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Inclusion in 2018: marginal growth driven by non-regulated financial providers


Enhancing Financial Innovation & Access (EFInA), a financial sector development organization that promotes financial inclusion in Nigeria, recently published results from their country wide biennial survey.

Following a period of decline from 39.5 percent exclusion rate in 2014 to 41.6 percent in 2016, the results show that Nigeria has returned to a modest positive trajectory.

The rate of financial exclusion has dropped by 4.8 percent (from 40.1 million individuals in 2016 to 36.6 million in 2018); this is predominantly driven by an increase in the informally served (those using non-regulated financial products or services such as savings clubs/pools, esusu, ajo, and moneylenders).

The number of banked Nigerians rose marginally from 38.3 percent in 2016 to 39.8 percent in 2018, and of this group, the increase in those who actively use their bank accounts has increased from 31 perecnt in 2016 to 68.7 percent in 2018.

Rural interventions – such as the Conditional Cash Transfer Initiative which reached up to 1.8 million people across 20 states from 2016 to 2018 – have had a significant impact on reducing the rates of exclusion by 6.6 percent in rural areas, and have potentially played a role in improving account usage.

Microfinance banks usage and pension contributions have grown, with savings accounts as the most accessible financial services product. The quantity of people borrowing in the formal non-banking sector (i.e. microfinance and mobile money services) and from informal institutions (non-regulated financial services) has risen by 1.2 percent and 3.9 perecnt respectively.

Specifically, between 2016 and 2018, credit sourcing from banks increased by only 0.3 perecnt; this figure, once adjusted for FX and inflation movements, actually represents a decline. On the other hand, credit sourcing from microfinance banks rose by 13perecnt – this clearly showcases the manner in which people turn to less formal systems when the formal ones fail to meet their needs. This evident preference for non-bank services reiterates the necessity for credit services to be made a core component of all financial inclusion initiatives and efforts.

There are however, still significant strides to be made. Despite the rise in banked Nigerians, the quantity of individuals saving has reduced by 6.7 percent, and the number of individuals seeking loans has reduced by 1.4 perecnt.

Only 8 perecent of the adult population in Nigeria currently work in the formal sector – this is a 1 percent reduction from the quantity of formal professionals in 2016, indicating that the number of people starting businesses is on the rise.

This is also as a result of rising unemployment in the formal sector, which has forced more people to take up entrepreneurship as a means to earn income.

Ideally, this would be a positive outlook for the economy, however of the 44.3 million business owners in operation (up by 2.4 million since 2016), the vast majority of these businesses are not formalised – as 80percent are individual entrepreneurs without employees. This is reflected in the rising unemployment rates, and it has had an impact on the need and usage of financial services, such as savings accounts.

In the informal economy particularly, certain sectors have barely made progress despite interventions from several stakeholders. In the agricultural sector for example, over 97 percent of both subsistence farmers and business owners (farming, non-farming, and services) receive their incomes in cash.

Overall, only 10 percent of Nigerian adults who receive income, receive their main income into their bank or mobile money account. The economic implications for bridging this gap for the financial and other services sector are immense and presents a massive untapped opportunity.

Mobile money usage has increased by 2.2perecnt, but currently serves only the banked – in 2018, 3.3perecnt of adults made of use mobile money and 1.1perecnt used mobile money agents.

Usage drivers include speed and influence from family and friends, however, there is evidently still a high absence of awareness, as only 0.3 perecnt (313,000 adults) of the banked adult population in Nigeria has a mobile money account.

This illustrates the current obstacles to mobile money’s ability to move the dial on inclusion, without significant efforts to build awareness and literacy in this regard.

Based on a state-by-state comparison, the South-West has improved to the degree that it has now attained the 20 perecnt exclusion target for 2020, as set by the CBN in the NFIS.

However, considering that the South-West region of Nigeria makes up only about 17 perecnt of the entire nation, the majority still remain underserved. States such as Gombe, Bauchi, Bayelsa and Ebonyi have the highest exclusion rates, ranging between 40 perecnt and 70 perecnt.

Evidently, some regions have benefitted from financial inclusion initiatives more than others, and this disparity is likely to have a continued impact on the overall state of exclusion; thus, there is a clear need for an improved geographical focus with existing and impending initiatives.

Furthermore, 36.8perecnt of the adult population still lack any access to financial services.

The barriers to this access include factors such as affordability, due to irregular income (35%); institutional exclusion (i.e. distance from bank branches) (23%); and not having a job (20%).

For others, illiteracy (10%) and the amount of required documentation (10%) required still present obstacles to financial inclusion. While other factors are due to social circumstances (such as area of residence, educational levels, access to job opportunities) the latter in particular (i.e. required documentation) is indicative of a potentially faulty design model, and thus, highlights the need for a closer look at the existing KYC policies, to ensure that they are not playing a role in driving and enhancing exclusion.

Financial products and services enable citizens to meet their needs as it facilitates day- to-day living and helps families and businesses plan for everything – from long-term goals to unexpected emergencies.

Their absence affects the welfare of individuals, companies, communities, and thus the whole country. On a fiscal level, financial exclusion impacts socio-economic indicators such as job creation and other macro-economic indicators like economic growth and income, liquidity, fiscal policy and cost of funds.

The end of the year allows most people to ponder on their finances and make monetary goals for the upcoming year. For most people, these goals are unachievable in part due to their inability to access financial services. With a current financial inclusion rate of 48.7 percent after eight years, the country still has a steep journey to attaining the goal of 80 percent inclusion by 2020.

Usoro Usoro

Usoro Usoro is the General Manager of Mobile Financial Services at MTN Nigeria

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