Bank account-NIN link seen as hurdle to financial inclusion

Nigeria’s financial inclusion drive may suffer a setback following the Central Bank of Nigeria (CBN)’s deadline to link accounts with Bank Verification Number (BVN) or National Identification Number (NIN).

Though the policy aims at combating fraud and strengthening KYC requirements, it raises concerns about financial exclusion for low-value account holders and those in rural areas.

In a circular issued last month, the CBN said, effective March 1, 2024, all funded accounts or wallets shall be placed on “Post No Debit or Credit ” and no further transactions permitted.

The CBN also announced that all Nigerian tier-1 bank accounts without BVN or NIN will be placed on Post no Debit” effective April 2024. Tier-1 banks are usually student accounts, basic accounts usually fall under this category.

It also said all the BVN or NIN attached to and/or associated with all accounts/wallets must be electronically revalidated by January 31, 2024.

Chinasa Collins-Ogbuo, inclusion for all advocacy communications lead at EFInA, said the directive will affect the number of people who are able to access and use financial services in Nigeria.

“Essentially, this policy has the potential to negatively impact the channel that has driven growth in formal inclusion since 2020, as a significant proportion of low value account customers are at risk of dropping off systematically or voluntarily as the case may be,” she said.

Nigeria’s financial inclusion landscape has recorded significant growth between 2016 and 2023, with formal financial service usage growing from 30 percent to 57 percent. The adoption of financial service agents has also skyrocketed, from 4.4 percent in 2018 to 54 percent in 2023.

As of 2021, the total number of active bank accounts was 133.5 million, while the number of accounts linked to BVN was 59.96 million as of December 18, 2023, according to the Nigeria Inter-Bank Settlement System.

The National Identity Management Commission has issued 104.16 million NINs as of December 2023, which the World Bank expects to hit 148 million by June 2024.

Collins-Ogbuo said the CBN’s regulation requiring NIN or BVN to open or operate a Tier 1 Know Your Customer (KYC) account is a positive policy move to strengthen KYC requirements for low-value accounts, which ultimately protects consumer interests while aiding continued financial system stability.

“However, the infrastructure to enable NIN and BVN enrolment must be made available and easily accessible to all Nigerians to ensure that this policy does not worsen the barriers to inclusion,” she said.

Currently, 39 percent of Nigerians who access formal financial services through non-banking channels do not have NIN, according to EFInA’s 2023 A2F survey.

The report also states 52 percent of 28 million unbanked adults have NIN, while 5 percent (3 million) of banked adults are without BVN or NIN.

For different groups of people, such as the unbanked and underbanked, financially excluded rural populations, which the Tier KYC system was created for by the CBN to address the documentation gaps, they face thereby lowering the barriers to their entry into the formal financial system.

Collins-Ogbuo said the groups that are susceptible to being forced out of the formal financial services system if they are unable to provide a NIN or BVN by the set deadline include adults who own Tier 1 accounts who are likely to be poor, living in rural communities.

She said a more fundamental problem is the apathy that would arise from the immediate freezing of their accounts when combined with the difficulty and/or inability to obtain a NIN or BVN to regularise those accounts, thus forcing them to fall back into the informal financial system or complete financial services exclusion.

According to EFInA’s 2023 A2F survey, formal financial inclusion has grown significantly from 56 percent in 2020 to 64 percent in 2023, fuelled by marginal growth in the banked population and major gains in non-bank formal adoption.

“This apathy would then inadvertently extend to the already excluded populations (significantly women and youth living in rural communities) and further deepen the barriers to their potential formal inclusion. In other words, the apathy would translate to lower incentives and increased barriers to moving them into the formal financial system,” she said.

She said tightening the KYC requirement for low-value accounts is a good thing “as long as it doesn’t create unnecessary or additional barriers to the formal inclusion of marginalised groups”.

The expectation is for this policy to engender a robust financial system that can checkmate fraudulent activities while improving consumer protection, especially the most vulnerable groups.

According to the World Bank, less than one percent of Nigeria’s poor population has NIN.

In June 2022, during the federal government cash transfer programme, only 20 percent of the target individuals had NINs, which meant that a significant number of the poor and vulnerable people were excluded.

However, as of December 31, 2022, only 0.10 percent of the total poor and vulnerable Nigerians on the registry had NINs.

The two most populous states, Lagos and Kano, have maintained the lead in terms of registered NINs, while Kaduna, Ogun, Oyo, Katsina, the Federal Capital Territory, Rivers, Delta, and Bauchi round out the top 10 states with highest issuance.

The 10 states with lowest NIN issued are Kwara, Akwa-Ibom, Kogi, Enugu, Yobe, Taraba, Cross River, Ekiti, Ebonyi and Bayelsa. Ebonyi and Bayelsa, the states with the least enrollments, have less than a million issued NINs.