According to aggregated data collected by EFInA, Intermedia and the World Bank, the proportion of people excluded from the financial services ecosystem increased from 36.6% to 48.4%, between 2014 and 2016. Judging by the fact that we want to reduce financial exclusion numbers, not increase them, this is a worrisome trend.
With the success of mobile money in other emerging markets and the way it has enabled those countries tackle financial exclusion, there’s enough evidence to generate hope that digital financial services can provide a lifeline in solving the financial inclusion doldrum.
However, CBN reports that there are 3.84 Million mobile money customers (just about 4% of the adult population), many of whom are already banked individuals. With the miniscule number of mobile money accounts in the country, the general focus in the ecosystem is on increasing financial access via increased adoption and opening of mobile wallets.
The challenge of driving mobile money adoption is multi-faceted. There’s access, affordability and then development of relevant and viable products. Which comes first is a debate for another day.
On the other hand, the fact that exclusion numbers are rising rather than plummeting, is a signifier that formal financial service providers need to start figuring out ways that their services be used to improve the lives of their customers in practical and real ways. It’s a zero sum game if we are trying to figure out ways to get people into the formal ecosystem yet there’s no retention strategy – people being onboarded are not staying in the ecosystem. We want not just adoption but frequent use.
To be fair, Nigeria has many factors working against its financial inclusion initiatives. Trust, lack of digital and financial literacy, limited access to financial service points (FSPs), and a regulatory, policy and legal environment which is yet to be optimized to enable the prosperity of mobile money are just some of the many inhibitors that have been recorded.
Today, we have nothing less than 40 million adults living day to day without a bank account, mobile money wallet, or even informal options. In our Digital Financial Services in Nigeria: State of the Market Report 2017, we profiled the under-banked and unbanked consumers, identifying characteristics of the underserved and excluded through household and individual lenses. Compared to the included population, 76 percent of Nigeria’s financially excluded are more likely to be rural dwellers while 35 percent are located in the North West region of the country. At least, 80 percent of them live in households earning less than $1.90, which is below the international poverty line established by the World Bank.
These data points paint a picture of a population segment not making enough income to justify the need for financial services. This corroborates our findings in the 2016 edition of our State of Market Report, where lack of funds was cited as a reason for not having an account.
Based on these findings, it is safe to say that opening more bank branches or erecting more cell towers may not have significant impact on reducing exclusion rates in these regions. Recall the failure of earlier banking initiatives in these regions, such as rural banking (that subsequently evolved to microfinance banking) as far back as 1977. Thus, solutions that address financial inclusion are not a magic bullet but require diverse economic strategies as proposed in the demand-side hypothesis supporting increased government spending (as seen in a technical paper, Nexus between Financial Inclusion, Economic Growth and Income: Evidence from Nigeria, written by Adedoyin Salami, Ikechukwu Kelikume, Alexander Victor and Olalekan David).
Also, recall that in an earlier article, we highlighted the need to develop financial products that are culturally relevant to the target market. These products need to be accompanied by ways to increase earnings and improve people’s lives.
While previous initiatives have focused on the provision of access points, the data suggests that efforts should focus on the primary source of economic activity – agriculture. Agriculture contributes about 40 percent to Nigeria’s gross domestic product (GDP) and is the primary source of business in rural areas, albeit through small-scale and subsistence farming.
40 Million+ people are hard to ignore and it is quite difficult to generalize about their financial needs. However, we can begin working with what we know so far.
Ibukun Taiwo & Olayinka David-West
