Financial inclusion holds the key to transforming poverty into prosperity
Given our new appellation as the poverty capital of the world, the ongoing 24th annual Nigerian Economic Summit (NES), is appropriately themed — Poverty to Prosperity: Making Governance & Institutions Work. In a report published by Brookings Institute, it states that Nigeria has overtaken India as the country with the largest number of extremely poor people. With over 87 million living in extreme poverty, Nigeria has overtaken India’s 73 million. Even though the numbers are seemingly close, they are proportionately different relative to population sizes with Nigeria, 44 percent and India, 4 percent.
With this number increasing by six people every minute, turning around the fortunes of the current 87 million (estimated to become 91.5 million by 2020) deserves urgent national attention. Ideally, this year’s Summit should feature discussions on a veritable roadmap that can scale poverty alleviation and eradication programs.
Our conviction at the Lagos Business School is that financial inclusion is one of the critical developments required to actualise this goal of transforming poverty into prosperity. Our thesis is simple — the access to and use of affordable financial services (financial inclusion) contributes to the health and efficiency of the economy and is a lever of poverty reduction (SDG #1).
Financial inclusion is an arduous task that cannot be achieved with one magic bullet. Nigeria’s journey officially commenced in 2012 with the introduction of the National Financial Inclusion Strategy (NFIS), which spelt out the CBN’s aim of achieving 80 percent inclusion by 2020. With just under two years till the target date, progress remains slow and dependent on various levers. The recent refresh of the NFIS lays the foundation for a more actionable strategy that also prioritises rural areas and northern states where financial exclusion is highest and extreme poverty is most pronounced.
The NES is a pivotal engagement platform for policymakers and the private sector and is an ideal forum for the development of a roadmap that encompasses financial inclusion as a priority area towards poverty reduction.
In our 2017 State of the Market report, we support our thesis with several critical domains in need of policy interventions. What follows are policy suggestions and recommendations which we consider paramount to the accomplishment of Nigeria’s financial inclusion goals:
The need for legislation that supports the security and protection of critical infrastructure is the first priority. With the high costs of operating bank branches, the most cost-effective way to deliver financial services today is through digital channels, hence the need for ubiquitous telecoms infrastructure of acceptable quality. Theft and vandalism of telecoms infrastructure, also take their toll on providers, thereby raising costs and eroding service quality. Unfortunately, since its proposal in 2014, the critical infrastructure bill, which is meant to identify and secure these infrastructure is yet to see the light of day!
Secondly, financial inclusion efforts are capital intensive and require commitments from stakeholders, especially financial service providers, to venture into regions where exclusion is highest. A review of the spectrum pricing policy for rural area penetration by NCC would induce cheaper or free spectrum licenses. Furthermore, reviewing the Universal Service Provision Fund (USPF) and Nigerian Information Technology Development (NITDEV) Fund in order to deploy them for the enhancement of rural telephony in stipulated catchment areas, as well as supporting providers with well defined incentives (like tax holidays), would make these priority regions attractive to the private sector.
Third, the adult Nigerians that are financially excluded do not reside in urban areas, nor close to financial access points. Hence, they are disadvantaged by having to incur higher costs (transportation, time) to access financial services. Providing financial services at the last mile would require the nationwide distribution of third-party agents. Nonetheless, the sustainability of these agents would require differentiated business models that take economic activity and other factors into consideration. Through the shared agents network expansion facility (SANEF), the banks have made bold commitments to the growth of the agent networks. However, onboarding agents needs to be complemented with economic models that ensure agent sustainability. Financial inclusion success is a scale business (low value, high volume transactions); hence increasing the number of transactions will also require government’s participation — digitising payments and distributing them through these agents.
Lastly, due to the absence of proper data privacy legislation and active enforcement agencies, issues such as data breaches, wrongful sale and distribution of customer data and so on, remain persistent concerns and continue to erode trust in the formal sector. Also, consumer protection provisions are not aligned and consolidated across different agencies and regulators, possibly leading to silos and gaps in overall enforcement and levels of consumer protection. Until there is comprehensive legislation which sets uniform privacy, protection and consumer protection standards, these questions will persist, and trust will suffer.
If the government can implement the ameliorative policy reforms we have highlighted, the financial inclusion needle will move in the right direction.
Not just that, these reforms will also have far-reaching impact on other aspects of the economy, stimulating economic activity, engendering trust in formal systems, creating more jobs and ultimately translate into prosperity for Nigerians.
The fate of over 87 million people, and counting depends on it.
Dr Olayinka David-West and Ibukun Taiwo are members of the Sustainable and Inclusive Digital Financial Services initiative of the Lagos Business School
