The release of the third-quarter GDP figures may have confirmed what many analysts already knew, but it also meant that the fate of millions of Nigerians within the poverty bracket and those hovering at the edge of it may not improve in the very near future.
But experts are optimistic that the proliferation of financial technology (Fintech) firms offering wealth creation services can provide a way out for poor Nigerians. By this, they acknowledge that solving poverty begins with creating wealth for everyone including poor Nigerians.
The 2019 Poverty and Inequality in Nigeria report released by the National Bureau of Statistics (NBS) indicated that 40 percent of the total population, or almost 83 million people, live below the country’s poverty line of N137,430 ($360.52) per annum. The number is expected to go higher given that the economy is in a second recession in five years following the release of the third-quarter GDP report.
While the World Economic Forum argues that the root of poverty lies in the deprivation of people’s access to basic necessities such as food, healthcare and sanitation, education, and assets, experts have said addressing income inequalities is the best way to start addressing the inequalities. And since millions of poor Nigerians also fall under the unbanked population of the country, resolving income deficiencies is the only way to solve financial inclusion.
“We don’t have an African “Financial Inclusion” problem, we have wealth creation and commerce automation problems,” Victor Asemota, member of board, advisor to the PlaceFund, a venture fund managed by Omidyar, had said in 2018. “People are unbanked because there is nothing to “bank”. They just need trust accelerated via automation to increase value creation,” he said.
Addressing income inequalities for experts like Patrick Akinwuntan, CEO of Ecobank Nigeria, is opening more channels that encourage millions of unbanked Nigerians to save money as well as have access to credit. Akinwuntan was speaking at the Nigerian Fintech: State of Play moderated by Economist Intelligence Unit and sponsored by Mastercard, which held November in Lagos.
According to Akinwuntan, his bank plans to build a digital wealth platform that tackles the language barrier that continuously keeps the unbanked people away from financial services. Such platforms, he said, will make it attractive for people to want to save and also get loans for their small businesses.
With millions of people unemployed and having to earn a living through small businesses and menial jobs that bring in daily income, the choice to save has never been slimmer. Moreover, the low earning power makes them less attractive for credit providers.
One approach already developed in many African countries including Nigeria is the Village Savings and Loans Associations (VSLAs), also known as the group savings and loans or Esusu in Nigeria. The model allows groups of people in rural communities who meet regularly to save and access credits from those savings in a small scale and sustainable way. The activities of the group run in cycles of one year, after which the accumulated savings and the loan profits are distributed back to the members.
In the past, the model was conducted manually, hence, it faced many issues such as security and members running away. Digital technology is beginning to change that. A solution piloted in Niger Republic in 2019 aims to create a financial track record that will be uniquely attributable to individual VSLA members.
In Nigeria, Riby is helping communities through its CoBanking platform to digitise the activities of group-based savings and loan organisations to help them become recognised by the formal financial system. Through its Enumerator feature, Riby allows its bank, DFI, and enterprise partners to digitise engagement with various groups and individual users, which enables them to extend credit and other forms of financial and related-services to these segments.
Asusu, a fintech firm founded in 2018, is also providing digital infrastructure for cooperatives, farmer groups, and thrift associations, helping them migrate to digital ledgers with features like SMS alerts and members.
Through digitising the group savings and loan, the Food and Agriculture Organisation (FAO) said more than 72 savings and loan associations were formed in Nigeria’s North-East in 2018. Altogether, the groups have funded 800 microbusinesses from a total of 900 loans dispersed. Comprising about 1900 people, membership is almost split evenly between genders.
In digitising group savings, experts also say authorities need to create an easier path to securing national identities. Many unbanked Nigerians are unidentified hence it is difficult for financial services that require identities to be able to provide services efficiently.
“The biggest elephant in the room to providing financial services to people who are excluded is lack of proper identity,” Usoro Anthony Usoro, general manager, Mobile Financial Services, MTN Nigeria, said at the Fintech summit. With its Super Agent licence it secured in 2019, MTN now controls over 108,000 agents across the country giving it a 16-percent share of the agent market. The telco is still waiting to be issued a licence to become a payment service bank (PSB).
While it is waiting, a survey by EFiNA shows that the percentage of financial services agents who offer account opening services has dropped significantly since 2015, due to challenges around national identities. This is partly why the number of agents operating in the urban areas (54%) now surpasses those in the rural communities (39%).
There is a limit to what agents can achieve without resolving the identity question of the unbanked population. However, fintech firms with a focus on wealth creation like Riby, Asusu, and SmartTeller can find a modern approach that is efficient and does not require going through many loopholes for people to be identified. One expert says going through the communities could be a more viable option. This is because many of these unbanked Nigeria live in communities that are able to identify them.
“A collective approach that harnesses the power of partnerships is key to achieving Nigeria’s financial inclusion goal and reaching millions of people that are still locked out of mainstream economies,” Gaurang Shah, SVP, Digital Payments and Labs, MEA, Mastercard, said at the fintech summit.
