Financial Inclusion Goes Beyond Banking and Payments
A review of the regulatory frameworks governing “other” financial services in Nigeria
Financial inclusion is the access to and use of diverse financial services at affordable cost. The operative word being diverse. Nigeria’s overarching National Financial Inclusion Strategy (NFIS) that explicitly defines targets for financial inclusion by 2020 actually also specifies targets for other financial services, beyond bank accounts and payments. In the case of insurance, pensions and credit specifically, the strategy document seeks to achieve 40 percent formal financial inclusion in each service, from 1, 5 and 2 percent respectively in 2010.
Despite diverse financial services as illustrated in the pyramid above, the bid to advance financial inclusion typically focuses on banking and payments. While financial inclusion is measured by access to bank and wallet accounts, there are other financial services that also play a key role in inclusion. Insurance, credit and pensions, all play key roles in the rate of deepening inclusion in the ecosystem.
The heat map (below) of financial services penetration across the banked, under-banked and unbanked highlights the current performance as of 2016 (as measured by EFInA). Hence, if we plan to achieve 40 percent inclusion across each of the other financial services by 2020, there’s still work to be done.
In this article, we introduce the various policies governing/powering the attainment of these pretty ambitious goals.
PENSIONS
The National Pensions Commision (PENCOM) has regulatory oversight of the pensions sector that currently includes 21 Pension Fund Administrators (PFAs), 4 Pension Fund Custodians (PFCs) and 7 Closed Fund Administrators. The Pension Reform (Repeal & Re-Enactment) Act of 2014 is the underlying law that creates PENCOM and stipulates the guidelines for the pensions sector. The major instrument for the sector is the operations of pension fund administrators guideline.
The guidelines provide a framework for operation of Pension Fund Administrators (PFA), as solely responsible for the management of Retirement Savings Accounts (RSA). The guidelines provide minimum standard of IT requirements (software, hardware and servers) for each PFA, with the overall aim being the free flow of information from the PFA’s and the National Pension Commission.
INSURANCE
The insurance sector is under the oversight of the National Insurance Commission (NAICOM) that was established by the Nigerian Insurance Commission (“NAICOM”) Act. In addition,
The Insurance Act provides general oversight, procedure and legislation for the insurance industry in Nigeria.
The operational guidelines to enhance access to insurance services are:
CREDIT
Even though credit services (loans) are part of the banks service portfolio, independent money lenders can be registered/licensed at the State-level according to the Moneylenders Law. The Moneylenders law proscribes the framework for the operation of Moneylenders within Lagos, including registration/certification and licensing, and the due returns that must be made to governmental bodies.
The second piece of legislation guiding credit activities is the Secured Transactions in Movable Assets Act. The Act provides that micro, small and medium enterprises (MSMEs) in Nigeria can register their movable assets (such as motor vehicles, equipment and accounts receivables) in the National Collateral Registry, and use these movable assets as collateral for accessing loans. This in turn, will increase their chances at accessing financing. Thus, the legislation tackles one of the major obstacles faced by MSMEs.
CONCLUSION
Financial inclusion is beyond banking and payments and truly requires holistic oversight and coordination across the financial services regulators. This is one of the recommendations reiterated in our 2017 State of the Market Report on Digital Financial Services in Nigeria. We extend this recommendation with the suggestion that the existing Financial Services Regulation Coordination Committee (FSRCC) be extended to address digital financial inclusion across the industry.
