Financial inclusion, and especially the use of digital financial services, is being shown by a growing body of evidence to have numerous potential development benefits, with wide ranging applications. Whether facilitating investments into key development sectors, like healthcare, education and small business and so driving economic growth, or directly enabling the poorest to save more effectively, to access and pay for essential services or to receive government benefits, the number of applications for digital financial services is still growing. That is why a broad range of international donor agencies and philanthropic foundations have recognised its importance, and established well-funded and ambitious programmes to achieve inclusion, everywhere in the world.
One of these programmes is the World Bank’s Global Findex Database, the most comprehensive analysis of financial inclusion globally; with data sets on how adults save, borrow, make payments, and manage risk. Established in 2011, it is updated every three years with data collected in partnership with Gallup Inc., through nationally representative surveys of more than 150,000 adults in over 140 economies. The data is used as a key indicator of progress towards the UN’s Sustainable Development Goals.
The 2017 data was released in April 2018, and shows a continued rise in financial inclusion globally from 51% in2011, to 62% in 2014 and now 69% in 2017. 515 million people opened a financial institution or mobile money account between 2014 and 2017, bringing to 1.2 billion the number of adults that have obtained an account since 2011.However, while Sub-Saharan Africa, in general, improved inclusion rates from 34% to 43% between 2014 and 2017 in Nigeria, the opposite is the case, with financial inclusion decreasing from 44% of the population in 2014, to 40% in 2017.
Exclusion is heavily focused on 7 countries but most are improving
Nearlyhalf (46%) of the global unbanked population reside in just seven economies; Nigeria, China, India, Indonesia, Pakistan, Mexico and Bangladesh. Specifically, 4 % of the financially excluded live in Nigeria. Proximity and affordability – specifically financial institutions’ locations being too far away and financial services being perceived as too expensive are key reasons people say they don’t have accounts. Other reasons are: lack of the necessary documentation, lack of trust in financial institutions and religious reasons. Significantly, 40% of respondents said their reason for not having an account was due to the lack of funds to run an account, demonstrating a clear link between extreme poverty and exclusion.
When we look further behind the figures, we can see that, while these seven economies make up 46% of the unbanked population, many of them are improving relatively rapidly. Pakistan improved from 13% in 2014 in 21% in 2017; India improved from 53% in 2014 to 80% in 2017; China increased from 79% in 2014 to 80% in 2017; Bangladesh increased from 31% in 2014, to 50% in 2017 and Indonesia increased from 36% in 2014 to 49% in 2017, leaving only Mexico (decreased from 39% to 37%) and Nigeria (decreased from 44% to 40%) with deteriorating rates of inclusion amongst those countries most affected.
Nigeria in the context of lower middle income countries
Classified as a lower middle income country, Nigeria is placed alongside countries like Kenya, Bangladesh, Cambodia, Congo, Cote d’Ivoire and Ghana, across which the broader progressive trends in the survey are mirrored, with inclusion increasing from 42% in 2014 to 58% in 2017.
Common trends within this sub-group include a gender divide, with males over the age of 15 more likely to have an account (63% to 53%), rising levels of debit card ownership and use (20% to 27%), slow but steady improvements in the number of people receiving their wages through formal financial accounts (from 21% in 2014 to 23% in 2017), increasing levels of mobile money usage (from 3% in 2014 to 5% in 2017) and a growing digital payments ecosystem (21% making digital payments in 2017 compared to 16% in 2014).
To understand how we fit within this sub-category, we need to take a look at some of the sub-indicators that make up Nigeria’s financial inclusion profile in the findex report.
Behind the figures in Nigeria
Nigeria declined in many indicators in comparison to the 2014 findings. The most glaring being the decline in the number of account holders in banks and other financial institutions – from 44.4% to 39.7%. This is not surprising given the challenges the nation faced between 2014 and 2017 (when the findex update was conducted). The economic recession, post-oil price slump and threat of insecurity led to inflation, low economic activities, and increased unemployment.
