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CBN restrategises amid barriers to attaining 80% financial inclusion target

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Faced with barriers to attaining the set target of ensuring 80 percent of Nigerian adults have access to financial services, with less than 2 years deadline, the central bank of Nigeria has revised its National Financial Inclusion Strategy (NFIS) to spur inclusion rate.

According to CBN’s new plan, its major goal is to reduce the proportion of adult Nigerians that are financially excluded to 20 percent in year 2020 from it baseline figure of 46.3 per cent in 2010,

“The goal of this strategy therefore, is to promote a financial system that is accessible to all Nigerian adults, at an inclusion rate of 80percent,” the apex bank said.

The lender said “the review of the NFIS identified a range of barriers to increased financial inclusion.” Some of the key barriers as compiled from the revised strategy includes; the fact that gent networks are insufficient to allow for expansion of financial services, especially in rural areas, and low cash in/cash out commission schedule weakens agent incentives.

Meanwhile, no less than 30 business names are currently undergoing registration as payment service banks with the functions to; maintain savings accounts and accept deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme; carry out payments and remittance (including cross-boarder personal remittance) services through various channels within Nigeria; issue debit and pre-paid cards; and operate electronic purse.

Speaking on other barriers that drags the country’s success in including more of its citizens into the financial cycle, CBN said rules against exclusivity discourage Mobile Money Operators/bank investment in agents.

“Mobile network operator cannot use agent networks for DFS (except via the super agents’ license). New super agents’ framework is not yet trusted or fully understood, causing key players to hesitate,” CBN mentioned.

On the financial inclusion challenge private sector can address, the apex bank mentioned that banks lack capital incentives to invest in recruiting, training and retention for potential direct and third party networks. “People in rural areas may lack trust in agents, in particular when they are recruited from outside of the community’s language and culture.”

Nigeria has a bank led financial inclusion model unlike its Africa peers who through mobile money has achieved milestones in including their citizens into the financial cycle.

“Many Nigerian lack national identity cards, limiting them to tier 1 accounts, NIMC is not yet allowed to use 3rd party licensing to drive NIN registration Restrictive tier 1 requirements limit the number of individuals that can access a full range of financial services,” CBN cited this as one of the barriers gathered from the review of NFIS.

It also explained that one of the factors militating the country’s inclusion rate is the fact that few products are tailored to key excluded groups: women, youth, people in the North, rural people, and SMEs

Access to CBN intervention fund is limited due to restrictions and complexities “CBN intervention funds do not have (sufficient) non-interest windows.”

Despite the fact that Nigeria is yet to attain its financial inclusion goals, some recent developments according to CBN may help drive inclusion over the next two years.

In mitigating some of the possible risk that will hinder the growth of inclusion rate in the country, CBN said five priority actions are to be pursued in order to address the identified critical barriers, and they are: create an enabling environment for the expansion of DFS.

“DFS has proven to be a low cost approach to reaching unserved and underserved customers,”

It also mentioned that enabling the rapid growth of agent networks with nationwide reach, considering agents—particularly cash-in / cash-out (CICO) agents—act as the entry point for financial inclusion and facilitate the crucial conversion between cash and digital money.

Another strategy is harmonizing KYC requirements for opening and operating accounts/mobile wallets on all financial services platforms.

“Create an enabling environment to serving the most excluded,” so that inclusion efforts do not focus solely on the ‘lowest hanging fruit’ (and thereby increase inequality).

Improving the adoption of cashless payment channels listed particularly in government-to person and person-to-government payments, in order to- establish trust by leading by example was another way to go in tackling barriers, as compiled from the new plan.

“Provide a sufficient load volume to drive the business case for building and growing distribution networks and put in place a compelling mechanism to include large numbers of unserved and underserved people,” the apex bank explained.

Financial sector development makes two mutually reinforcing contributions to poverty reduction. This is through its impact in accelerating economic growth and direct benefits to the poor.

Nigeria is currently the poverty capital nation of the world, with 6 of its citizens entering into extreme poverty every minute.

Survey shows that appropriate financial services can help improve household welfare and spur small enterprise activity. There is also macroeconomic evidence to demonstrate that economies with deeper financial intermediation tend to grow faster and reduce income inequality.

“There is therefore the need to act swiftly and collaboratively in pursuit of financial inclusion objectives in Nigeria,” CBN said.

According to a research conducted by McKinsey in 2016, the potential economic benefits of digital financial services alone as an essential component of financial inclusion include : Bringing 46 million new individuals into the formal financial system, boosting GDP growth by 12.4percent by 2025 (USD 88 billion), attracting new deposits worth $36 billion, providing new credit worth $57 billion, creating 3 million new jobs, and reducing leakages in government’s financial management annually by $2 billion

The Central Bank of Nigeria (CBN) adopted the National Financial Inclusion Strategy (NFIS) in 2012. The Strategy articulated the demand-side, supply-side and regulatory barriers to financial inclusion, identified areas of focus, set targets, determined key performance indicators (KPIs) and established the implementation structure.

The NFIS was built on four strategic areas of agency banking, mobile banking/mobile payments, linkage models and client empowerment.

Four priority areas were identified for guideline and framework development namely, Tiered Know-your Customer (T-KYC) regulations, agent banking regulations, national financial literacy strategy and consumer protection.

The Strategy defined a set of targets for products, channels and enablers of financial inclusion.

The KPIs were defined, based on the various dimensions of financial inclusion, including access, usage, affordability, appropriateness, financial literacy, consumer protection and gender.

The NFIS proposed strategies for each of these elements, which included a comprehensive set of policy and regulatory changes as well as suggested business models. In the implementation of the Strategy, the targets were further tailored to reflect the needs and challenges of individual financial service providers (FSPs).

 

Endurance Okafor

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