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CBN says it’s likely to roll out PSB in first quarter

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With the aim of increasing Nigeria’s financial inclusion rate, the Central Bank of Nigeria (CBN) has disclosed that the planned Payment Service Bank (PSBs) are likely to be granted license by the end of Q1 2019.

The apex bank released an exposure draft guideline on of October 5, 2018, in which it proposed PSBs, a payment service initiative. The initiative is expected to allow Banking agents, Mobile Money Operators (MMOs), Retail chains (Supermarkets), Telecommunications companies (Telcos) who are able to present an initial capital of N5 billion to have license to operate under the structures and guideline specified by the apex bank. The programme is aimed at ensuring access to financial services for the unbanked rural segments of the society.

About 36.6 percent of Nigeria’s population of about 198 million is said to be excluded from the financial market, according to the central bank.

“Most probably by the end of this first quarter we’ll roll out PSBs,” Nurudeen Zauro, the Technical Adviser, Financial Inclusion Secretarial at Central Bank of Nigeria, said on a panel session at the BusinessDay Inclusion for All eventheld recently in Lagos.

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-border personal remittance) services through various channels within Nigeria; issue debit and pre-paid cards; and operate electronic purse.

“We did not want a situation whereby there is no proper regulation of the industry but I can tell you now that everything is in place,” Zauro said.

As at the time Nigeria was considering the optimal approach needed to leverage new, innovative technology to deliver financial services to its people, the CBN analysed in some detail how to structure the guidelines and the regulatory environment to deliver the benefits on offer, without compromising the integrity of the financial system.

Africa’s largest economy needed to see how the regulation of mobile money could evolve owning to the significant volumes of currency that could be circulating in mobile wallets, and might not be visible to the regulatory authorities.

As such it was clear that a better balance between the market and the regulatory structures was required.

Since then there has been an explosion in mobile money wallet usage in Kenya and other Africa peers, while the Nigeria’s CBN was rather focused on an independent bank-led model that would supplement and support the existing banking system.

“When loans and credits are given to individuals who have basic bank accounts especially those in the informal sector, (as they contribute to the larger population of the country), they will be encouraged to operate formally in the financial circle other than their normal traditional way of carrying out  financial transactions,” Wale Okunrinboye, a Lagos-based Investment Researcher, said.

“The fundamental obstacle to the rapid expansion of financial inclusion in Nigeria is the failure of the private sector actor in the telecoms and financial services ecosystem to collaborate effectively,” an analyst said in a statement

According to the World Bank Findex database report, mobile money drove financial inclusion in Sub-Saharan Africa, as only eight countries in Africa which included Burkina Faso, Côte d’Ivoire, Gabon, Kenya, Senegal, Tanzania, Uganda, and Zimbabwe, recorded 20 percent or more adult using only a mobile money account.

The World Bank however noted that there are immense opportunities in the region as about 95 million unbanked adults in the region receive cash payments for agricultural products, and roughly 65 million save using semiformal methods.

Between 2014 and 2017, the World Bank noted that there was b a significant increase in the use of mobile phones and the Internet to conduct financial transactions which contributed to a rise in the share of account owners sending or receiving payments digitally from 67 per cent to 76 per cent globally, while developing countries recorded 57 percent to 70 per cent.

Yewande Adewusi, a Lagos based financial inclusion consultant, said there are different schools of thought on how mobile money should work in Nigeria due to the country’s peculiar challenges but noted that if we are looking at how to maintain monetary system stability or still maintain financial inclusion with the right oversight, then the banks and telecoms should work together to drive it.

“We don’t know what models work in Nigeria,” Adewusi told BusinessDay. “A lot of factors make mobile money difficult to work in Nigeria, for example there are some rural areas that don’t have telecoms network so even if telecoms drive mobile money, there will still be problem of availability.”

Adewusi explained that Nigeria is a huge market and it is very obvious that what the country has been doing in the past has not been working. “However, moving forward, it should be a combination of telecoms working together with banks or we should allow the telecoms have their own licenses which will be regulated through Special Purpose Vehicle (SPV) by CBN.”

Globally, about 1.7 billion adults remain unbanked, yet two-thirds of them own a mobile phone that could help them access financial services, the study noted. It concludes that digital technology could take advantage of existing cash transactions to bring people into the financial system.

The report explained that paying government wages, pensions, and social benefits directly into accounts could bring formal financial services to up to 100 million more adults globally, including 95 million in developing economies.

“Financial inclusion allows people to save for family needs, borrow to support a business, or build a cushion against an emergency. Having access to financial services is a critical step towards reducing both poverty and inequality,” the World Bank said.

It said that new data on mobile phone ownership and Internet access show unprecedented opportunities to use technology to achieve universal financial inclusion.

Meanwhile, the CBN has a target to ensure that by the year 2020, 80 percent of the country’s adult population is included into the financial market.

Faced with barriers to attaining the set target of reducing the 36.6 percent of Nigerian adults who are excluded from the financial market to 20 percent by 2020, the country’s apex bank in January 2019 revised its National Financial Inclusion Strategy (NFIS).

“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 central bank 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 include: 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.

Speaking on other barriers that drag 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.

With less than 2 years the deadline, the Nigerian regulator said despite the fact that Africa’s most populous nation was yet to attain its financial inclusion goals, some recent developments according the bank may help drive inclusion over the next two years.

It said that five priority actions were to be pursued in order to address the identified critical barriers, and they include: create an enabling environment for the expansion of DFS.

“DFS has proven to be a low-cost approach to reaching unserved and underserved customers,” according to the bank.

It also said 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 harmonising Know Your Customer (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), it said.

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.

 

Endurance Okafor

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