CBN’s Attempt at Meeting Financial Inclusion Target
Olaseni Durojaiye, in this report, reviews the reasons adduced by the Central Bank of Nigeria for missing out on the target to achieve 80 per cent financial inclusion by 2020
An end seems not in sight for the discourse in financial circles on the imperatives to bridge the wide gulf between banked and unbanked Nigerians, which led to the adoption of the Exposure Draft of Financial Inclusion Strategy of 2012. This is one of the imports of the Exposure Draft of the Financial Inclusion Strategy Refreshed, released by the Central Bank of Nigeria recently. The apex bank, guided by the advantages inherent in bringing more Nigerians into the financial pool had launched the financial inclusion strategy, which targeted 80 per cent of Nigerians by 2020, in 2012. But after a review of the whole process, the CBN has now admitted that the goal was not achievable by the set date, owing to a number of factors, even as findings has revealed that some of the factors that militated against achieving the target, as revealed in the refreshed document, are still around and, not likely to go away soon. In the exposure draft released earlier this July, the apex bank stated that, “Nigeria is not on track to meet the 2020 targets set out in the National Financial Inclusion Strategy (NFIS) of 2012,” and traced the cause to economic constraints, insecurity issues in the northern part of the country, obsolete strategies, economic recession and cumbersome process of opening and operating a bank account. Continuing, the document, which was posted on the website stated: “The NFIS redraft identified five crucial priorities to increasing financial inclusion in the country, with emphasis on : creating a conducive environment for the expansion of DFS, enabling the rapid growth of agent networks with nationwide reach, reducing KYC hurdles to opening and operating a bank account, creating an environment conducive to serve the most excluded and driving adoption of cashless payment channels, particularly in government-to-person and person-to-government payments. The report has, however, caused a revisit of some of the encumbrances identified by the apex bank. Of particular interest to financial experts and operators in the nation’s financial circles are the Know Your Client (KYC) hurdles to opening and operating a bank account; driving adoption of cashless payment channels, particularly in government-to-person and person-to-government payments; as well as creating conducive environment to drive the inclusion of the excluded. Some of the respondents to THISDAY enquiries, while admitting that the economic recession may have impacted negatively the set goals, disagreed with the CBN claims on the security challenges in parts of the country, particularly the North-east. One of them, a branch manager with one of the nation’s commercial banks explained that, “Issue of insecurity in the North East as a factor does not fly with me. What is the percentage of banked Nigerians in the rural North even before the advent of the Boko Haram insurgency and what has been the figure with the improving security situation in the area?”
Going Forward Instructively, the CBN is not discouraged by the failure of its initial attempt. Determined to bridge the gap, it has adopted a twopronged strategy going forward, which in its projection will drive financial inclusion to a level obtainable in some African markets like Kenya, where financial technology market is huge. According to the website, the refreshed strategy is based on a first-principle approach. It recognises the various core mandates that need to be managed to develop a solid, stable yet inclusive financial system and identifies the principles that need to be in place to manage and govern financial services. Part of the details of the refreshed document, to ensure that regulation will focus on the activity and not the actor; a subtle preference for the eligibility to provide the financial service without closing off the sector from future innovation. The other leg of the strategy favours that operators are to focus more on areas of “comparative advantage” to achieve more impact. The CBN is reportedly inclined towards a situation whereby mindful of the complexity and volume of changes that need to happen, going forward; individual operators focus more on operations that best suit their capacity even with an eye on inclusiveness as much as possible. Analysts React Analysts appeared critical of some of reasons the CBN adduced for the inability to meet the target to harness 80 per cent of Nigerians into the banking basket. One of them described the plan as a “pipe dream.” Reviewing the reason, Research and Economic Analyst with the Nigerian Economic Summit Group (NESG), Rotimi Oyelere, agreed that economic recession indeed impacted the target negatively, but added that the insecurity in the North-east was not tenable even as he agreed that the KYC process of opening and operating a bank account is cumbersome as it presently is. Oyelere explained that, “Theoretically, when consumption grows, saving shrink, because people are only able to save. In a recession, people have to re-adjust their spending patterns and this always leads to lesser savings or no saving at all and then the ability of people to save goes a long way in facilitating financial inclusion. Increase in prices of consumables like food and energy, transportation cost have eroded any given gains in nominal disposable income as such more proportionate income will go into consumable. So recession is a tenable reason.” Chief Executive Officer of Cowry Assets, Johnson Chukwu, however, argued that the reason is only tenable to the extent that “anybody who lost his source of income would not have any compelling need for banking services, anything otherwise, I do not agree.” In weighing in on the security challenges in the North-east, he agreed that it might have affected the projection given that the North-east would have been factored into the projections and the inability to reach the people in the areas must have impacted the projections. According to Chukwu, the people in the North-east were factored into the inclusiveness projection, so when they cannot be reached they would be subtracted from inclusiveness projection target. However, Chukwu and Oyelere appeared to side the rural penetration of banking services as a major challenge towards achieving financial inclusion in the country. Both respondents noted the absence of money deposit banks in the rural areas, thus leading to a disinterest in banking services by rural dwellers. “Another contributory factor is absence of banking services in the rural areas. In some places people would travel five to seven kilometers before they could get to the nearest bank. The microfinance banks that are supposed to fill the gap are not helping matters. A farmer who goes to the farm everyday would not see any compelling reason to travel up to seven kilometers just to deposit his cash in a bank,” Chukwu explained. He added that, “What is needed to drive financial inclusion is financial literacy,” even as he agreed that operational KYC process is cumbersome due to the absence of a unified and universally adopted means of identification. “The current KYC of opening and operating a bank account is a contributory factor. To open a bank account, you will be required to produce a valid Drivers’ License or an International Passport; you will agree with me that not all Nigerians have that. The third option is a Voters’ Card as a means of identification. It would have been much easier if there were something like a social security number, which gives a unique identity. Government should drive towards a unique and universally adopted means of identification,” he posited.