Stakeholders seek change of model to boost financial inclusion

The banking practices in place in Nigeria and most of Africa are inadequate for broad based financial inclusion to take hold, leading economists, bankers, and analysts to conclude that a disruption of the current model is needed if a majority of the unbanked are to be served with financial services in the future.

“We need bankers to think differently from the way they are currently doing banking,” William Derban, director, Financial Inclusion at Fidelity Bank Ghana, said at the Africa CEO roundtable on corporate sustainability and responsibility (AR-CSR), event in Calabar, Nigeria.

“Banks and financial services providers need to think about scale and not necessarily income levels of customers. This is where it will be attractive for technology firms to come in and develop a new model for the industry.”

The prize for firms that can successfully change Nigeria’s financial services space lies in the demographics, growing incomes and low financial inclusion.

 The nation of 170 million people – the largest population in Africa – has seen its economy expand more than ten-folds since the year 2000 to $492 billion at year end 2013, making it the largest in Africa.

GDP growth averaged 8.3 percent per annum in that period, while GDP per head rose to $2,700 in 2013 from $378 thirteen years earlier.

However 46.3 percent or 39.2 million adult Nigerians do not have access to financial services, according to the central bank (CBN).

The rise in financial inclusion which includes access to payments, insurance, pensions, credit and bank accounts, increases productivity and helps lift citizens out of poverty, analysts say.

Most Nigerian citizens excluded from accessing financial services, often seek inefficient informal ways of meeting their banking needs.

“The informal sector and regulated formal banking sector must be brought together,” said Hajara Adeola, CEO/Executive Director, Lotus Capital Limited.

The need for better access to finance is also vital to Africa because the small businesses which often lack access to credit and finance are often the drivers of growth and employment in the region.

It is estimated that 50 million African, micro, small, and medium enterprises (MSMEs) are responsible for 58 percent of employment and 33 percent of economic output.

Of this number, 60 percent operate in the informal sector, while 80 – 90 percent are micro enterprises.

“Helping them to grow into small and medium sized firms through better access to credit will help boost growth and employment on the continent,” said Brian Kuwik, regional head Africa, at Accion.

“Technology is helping to reduce delivery costs and expanding reach,” said Kuwik.

Nigeria’s N80 trillion economy has such a large informal size that it is necessary for the current model to change to capture the banking needs of the economy, especially regarding insurance whose penetration levels are lower in Nigeria than for the African average said Ayo Teriba, an economist and MD of research firm Economic Associates.

“Insurance is important but not talked about much. If expected income streams are insured, credit gets more robust, which would lead to more financial inclusion,” Teriba said.

Banks are however not currently doing enough to design their products to meet the needs of the informal sector. Trust may also be a major issue, as most Nigerians who reside in the rural areas, are often unbanked, uneducated and do not trust formal banking institutions, the stakeholders said.

“The major stakeholders, the banks, regulators and other supporting institutions need to rethink solutions to the problem,” said Franklin Ngwu, a Finance and Financial Services professor at the Glasgow Caledonian University.

“The current approach to financial inclusion is wrong. We currently have an economic approach, rather than a psychological approach to banking. There is a mismatch of products to the informal sector by the formal banking sector”.

PATRICK ATUANYA