The large informal segments at the bottom pyramid of the Nigeria economy are being attracted into the financial cycle through credit loans.
Unlike the conventional credit loans given by Fintech to the employed market who by virtue of having a salary account are included into the financial space, checks by BusinessDay revealed that most Fintech companies are beginning to attract petty traders with credit loans.
This is because the excluded small and medium-sized businesses which are mostly in the informal sector are more than those in the formal sector and market experts say there are lots of opportunities to be tapped from that segment.
This was affirmed byWale Okunrinboye, a Lagos-based Investment Researcher, as he said “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.”
These excluded informal individuals and businesses do not have bank accounts and as such lack financial history which can qualify them for a credit loan.
They mostly use the small contributory savings schemes in which they contribute a daily portion of their trading profit to a collective.
In Yoruba, the schemes are commonly called Ajo; it is referred to as Adashe in the north, while the Ibo word for it is Esusu.
Financial technology companies, the new technology and innovation that aim to compete with traditional financial methods in the delivery of financial services, are helping to include them in the financial cycle.
The recently launched micro loans for MSMEs, the new solution for self-employed individuals, business men and business women by Renmoney, a Fintech company operating under a microfinance banking license in Lagos is an example of such products by several Fintechs that are designed for that segment of the market.
Oluwatobi Boshoro, Renmoney’s CEO, told BusinessDay during the product launch that “we’ve always been aware of the need to solve credit challenges for another equally important segment- the self-employed, the businessman, the business woman.”
She added that “we have tested and iterated this product extensively for almost six months, reviewed over 30,000 applications and issued over 6,000 loans in the process.”
Nigeria currently has 36.8 percent of its adult population excluded from the financial inclusion cycle, according to figures from the central bank. This is 16.8 percent away from its 20 percent financial exclusion target by the year 2020.
Yetunde Akindele, a petty trader in Oyingbo market explained to BusinessDay how the Fintech product which she was introduced to by her fellow trader is helping to finance her business. “I only had to open an account and operate it for six months and then I had enough financial history to access a loan.”
Akindele added that through the credit she got from the Fintech Company which didn’t ask her for collateral or a guarantor has “helped in growing my business and now I have moved from a canopy space to zinc roofed shop.”
To increase the country’s financial inclusion rate, the Central Bank of Nigeria has announced its plans to introduce Payment Service Bank (PSBs). Currently, 36.6 million of Nigeria’s population is not part of the financial market.
The initiative can enable Banking agents, Mobile Money Operators (MMOs), Retail chains (Supermarkets), and telecommunications companies (Telcos) to operate as financial service providers in ensuring access to financial services for the unbanked rural segments of the society.
At least 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.
“Apart from encouraging the collaboration between the telecoms and banks, through mobile money to spur financial inclusion, there is need to reduce the cost of financial transactions, as mobile money is more expensive than core banking,” Okunrinboye said.
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