Blockchain- enabled solutions will not only help to drive Nigeria’s financial inclusion goal but has the potential to add $1billion to Africa’s largest economy by 2021 with the potential to reach $29billion by 2030, according to EFINA.
EFINA’S recent report that focuses on the ‘Potential of Blockchain for Financial Inclusion in Nigeria’ believes Blockchain technology has the potential to address some of the key challenges around Nigeria’s financial inclusion goal.
“Blockchain has the potential to contribute ~$1 billion to the Nigerian economy in 2021, largely by enabling efficiency and transparency in supply chain financing and facilitating payments,” EFINA said, adding that the impact is expected to grow at a cumulative annual rate of “40% each year to ~$29 billion by 2030”.
Blockchain, which is a type of database that stores information or data in a structured and decentralized way is an electronic ledger system that creates a cryptographically secure and immutable record of any transaction of value with the following benefits- increased transparency and traceability, enables decentralised systems for peer-to-peer activities, reduces transaction costs due to elimination of intermediaries, and promotes dynamic pricing while enabling effective monitoring and compliance of transactions.
Meanwhile, blockchain is the technology that cryptocurrency leverages to manage and record transactions on an online ledger in a secure manner.
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Even though onboarding the majority of Nigeria’s excluded population is a key objective of the Central Bank of Nigeria (CBN), barriers like the lack of trust in the financial system, high transaction costs, lack of valid identification documentation, inadequate banking/financial products, and geographical access are key reasons why over 40 million adult remain unbanked.
The 2018 data by EFINA put Nigeria’s financially excluded population at 36.8 percent, a 16.4 percent gap from the CBN’S 2020 target of 20 percent. The March 2021 data from the Nigeria Inter-bank Settlement System Plc (NIBSS) shows that Nigeria may have failed to meet its 80 percent financial inclusion target of 2020 (Enhancing Financial Innovation and AccessEFINA, the organization responsible for Nigeria’s biennial financial inclusion report is due to release the 2020 figures in April).
NIBSS data shows that Africa’s most populous nation had 47 million Bank Verification Numbers (BVN)-AN 11 digit number that acts as a universal ID for bank holders in Nigeria, this means that more than half of the country’s adult citizens are still without bank accounts.
According to EFINA, blockchain can be deployed to improve financial inclusion in these four areas
Identity management
EFINA said blockchain can help to solve Nigeria’s identity management challenges. Issues around Known- your- customer ( KYC) mapping – identifying, verifying and evaluating customer profiles to prevent illegal transactions, record keeping and documentation will become a thing of the past.
“Creating, storing and managing consistent, formal records of transaction activities,” will be achieved through blockchain driven technology.
Payment
Peer-to-peer transfers and payments particularly for trade and remittances – domestic and international remittances can be facilitated through blockchain-backed technology.
Access to finance
Supply chain financing, input financing, micro and decentralised lending, micro-savings and investments and real estate assets
Wednesday 14 April 2021 can be possible through the use of blockchain, EFINA’S report said. Land titling and registration Permanent, tamper-proof records of land ownership and associated transactions, a comprehensive database of urban plans and a foundation for technology-enabled cities could be made easy through bockchain.
To reap the benefit of blockchain, EFINA said regulators would have to develop policies that would ensure compatibility of blockchain technology with existing privacy and data protection framework.
They would need to also promote intergovernmental working groups and encourage an adaptive regulatory approach to emerging technologies to better address the dynamic nature of the financial services sector. Exploring issuing a central bank digital currency (CBDC) underpinned on a permission of blockchain was another idea cited by EFINA.
Financial institutions, on the other hand, would need to explore forming a consortium with other players within the Nigerian financial services ecosystem to develop and test blockchain-based solutions that address current state challenges and improve access to finance.