Source: Global Findex Database 2017
We have chosen to analyse the gender gap, youth inclusion, debit card usage, mobile money uptake and mobile coverage, cash usage and the receipt of government transfers as key indicators worthy of analysis from the hundreds of indicators that the findex uses to track progress. Should you wish to look at the raw data behind these numbers, please visit https://globalfindex.worldbank.org/
A widening gender gap in Nigeria
The gender gap in Nigeria is considerably wider than its contemporaries in the lower middle income segment. 51% of males over 15 had an account in 2017 (a reduction of 3% since 2014) while only 27% of females over 15 had an account in 2017, representing a 7% reduction since 2014. The gender gap (number of percentage points between male and female account holders) has increased from 20 percentage points in 2014 to 24 percentage points in 2017. The gap in the wider lower middle income group of contemporaries, is only 10%.
Exclusion increasing amongst the youth but are more saving?
While the percentage of respondents saving in Nigeria declined from 69% to 62% between 2017 and 2014,the number of young adults who saved any money at all increased to 59% in 2017 from 56% in 2014. That said, only 17% of Nigerians between the ages of 15 and 24 indicating that they saved to start a business in 2017, compared to 22% in 2014. This is perhaps indicative of the fact that youth are saving and conserving (for a rainy day) as opposed to saving with investment and goal in mind.
Nigeria is experiencing a widening youth bulge; with more than half of the population under 30 years of age, this category is estimated to be growing at 3.5% annually due to factors such as increasing life expectancy and declining infant mortality and so their levels of financial inclusion must grow faster than other categories in order for the country to grow more broadly.
Declining government transfers
The number of respondents who indicated that they received a government transfer in 2017, declined significantly, with 7% of respondents receiving a government transfer of some form in 2014, but only 3% of respondents receiving a transfer in 2017.
Access to emergency funds is more difficult
The number of respondents over the age of 15 who indicated that access to emergency funds was not possible, increased from 37% in 2014 to 53% in 2017. This is indicative of the difficult economic conditions that Nigeria experienced between 2014 and 2017.
Cash usage is increasing and digital is decreasing
38% of respondents over the age of 15 indicated that they received their wages in cash in 2014, but by 2017, this number had increased to 50%, indicating that cash usage has increased substantially during the period. The percentage is higher for private sector employees, with 65% of respondents paid by the private sector indicating that they received cash.
The number of Nigerian respondents who indicated that they had made or received a digital payment in 2017 decreased to 30% from 37% in 2014. This is despite an increase in the percentage of respondents with a mobile money account, which increased from 2.3% in 2014 to 5.6% in 2017.
Number of debit cards declining, as is their usage
The number of respondents who owned debit cards decreased from 36% to 32% between 2017 and 2014, and this change was mirrored in the number of people who used a debit card to make a purchase which declined from 14% in 2014 to 9% in 2017.
Educated versus uneducated
Whatever we are analysing in the Findex results, there is a clear trend, between the level of education of the respondent, and the level of inclusion, starting with whether a respondent has an account or not. Only 16% of respondents with a primary education had an account of some kind in 2017, while 59% of respondents with a secondary education have one.
The level of debit card usage is indicative of this, where 50% of people with a secondary education indicated debit card ownership in 2017, compared to only 10% of those with a primary school education.
The savings culture shows the same trend, with 7% of those with a primary education saving in a financial institution in 2017, versus 31% with a secondary education.
Use of the internet to make purchases further reinforces the findings, with 10% of secondary educated respondents adopting the internet while only 1% of primary educated respondents do.
Understanding the trends
This analysis has taken a deliberately statistical approach to analysing some of the key findings from the Global Findex report, but there are some clear trends emerging. Over the coming weeks, Business Day will look in more detail at some of the drivers and reasons for Nigeria’s performance in the Findex to understand the challenges that we face, and some of the solutions that might be developed.
It is clear that intervention is required. Increasing exclusion, increasing use of cash, declining usage of digital payments and platforms, a particularly significant impact on the least educated, the young and those in rural areas and a reduction in government transfers are, when combined, a serious challenge for Nigeria to address.
The Central Bank of Nigeria (CBN) has already taken a proactive approach, with an ongoing review of the National Financial Inclusion Strategy document. The Target is to ensure that 70% of adult Nigerians have access to and use formal financial services by the year 2020. Part of the framework for the Strategy includes establishing a clear understanding of the current state of Financial Inclusion in Nigeria, including the status of on-going initiatives, quantifying the gap and identifying barriers to financial inclusion, developing targets for financial inclusion in 2020, and proposing business and operating models for achieving said targets.
This is the first of a 3- part weekly series, on analyzing the Global Findex Database for Nigeria. The next piece will focus on Nigeria’s efforts to achieve its financial inclusion targets.
