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Telcos’ participation in financial inclusion drive will hold opportunity for banks – Moody’s

Contrary to the argument that banks may be disrupted by the participation of telecommunications companies in Nigeria’s financial industry, Moody’s Investors Service, a global credit rating agency, says it will present the lenders with new opportunities.

According to Moody’s, Telcos who can obtain the mobile money licence to provide financial services to Nigerians will need to collaborate with the country’s financial institutions to deliver their products.

”In the long term, this is positive because Fintechs and even Telcos will need to probably work with the banks, so it will not be a situation where Fintechs will take over the industry,” Peter Mushangwe, an analyst at the financial institution group of Moody’s told BusinessDay.

In his comments, Mushangwe said there will be a lot of collaboration between banks, Fintech, and Telcos in terms of providing financial services to their clients. “This will presents banks with the opportunity to reach a more wider audience,” he said.

With a target to include 95 percent of the adult population in Africa’s most population nation by 2024, the Central Bank of Nigeria (CBN) loosed its policies to allow Telcos and retailers to partake in the financial services industry.

Before October 2018 when the Central Bank released an exposure draft that requested an application from Telcos, retailers and other industry players to apply for Payment Service Bank (PSB) aimed at giving financial access to Nigeria’s excluded population, Nigeria only depended on its bank-led model in driving financial inclusion.

The Central Bank adopted the National Financial Inclusion Strategy (NFIS) in 2012 and was launched to reduce the percentage of adult Nigerians who do not have access to financial services from 46.3 percent in 2010 to 20 percent in 2020. Also, the strategy stipulates that 70 percent of those to be included in the financial system by 2020 should be in the formal sector.

The latest figures by EFInA put Nigeria’s financial inclusion rate at 63.2 percent, meaning as much as 36.8 percent of adults still lack access. With the current level, Nigeria is lagging its African peers like Kenya and Ghana who have adopted the mobile money-led financial inclusion model.

Commenting on how the Nigerian banks may be affected by Telcos participation in the financial space,  Mushangwe said: “There would be competition obviously but I would not think that it will be significant enough that it will affect the bank stream profile for example.”

According to moody’s, the limitation of the PSB licence is what will give the banks leverage over the Telcos and as such the deposit money banks will remain the key players in the industry.

“When you look at the PSB in Nigeria for example, the payment banks will not be allowed to do certain things, even the amount of deposits they can hold is limited so the banks will still have enough to maintain their profile,” Moody’s noted.

Citing Kenya as a typical example, Mushangwe explained that as at the time when Telcos were allowed to play in the financial services industry in the country, the banks suffered in terms of the fees they earned making payments but they also then rolled on the payment platforms to sell loans and other products. The analyst sees the same case for Nigeria.

“We have seen more similar cases in for example Kenya, where the Telcos have been allowed to play for quite a long time and of course the banks sort of leveraged on that to broaden their reach in terms of clients they can sell their products to,” Mushangwe said.

According to the 2019 Global Microscope report by Economist Intelligence Unit(EUI), digital technology emerged as the main opportunity to expand financial inclusion more quickly, affordably and conveniently for people across the globe and has been the constant thread throughout the advances that have been recorded.

However, data from the report showed that Nigeria was placed among the top nations with the least conducive environment for financial inclusion, this is coming seven years after the adoption of the National Financial Inclusion Strategy (NFIS).

Africa’s most populous nation performed poorly in the survey even though the overall enabling environment for financial inclusion improved globally, according to the financial inclusion report.

The largest economy in Africa scored lower than war-torn Pakistan(55). Out of 100 points, Nigeria scored 43 points; this is 23.21 percent lower than the 56 points it reported in 2018.

“Nigeria experienced the largest score decrease in the 2019 Microscope, in the Government and Policy Support domain. Its scores also decreased in the Consumer Protection domain and the Products and Outlets domain,” the report read.

BusinessDay analysis of the EUI report revealed that the 43 points score reported by Africa’s most populous nation were also lower than the 48.2 points it recorded in 2013, almost the same time the NFIS was adopted.

Some of the reasons why Nigeria did record a high score in the 2019 global microscope include the fact that “Nigeria does not incorporate a gender approach in its financial inclusion or financial literacy strategies, does not collect data on financial services for low-income populations and does not have a digital literacy strategy.”

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