Financial Inclusion: Is there Sufficient Political Will to Support the Nigerian Model?

For digital financial services to gain the deep penetration we all desire, it is clear that Nigeria needs an indigenous approach.

Our last article focused on what we call the Nigerian model, our own native homegrown model to address financial inclusion. In the article, we highlighted key elements that could be attributed to financial inclusion success from other markets — India, Kenya, Ghana and Bangladesh. We identified the political will and courage of the Indian Government to embark on disruptive initiatives such as demonetization and Aadhaar which cannot be overstated. It got us thinking, what is the temperature of our leaders’ political will?

Since we signed the Maya Declaration in 2012 committing to 80 percent financial inclusion by 2020, we also developed a National Financial Inclusion Strategy (NFIS) with specific targets for payments and other financial services as well as key strategic initiatives. We have also established a Financial Inclusion Secretariat (FIS) with the mandate to implement the strategy. Most of these initiatives are under the jurisdiction of the Central Bank, but what about the rest of the government at both Federal and State levels — the executive, the legislative and the judiciary? While financial inclusion is a measure of access to and use of accounts, the benefits are beyond the banking and payments industry, the digitisation of payments benefits the entire economy through increased growth (GDP), income and jobs, as well as serves to reduce inefficiencies.

Since 2012 when the NFIS was released, how many initiatives and policies have been launched and what other levers can be pulled to achieve the financial inclusion goals?

Let’s just first of all agree that this thing is too big for the CBN alone to execute. Since the launch of the NFIS, they’ve kicked off several initiatives like the cashless policy, agent banking, financial literacy and so on. The desire is obviously present. But shouldn’t there be a cohesive ecosystem drive towards financial inclusion? In regions where financial inclusion initiatives have been successful, significant progress was made when ecosystem actors pulled their weight (and then some!). In Nigeria, we need such collaborative efforts.

Identity Management

For instance, identity management in Nigeria is still a hassle. Our identity management infrastructure remains fragmented as there exists multiple identity databases e.g. driver’s license, BVN, voter’s card and so on, none of which is all-encompassing. This is why the National Identity Management Commission (NIMC) was mandated to build a cohesive national identity database, a project which has captured over 21 million people so far. Judging by the fact that Nigeria’s adult population is estimated to be between 80 -90 million, it’s safe to say we still have a very long way to go. Wouldn’t the journey from 21 million to 90 million be easier and quicker with more ecosystem actors involved?

The NIMC example is just one of the instances that highlights the lack of cohesion among government agencies.

The Social Investment Programmes (SIPs) such as the Conditional Cash Transfer (CCT) that aims to put N5,000 into the hands of extremely poor people every month, have further highlighted some of the gaps in the entire payments infrastructure. Majority of the impoverished recipients of the CCT award are in locations underserved by traditional financial services providers and lack identity. Hence they are unable to even visit the banks to enrol in the BVN scheme and establish their identity. This gap has left the CCT monies sitting in bank accounts and not in the hands of the recipients who were supposed to use it for economic activity. Such a gap (or gaff) requires that more attention should be paid to digitising government payments.

Digitise government payments

Digitising government payments can be a powerful lever in advancing digital payments in the economy. First of all, it enhances people’s comfort with digital payments through the government’s demonstrated support. Secondly, and perhaps most important, it captures individuals and businesses into digital payments products and services, reduces inefficiencies and saves costs. A report by the Gates Foundation in 2014, revealed the many specific benefits of digitised government payments to individuals, intermediaries and the government itself. These benefits outweigh the cost of digitization over time. For example, in addition to increased financial inclusion and e-government enablement, recipients of digitised government payments will benefit from reduced leakage of funds, better access and lower transaction costs.

MSMEs

Research shows that financial inclusion has significant impact on economic growth, income and job creation (we published a technical paper along these lines last year).

The SME community constitute major drivers of economic growth and job creation in the Nigerian economy. According to 2016 SMEDAN and NBS statistics, Nigeria has over 37 million MSMEs. In order to grow the economy, enhancing the productivity and survival rate of these MSMEs would be a strategy for enhanced economic growth. Meaning that, we need to figure out the right financial inclusion initiatives which would have a positive impact on MSMEs. One of such initiatives is the provision of micro credit and pensions through digital financial services.

This gap makes a strong case for Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) to be included in the overall financial inclusion strategy. We also need to see increased support for MSMEs from the other financial institutions. MSME enhancement should be a national and collective drive.

Speaking of insurance and pensions….

Where are NAICOM and PENCOM in the financial inclusion discussion? Where’s the collaboration among the various financial services providers? Our Financial inclusion goals involve raising the number of adults with insurance from below 1 percent to 40 percent and pensions from 5 percent to 40 percent.

Time is not on our side.

To make 80 percent by 2020 a reality, we need to rethink current initiatives and figure out ways to translate political will into more collaboration across players. The question, is does the political will to build the ecosystem exist?