Why We Launched the Sustainable and Inclusive Digital Financial Services Initiative
Facilitating market-enabled interventions to drive financial inclusion in Nigeria via digital financial services
Access to financial services is a critical factor in the transition in and out of poverty — and while there has been significant progress in driving financial inclusion around the world, globally two billion people remain unbanked.
In Nigeria, 4 out of every 10 adults is financially excluded — that is, they have no bank accounts, no access to formal financial services like insurance, pensions, credit and savings. Moreover, fewer Nigerians subscribe to non-bank financial services like insurance and pensions, increasing their risk and vulnerability. In spite of this, the enabling environment for DFS seems positive. For instance,
- Nigeria has a remarkably high teledensity,
- As of 2016, over 21 mobile money licenses had been awarded,
- Over 71,000 POS terminals have been deployed across the country.
In spite of all these, Nigeria’s financial exclusion remains high at approximately 40%.
Obviously, there is still much work to be done if we are to reach the National Financial Inclusion Strategy (NFIS) goal of 80% financial inclusion by 2020.
The various regulatory interventions such as rural banking, Peoples Bank and Community [and microfinance] banking have sought to provide access to affordable financial services within each locality. In addition to generating deposits, these interventions also sought to enhance entrepreneurship and commerce and hence reduce poverty levels.
It became evident that to build a sustainable ecosystem, adequate consumer value propositions and financial products, accessible financial access points, government policies and regulations would be required. This is because in-depth understanding of the Nigerian financial services ecosystem — consumer profiles and market dynamics as well as operator capabilities, etc. — were lacking.
Hence in 2015, with the support of the Bill and Melinda Gates Foundation (BMGF), Lagos Business School launched the Sustainable and Inclusive Digital Financial Services Initiative.
The first project we embarked upon, “Sustainable Business Models for Delivering Digital Financial Services to Lower Income Unbanked Citizens of Nigeria” set out to:
• Increase understanding of the Economics of DFS providers in Nigeria
• Increase understanding of environmental factors impacting success of DFS businesses in Nigeria
• Identify market-enabling policy interventions for greater MNO participation in Nigeria
• Build the capacity of Lagos Business School to become a subject matter expert on sustainable DFS business models in Nigeria
• Build the DFS business development and management know-how of business leaders in Nigeria
Our evidence-based approach employs scientific and analytical methods to acquire and explore consumer and operator data. Such methods require fostering the ecosystem of government, financial services regulators, donors and the private sector via periodic engagements with the aim of increasing financial inclusion in the country.
We commenced our engagement last year, focusing on the supply-side of mobile money. We conducted in-depth studies of mobile money consumers and operators (MMOs), identifying sustainable business models and other market interventions which would enhance financial inclusion. We also published the first State of the Market Report providing an overview of the current state of financial inclusion and digital financial services adoption in Nigeria.
This year, our focus turns to the regulatory landscape. We are mining regulatory and legislative documents to identify market-enabling policies for sustainable DFS. Our work will enable regulatory reform which will catalyze the digital financial services ecosystem in Nigeria — driving up financial inclusion in the process.
We have already seen stakeholders from the private sector interface with us, leveraging our work to inform the creation of new products for their markets.
And we believe this is only the beginning of a more robust financial services ecosystem.
