The Central Bank of Nigeria (CBN) may have beating itself into a corner by expecting commercial banks to lead its financial inclusion drive of 95 percent Nigerians included by 2024. Experts have said that unless the apex bank includes telecommunication companies in the party, little would be achieved.
“Current banks are woefully undercapitalized to achieve the scale our economy deserves in Nigeria,” said Victor Asemota, Africa partner, Alta Global Ventures. “This is why financial inclusion is a joke until telcos are fully involved. I have seen the telcos grow from scratch and achieve scale.”
MTN and the rest of the telcos have been waiting for a Payment Service Bank (PSB) license promised them since 2018 by the CBN. Until date, the apex has only managed to issue a ‘Super Agent Licence’ to MTN and an ‘Approval in Principle’ to Glomobile and 9Mobile.
There have been expectations that the licenses will be issued before the end of the first quarter of 2019. At the BusinessDay Inclusion for All summit which held earlier in 2019, Nurudeen Zauro, the Technical Adviser, Financial Inclusion Secretarial at CBN said to expect the PSB licences, “Most probably by the end of this first quarter.”
In contrast, the CBN has practically moved the mountain to give banks a first-mover advantage. For instance, after it promised to issue licences to telcos in the third quarter of 2019, the banking regulator issued a guideline that allowed banks to operate mobile money without requesting licences.
The circular titled ‘Operation of Mobile Money Wallets by Deposit Money Banks’ signed by Sam C Okojere stated that “Deposit Money Banks (DMBs) shall henceforth not require prior approval to offer mobile money wallet services.” They are however expected to notify the CBN before the commencement of these services and are required to operate within the extant regulations on mobile money operations. It also issued an Approval In Principle for a PSB licence to Unified Payment (UP) a fintech company owned by banks.
When that would not get the banks to move a needle in the unbanked numbers, the CBN moved to retail lending. In July 2019, it directed banks to increase lending to deposit ratio (LDR) to 60 percent. It was later to be jerked up to 65 percent with the compliance deadline set for 31 December 2019. The CBN has extended to March 2020. The goal is to force banks to lend more to businesses and by so doing drive financial inclusion.
Chinyere Okafor, a financial services expert at Trium Networks, a Lagos based Venture Capital, argued in a Medium article that the LDR mandate does not, however, assuage the mind of the lenders or put measures or policies in place to guide against the risk associated with lending which includes unwillingness of some customers to pay back loans and the cost as the process of recovering such bad debts is arduous and expensive.
“The banks may, therefore, be more predisposed to pay the penalty of additional cash reserve than lose out on their money entirely,” she said.
Although the CBN claims the mandate has unlocked N1.1 trillion in new loans to businesses between July and October, the apex has had to enforce a penalty twice for default. Apparently, not all banks are rushing to embrace retail lending or financial inclusion.
“The CBN has been pushing (banks) with stringent regulatory measures but you can’t give what you don’t have. Our bankers are mostly of the Shashe type and there isn’t a shred of large-scale retail loans DNA in their body,” said Adedeji Olowe, CEO of Trium Networks and a financial services expert.
He further predicted that “Come December 2020, the drive for retail credit would only have been marginal with banks turning their backside to collect the cane that the CBN would be using to whoop them for not expanding credits.”
Access to credit is a big portion of financial inclusion. There are millions of people who require loans to carry out their day-to-day activities including running their small businesses, but lack of access to financial services means their productivity is drastically reduced. The federal government’s social assistance program in which it gives N10,000 to traders in rural places across the country lays bare the enormity of the challenge in retail lending.
Lack of bank infrastructure in many regions of the country means a major share of the population lack access to financial services. While banks may be reservoirs for seemingly limitless cash deposits, it has been suggested that their shareholders will not be receptive to committing funds to build infrastructure from scratch in places where they don’t exist or repairing those that have broken.
Asemota also said banks overdependence on relationships rather than efficiency is why they are not so interested in retail lending.
“Running all your tech and branches on generators is one thing, giving perks and rewards to not very productive people to keep them because of their “relationships” is another huge cost factor. Relationships seem to run banks in Nigeria and not efficiency.
“There is no bank that thrives on efficiency alone in Nigeria, they must have an angle they have secured and kept out of the reach of others. That is why you see 400 customers bringing 80% of the profit of a bank. It is senseless. Retail is not what they really do. It is a facade,” Asemota said.
In terms of infrastructure, the telcos already have an edge through their extensive deployment of telecom infrastructure in rural communities which has led to deeper penetration of mobile phones and GSM services.
Unfortunately, the telcos are exempted from lending to consumers even with a PSB licence. The CBN has kept that part of inclusion exclusively for financial services firms. With banks less disposed to retail lending, the CBN’s best option could be fintech companies who are quick to innovate and have brought simplicity and speed to retail lending.
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