Eight in ten adults in Kenya have access to formal financial services as the financial inclusion rate in the East Africa country jumped to 83 percent in 2020. Largely driven by mobile technology, Kenya’s financial inclusion growth from a low base of 26.7 percent a decade ago puts the country as one of the world’s leaders in mobile money services. Telecoms operator Safaricom pioneered its M-pesa service 12 years ago to cater for Kenyans without access to the formal banking network. Kenya’s M-pesa has since evolved from a basic SIM card-based money transfer application into a fully-fledged financial service, offering loans and savings in conjunction with local banks, plus merchant payments services.
The World Bank defines financial inclusion as means that 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.
Mobile money agents present a potential solution to many of the barriers to closing the financial inclusion gap and reaching the excluded, according to the Kenya Economic Report 2020, produced by the Kenya Institute for Public Policy Research and Analysis (Kippra), a government think-tank. “The advent of mobile-based financial services has transformed financial systems in Kenya, helping more people to access financial services,” said the report.
Even though Nigeria is coming late to the mobile money party, analysts believe Kenya’s Telco-led financial inclusion growth could become Nigeria’s reality following its payment service bank (PSB) policy.
But, the scarce PSB licence, according to analysts, remains a barrier that could slow the take-off, and consequently, affect the financial inclusion target. The Central Bank of Nigeria (CBN) plans to include 95 percent of the country’s adult population by 2024. While two smaller Telcos- Globacom’s Money Master and 9Mobile’s 9PSB and a payments company- Hope PSB a subsidiary of Unified Payment have been given mobile money licences, the country’s largest mobile operators, MTN and Airtel are yet to receive the licence.
Targeted at Nigeria’s over 40million unbanked population who are mostly in the rural communities, the payment service bank by the apex bank would enable Telcos and other non-financial institution to offer financial services while deepening the country’s financial inclusion rate.
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“If Nigeria wants to deepen financial inclusion with the right oversight, then the banks and Telcos should work together to drive it,” Yewande Adewusi, a Lagos-based financial inclusion consultant said.
According to Adewusi, it is “obvious that what the country has been doing in the past is not working.”
Before now, only banks and licensed financial institutions were allowed to provide financial services (bank-led financial inclusion model). Although telecom operators and other fintech companies indicated interests to operate in the market, the CBN policy would not allow them.
The regulator eventually shifted because of the increasing rate of financially excluded people in Nigeria and the lack of progress in getting banks to provide financial services to people living in areas that lack access.
Almost a decade ago, the apex bank set a target to ensure that 80 percent of the country’s adult population are financially included in the financial cycle by 2020. The CBN had in a circular on July 2018, lamented that Nigeria was not meeting any of the financial inclusion targets agreed and contained in the 2012 Financial Inclusion Strategy.
Not only was the country not meeting its targets, but it was also declining in growth. For instance, while Nigeria achieved a 60.3 percent financial inclusion rate in 2012, it declined to 58.4 percent in 2016 against a target of 69.5 percent, translating to financial exclusion of about 41.6 percent.
According to Enhancing Financial Innovation and Access (EFINA), Nigeria’s dream to include 80 percent of its adult population into the financial inclusion net in 2020 may have been unrealized.
While EFINA is expecting to release its 2020 official figures in March 2021 due to COVID-19 pandemic, the organisation which has covered Nigeria’s financial inclusion space in the last 12 years said it is unlikely that Nigeria met last year’s 20 percent exclusion target by the CBN as available data shows half of the adult population in the country are still without a bank account.
“It is unlikely that we will have met the target of 80% of Nigerian adults being financially included,” Ashley Immanuel, CEO, EFINA said.
According to Immanuel, EFINA is currently in the process of conducting its 2020 survey, and as a result, does not yet know the exact rate of financial inclusion in 2020. “However, there are some data points we can look at to get a hint of how financial inclusion has changed in the last couple of years.”
The organisation which measures Nigeria’s financial inclusion rate through nationally representative access to financial services survey said it based its projections on the data from the Nigeria Inter-bank Settlement System Plc (NIBSS) which shows Nigeria had 46 million BVNS in the first quarter of 2021.
While the BVN data from NIBSS shows there has been an increase from two years ago, EFINA says: “it still means that less than half of the roughly 100 million Nigerian adults are banked,” and as such, it believes it is unlikely the 80 percent inclusion target was achieved.
The 2018 and most recent data by EFINA put Nigeria’s financial inclusion rate at 63.2percent, meaning that as much 36.8 percent of Nigerian adults, as of two years ago lacked access. Even though the population of Africa’s largest economy is 2.6 percent of the total world population, the World Bank Global Findex Report 2017 estimates that 3.4 percent of Nigerians are among the global 1.7 billion adults who are unbanked and financially excluded.
“From a regulatory perspective, one basic requirement for mobile money to succeed is to create an open and level playing field that includes non-bank mobile money providers such as Mobile Network Operators (MNOS),” London-based Group Special Mobile Association (GSMA) said.
Telco led financial inclusion model has played a significant role in the level of progress reported in some African countries as the telecommunication companies in the countries leveraged on their already existing infrastructure to deepen access to finance.
Kenya is not the only African country that holds lessons for Nigeria.
Ghana’s decision to have a Telcoled financial inclusion model resulted in a 73 percent increase in registered mobile money customers in just one year, according to World Bank data, an initiative that lifted the financial inclusion rate in the West African country to 58 percent in 2017 from 41 percent in 2014.
A customer base of over 200 million and a combined presence in the 774 local government areas in Nigeria, shows the Telco industry in Nigeria which has the largest subscription for any sector in the country has the facility to take financial services to the hard to reach areas in the country.
While industry analysts have raised eye-brows over the slow progress of the PSB licence, the central bank said it would grant more licences. It, however, requires that companies- including mobile operators to meet the financial obligation of N5.35 billion.
“Min i mum cap ita l N5,000,000,000.00, Non- refundable application Fee N500,000.00, Non- Refundable Licensing Fee N2,000,000.00 and change of name fee N1,000,000.00,” the apex bank said in its August circular.
