40m unbanked Nigerians to benefit from MTN, Airtel mobile money licenses

Estimated at over 40 million, Nigeria’s unbanked adult population who are mostly in the hard-to-reach rural communities are expected to have access to financial services, thanks to the awaiting mobile money licence for MTN and Airtel.

The Central Bank of Nigeria (CBN) last Thursday issued MTN Nigeria and Airtel Africa Approval-in-Principle (AIP) for payment service bank (PSB) licence.

Although it is 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 shows that mobile money takeoff in Nigeria is just around the corner.

“With this move by CBN, it is more likely that we are going to meet some of the financial inclusion targets,” Ashley Immanuel, CEO of EFInA, the organisation that collates Nigeria’s biennial financial inclusion data, says.

This, according to Immanuel, is based on the evidence that has been witnessed in countries that have leveraged the mobile money-led financial inclusion model to onboard the majority of their unbanked population.

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 Nigerians 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 was 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 show 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.

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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.

A higher financial 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 licence and to license entities that are capable at reaching customers at scale,” Immanuel says.

According to research analysts at FBNQuest, the unrivalled reach of GSM network operators across Nigeria, and with MTN covering over 90 percent of the nation’s population, will help increase financial access.

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 judgment in that regard.

With its presence in 14 countries across Africa, Airtel Africa, a provider of telecommunications and mobile money services said its subsidiary SMARTCASH Payment Service Bank Limited (“Smartcash”) had 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.”

Why mobile money is a catalyst for financial inclusion growth

The use of the 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 hard-to-reach unbanked population into the formal financial system.

In the case of Kenya, Ghana and many other African countries, with the use of mobile phone numbers 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. The innovation will remove some of the 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, among others.

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.

“Given the unrivalled reach of GSM network operators across the country, with MTN covering over 90 percent of the nation’s population, its active engagement in the mobile money space will help increase financial access,” analysts at FBNQuest say.