology. “Kenya has 132 percent penetration of mobile phones, meaning that within the adult population, people have one more than one phone.”
Kilonzo added that having the right regulatory framework also provided the success to mobile financial services.
“When we began rolling our financial services, there was no regulatory environment suitable for the service, which is money transfers.
“But we were able to see some spaces within the law that could allow for a test and learn approach, where we were learning how to roll out this kind of service and then generate regulations as we go along,” she said.
For India which has a bank penetration rate of 77.5 percent, Saurbah Garg, chief executive officer of Unique Identification Authority of India said technology has been a big enabler for them.
“We continue to use it to ensure that the basic financial needs of people who live in villages, remote areas, and who are not so literate are met,” Garg said.
He said nearly 400 million bank accounts were opened due to a digital identity. “Once they are on-boarded into the banking system, the second major challenge is to ensure access for the different services that the banking system has to offer.”
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