Why PSB is Nigeria’s ticket to higher financial inclusion, low poverty rate
Nigeria’s quest to include its unbanked adult population received yet another nod last Thursday as the Central bank of Nigeria (CBN) granted Approval in Principle to two of the country’s largest mobile service operators- MTN Nigeria and Airtel Africa.
Although it’s the first step in the process towards final approval, subject to the fulfilment of certain conditions as stipulated by the CBN, the move by the industry regulator brings the take-off of mobile money services in Nigeria closer.
“Banks haven’t been able to reach half of the Nigerian adult population and they do not have the model to do so,” Ashley Immanuel, CEO of EFInA, the organization that collates Nigeria’s biennial financial inclusion data, said.
Mobile money is expected to remove some of Nigeria’s barriers to having a basic bank account like documentation in obtaining a Bank Verification Number (BVN), an 11-digit number that is created for bank customers before they are assigned a bank account, proximity to financial services provider and among others.
As witnessed in countries that have leveraged the mobile money-led financial inclusion model to onboard the majority of their unbanked population, Nigeria is expected to ride on the innovation to boost access for the hardest-to-reach segment of its adult population.
With just a phone number, any Nigerian who does not have a bank account will most likely be able to ride on the infrastructure of any of the telco or other service providers to transact through an e-wallet or mobile money account.
Why PSB is a catalyst for Nigeria’s financial inclusion growth
The existing customer base, infrastructure and high mobile phone penetration rate in Nigeria are some of the reasons for the nod for Telcos to partake in deepening Nigeria’s financial inclusion rate.
While Nigeria’s commercial bank branches (per 100,000 adults) in Nigeria was 4.30 as of 2018, mobile phone subscribers per 100 people stood at 99.07. For comparison, the world average in 2020 based on 144 countries was 113.12 subscribers per 100 people.
Analysis of the data by FBNQuest revealed that Nigeria’s total active bank accounts were about 111.5 million as of September 2020. This pales in comparison to the 205 million active subscriber lines for network operators in the same period.
Access Bank, Nigeria’s largest bank by assets and customer base, disclosed in its H1 ’21 presentation that it had 42 million customers. This is significantly less than MTN Nigeria’s over 69 million subscribers in the same period. Also, given their reach, GSM operators have a larger pool of MoMo agents on their platform.
On its nine-month conference call, MTN Nigeria disclosed that it had increased its agent network by 234,000 agents to about 630,000 agents this year. In comparison, First Bank’s agent network which is the largest among the banks was around 117,000 agents as of H1 ’21.
A lower financial exclusion rate in Nigeria could slow the country’s poverty rate as access to credit and insurance puts them at an economic advantage.
Although Nigeria’s poverty profile for 2021 has not yet been released the World Bank’s estimate put the number of poor people at 90 million, or 45 percent of the population, an increase from the pre-pandemic levels.
But in Kenya, the East Africa country where eight in 10 adult population are financially included, the number of people estimated to be living on less than $2 dollars per day in 2021 stood at 26.3 percent.
The use of mobile money-led financial inclusion model has been adopted by many countries that previously suffered high financial exclusion rates because it is one of the easiest ways to include the unbanked segment that are mostly in the rural communities and other vulnerable groups in the economy.
In the case of Kenya, Ghana and many other African countries, with the use of mobile phone numbers which are used in place of a bank account, citizens of the countries are allowed to carry out financial transactions like payment, savings, credit, insurance and among others.
The same is expected to happen in Nigeria through the PSB licence.
Largely driven by mobile technology, Kenya’s financial inclusion expanded from a low base of 26.7 percent a decade ago to 83 percent in 2020. The East African country is one of the world’s leaders in mobile money services. Telecom’s operator Safaricom pioneered its M-Pesa service 12 years ago to cater for Kenyans without access to the formal banking network.
The success story of mobile money in deepening financial inclusion is also evident in countries like Ghana, Ethiopia and others.
While Nigeria went late to the party as the Central Bank only gave an official nod to telecoms and other non-financial companies to offer financial services in 2018, the payment service bank by the regulator would enable players to offer financial services while deepening the country’s financial inclusion rate.
The permit will allow the companies to among other things; maintain savings accounts and accept deposits from individuals and small businesses, which is covered by the deposit insurance scheme; carry out payments and remittance (including cross-border personal remittance) services through various channels within Nigeria; issue debit and prepaid cards, and operate an electronic purse or wallet.
The Central Bank gave its first set of licences to three players in August 2020, two years after it received applications.
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 interest 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 in July 2018, lamented that Nigeria was not meeting any of the financial inclusion targets agreed and contained in the 2012 Financial Inclusion Strategy.
Nigeria failed to meet its National Financial Inclusion Strategy target for 2020 to include 80 percent of its adult population into the financial system. EFInA data showed that only 64.1 percent was financially included by the end of last year.
This means that 36 percent of Nigerian adults, or 38.1 million of the country’s 106 million (18 years and above) adults, remain completely financially excluded. This is a shortfall by 16 percent points from the desired target of a 20 percent exclusion rate.
The 2012 strategy by the CBN had also aimed to reach 70 percent of Nigerians with formal financial services by 2020; the actual figure reported by the EFInA’s Access to Financial Services in Nigeria 2020 Survey released last Thursday showed it was 51 percent – a shortfall by 19 percent points.
Financial inclusion means that people have access to basic financial services like a savings account, credit and insurance. A higher exclusion rate in Nigeria could lead to a poorer population, as lack of access to credit and insurance puts them at an economic disadvantage.
“We have said that the biggest thing the CBN could do to quickly expand financial access to people who are not in the system at all is to increase mobile money services which in Nigeria will be under the PSB license and to licence entities that are capable at reaching customers at scale,” Immanuel said.
Commenting on the recently issued Approval in Principle, MTN Nigeria said, the decision to issue a final approval is firmly within the regulatory purview of the CBN and it respects their right and judgement in that regard.
With its presence in 14 countries across Africa, Airtel Africa, a provider of telecommunications and mobile money services said that its subsidiary SMARTCASH Payment Service Bank Limited (“Smartcash”) has been granted approval in principle to operate a payment service bank business in Nigeria.
According to Segun Ogunsanya, CEO, Airtel Africa, the telecom company “will now work closely with the Central Bank to meet all its conditions to receive the operating licence and commence operations.”
“Before now, only banks and licensed financial institutions were allowed to provide financial services