Nigeria should tap new digital instruments to grow financial inclusion – IMF

The International Monetary Fund (IMF) has said Nigeria’s financial inclusion strategy should leverage more systematically or develop rapidly digital instruments.

In a recent report titled ‘Nigeria—Fostering Financial Inclusion through Digital Financial Services’, the international organisation said financial inclusion in the country has had undeniable successes, with the onboarding of residents to the banking sector consistently progressing.

“But the overall exclusion rates continue to exceed official targets, not least due to low financial literacy,” it said.
It added that the uptake of digital financial services, notably mobile money, is still lower than in peer countries, and overcoming this would require improving digital financial literacy, upgrading digital infrastructure, and promoting incubation and sound practices of fintech firms.

“Nigeria’s Central Bank Digital Currency also has an enabling potential if accompanied by a comprehensive package of supportive policies,” it said.

In 2012, Africa’s biggest economy 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 Enhancing Financial Innovation and Access, a financial sector development organisation.

But the country failed to meet the target as financial inclusion grew to 64.1 percent in 2020 from 63.2 percent in 2018.

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 federal government aims to increase the inclusion rate to 95 percent by 2024 on the back of five strategic policies which were launched last year.

The policies are the Revised National Financial Inclusion Strategy, National Strategy for Leveraging Agent Networks for Women’s Financial Inclusion, National Fintech Strategy, Nigeria Financial Services Maps, and Payment System Vision 2025.

From 2012 to date, over 59 policies and initiatives have been implemented by stakeholders to achieve the objective of financial inclusion; these policies and initiatives cut across the banking sector, the insurance sector, the capital market, the pension sector and institutions responsible for infrastructural development for financial inclusion, said Godwin Emefiele, governor of Central Bank of Nigeria (CBN).

“These five important financial inclusion artefacts will provide direction for financial inclusion in the country in the coming years,” he said.

But it seems that the target might not be achieved due to the CBN’s demonetization policy that has eroded the trust and confidence that many customers have in the country’s banking system.

Read also: Sterling Bank partners with Corporate Bestie to drive financial inclusion

“The confidence of people in the banking system has been affected because when they get cash now, it does not make sense for them go to deposit it back to the banks when they are not guaranteed that they will get it immediately,” Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise, said.

He said this could lead to more money staying outside the banking system but in a short term till confidence is restored. “The only way to restore it is for the CBN to saturate the banks with surplus cash so that people will have the confidence to be able to bring it back to the banks.”

Since the beginning of the year, Nigerians have been buffeted by a chronic shortage of cash occasioned by the naira redesign policy and the withdrawal limits.

Bank customers who needed cash to pay for transport fares, and other urgent needs could not find money to withdraw from the Automated Teller Machines (ATMs) and over the counter, while a few ATMs that were dispensing cash were crowded.

Some banks’ ATMs only dispense N1, 000 per transaction, with N35 charges for other banks’ ATM cards. Point of Sales operators charge N1, 000-N2,000 to dispense N10,000-N20,000.

These developments pushed Nigerians to resort to unconventional measures to secure cash such as sleeping at the ATM terminals, running half-naked in banking halls, fighting bank officials, protesting and destroying properties at the banks.

The Nigerian Economic Summit Group said in a recent report that the CBN’s naira redesign policy could generate distrust in the country’s financial system if the naira crisis lingers.

“With nearly 40 percent of the adult population being excluded from the financial system, the challenges emanating from the cash crunch following the redesign will amplify the trust deficit in the financial system,” it said.

It added that many more people will resort to stacking up cash. “This will be against the cashless policy agenda of the CBN and will defeat the essence of the policy.”

Data from the CBN show that the currency in circulation dropped to the lowest level in 14 years and five months to N982.1 billion in February 2023 from N1.39 trillion in the previous month.

President Muhammadu Buhari in February approved the continued use of the old N200 note as legal tender till April 10 in a bid to reduce the hardships of the people.

However, some state governments sued the Federal Government over the naira redesign policy, and the Supreme Court, in its ruling on March 3, extended the legal tender status of the old N200, N500, and N1,000 notes to December 31, 2023.

Ten days later, the CBN ordered commercial banks to comply with the court verdict by dispensing the old notes to their customers.

The IMF highlighted that for Nigeria to make progress with their ambitious inclusion agenda, the Nigerian authorities would need to refocus policies along several dimensions.

“The set of policies should preferably be aimed at meeting realistic intermediate inclusion targets still to be formulated, especially in the use of specific financial products, and they should more explicitly address the significant age, education, income, and geographical inclusion gaps.

“The operational, capacity building and regulatory measures would need to focus on remedying physical barriers to financial access, improving financial literacy, promoting digital and data infrastructure, devising a well-balanced framework for fintech operations, and further enhancing the eNaira technology,” it said.