How capital markets can boost financial inclusion in Nigeria – EFInA

Market costs, investor education, product diversity, technology enablement and strategic partnerships are ways capital markets can boost financial inclusion in Nigeria, a recent report has said.

This comes at a time where Africa’s biggest economy has a financial inclusion drive towards increasing the inclusion rate to 95 percent in 2024 from 64 percent in 2020.

According to the report by Enhancing Financial Innovation & Access (EFInA) shows, a well-functioning capital market can play a vital role in support of inclusive economic growth by channeling long-term finance into infrastructure and other large-scale projects that create jobs and improve access to markets.

“In the advent of the COVID-19 pandemic, there was a spotlight on the importance of diversity in building sustainable capital markets and the need to advance an objective financial inclusion initiative that gives individuals and businesses better access to affordable financial products and services that meet their needs,” It said.

It said cost being a key consideration, depositories and exchanges have taken strong measures to improve operational efficiencies and reduce fees.

“Secondly, for investor education, the efforts of infrastructure providers in promoting financial literacy and investor education include combining traditional initiatives, such as global investor days, “ring the bell” campaigns, master classes and training courses, and social media influencer campaigns.

“Exchanges, supported by government agencies and regulators, are leading this charge. Young people are a crucial demographic and infrastructure providers are fueling their interest with initiatives that involve gaming, coding, and film-making,” it added.

Capital markets are financial markets that bring buyers and sellers together to trade stocks, bonds, currencies, and other financial assets.

The report also highlighted that for product diversity, exchanges typically encourage participation by offering products and services that serve a broad range of investors.

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While for technology enablement and strategic partnerships, the report noted that the capital market infrastructure landscape has grown to include fintechs and start-ups that offer products and services across the value chain.

“Trust remains a critical factor in driving financial inclusion. Hence, the safety and stability of mass market investment platforms are critical to increasing financial inclusion.”

According to the World Bank, financial inclusion is when individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit, and insurance – delivered in a responsible and sustainable way.

The importance of financial inclusion, which is a key enabler to reducing extreme poverty and boosting shared prosperity, has made it to be identified as an enabler for seven of the 17 Sustainable Development Goals 2030.

In 2012, Nigeria developed its first financial inclusion strategy with the target of bringing up to 80 percent of its population into the financial system by 2020, according to EFInA.

The country failed to meet the target as financial inclusion grew to 64.1 percent in 2020 from 63.2 percent in 2018. Although the inclusion rate dropped marginally from 36.8 percent in 2018 to 35.9 percent in 2020, the excluded adult population of 38.1 million in 2020 was higher than the 36.6 million in 2018, meaning 1.5 million adults fell into the exclusion circle in the last two years to 2020.

The World Bank’s 2021 Global Findex report also showed that Nigeria’s banked population increased by 15.6 percentage points to 45.3 percent. This implies that almost 56 percent of Nigerians are unbanked.

The ultimate goal of financial inclusion is inclusive growth and for this to happen the place of capital markets cannot be undermined, says Uchenna Uwaleke, Professor of Finance & Capital market at Nasarawa state university, Keffi.

“Indeed, the capital market can serve as a veritable channel for enhancing financial inclusion through new products and services tailored to suit investors’ preference for risk and return as well as borrowers’ project needs and risk appetite,” Uwalek said.

He added that this challenge has since been recognized in other jurisdictions.

“In China for example, as a way of reducing the exclusion rate of Small and Medium Enterprises, an interbank bond market exists offering a number of innovative products such as the SME Collective Notes which is a special financial bond.”