Restrictive monetary policy seen

AS THE WEEK OPENS WITH the Central Bank of Nigeria (CBN) holding its first monetary policy meeting for the year, businesses looking to acquire cheaper loanable funds may have to wait till the second half of the year for their wishes to come true.

NIGERIA’S EF FORTS AIMED at integrating a huge segment of its population into the formal financial sector may have taken off but clearly yet to gain the desired traction and achieve the result that the government, financial industry regulators and other critical stakeholders want. In its revised Financial Inclusion Strategy recently released, the Central Bank of Nigeria (CBN) outlines what it intends to achieve in these words: “Financial inclusion is achieved when adult Nigerians have easy access to a broad range of formal financial services that meet their needs at affordable costs.” The services include, but are not limited to, payments, savings, loans, insurance, pension products and capital market products.

However, millions of Nigerians, especially those in the rural areas, are still largely excluded from the financial sector. They have neither access to financial services nor the resources that will help them build successful businesses. Even those who have money to bank refuse to adopt non cash channels like mobile money and other digital financial services because of their cash orientation and the cash nature of the economy.

The Central Bank of Nigeria puts the success rate at 56 percent as against the target of 80 percent, indicating that it is not on track to reach its target. It is now reviewing the path it took in 2012 with a “refreshed strategy” and has also signed a cooperation agreement with the Nigerian Communications Commission to improve the penetration of financial services using mobile phones.

Madam Ayisat Kolawole is a palm oil producer using the traditional method of production based in Awe, a town located 45 kilometres north of Ibadan in South West Nigeria. She leads many other women engaged in palm oil production in the town. Their factory, located within an oil palm plantation in the outskirt of Awe, has many local mud ovens used in heating the palm fruit. Buyers come from both far and near and pay in cash. The money is kept within the plantation and never taken to the bank for safe keeping. When asked why she and other palm oil producers do not keep their money in the bank, she said the banks ask them to produce so many documents including guarantors’ reports, bank verification number which they cannot produce because they are illiterates.

“Where are we going to get those things they are asking us to bring? We are always here working”, she said.

Zemade Gusu is an itinerant fish hawker in Lagos. She belongs to the Egun ethnic stock known for a high prevalence of illiteracy. Her fisherman husband rows his boat on the Lagos lagoon every day on his fishing expeditions. Zemade lamented how lack of capital had stunted her trade. According to her, she would be glad if she could access a loan of N10,000 to give her business a lift.

Kolawale and Zemade’s cases are similar to the experience of millions of other women and men in business in the remote areas where, in most cases, there are no banks where they can keep their money.

Nigeria’s unbanked population

According to the data contained in the revised financial inclusion strategy of the CBN, a total of 40.1 million adult Nigerians (41.6 percent of the adult population) were financially excluded in 2016. A further analysis revealed that 55.1 percent of the excluded population were women, 61.4 percent of the excluded population were within the ages of 18 and 35 years; 34 percent had no formal education, and 80.4 percent resided in rural areas. The revised strategy revealed that 46.5 percent of the females, 52.5 percent of those in rural areas and 53.5 percent of youth aged 18 to 25, 70 percent of those from the North West and 62 percent of those from the North East were excluded in 2016. Medium and small scale enterprises were also peculiarly excluded from financial services.

For these Nigerians, they keep their money at home

under their pillows, in wooden boxes and sometimes bury the cash and retrieve it when they need it. This is not only pitiable but also risky as many successful unbanked traders had been attacked and robbed of their money by miscreants and robbers.

Impediments to financial inclusion

When the CBN launched the financial inclusion programme in 2012, it did not anticipate the fast pace of developments in the technological sphere and the dynamics within the financial market. Wholesale reliance was placed on point-of-sale terminals as the vehicles for driving financial inclusion. Today, they are no longer the appropriate or most efficient channel for distribution of financial services in view of advances in technology. Similarly, the Central Bank of Nigeria says regulations and policies, such as fixed fees for certain transactions, limit the range and variation of business models that can be deployed. Innovative models that have substantially increased financial inclusion in other countries such as mobile money penetration are yet to take significant root owing to some restrictive policies and regulations.

The pace of adoption and agent density have been low due to lack of understanding of the workings of agent banking and the opportunities it provides for stakeholders. Of course, the challenging macroeconomic and security situation in the country exacerbated the constraints to financial inclusion, just as low or non-adoption of financial products owing to cultural and religious factors slowed down financial inclusion in the Northern parts of

the country

Prospects

There are positive developments in the last one year that give hope that the financial inclusion initiative will take root and reduce Nigeria’s unbanked population and achieve the target of 80 percent financial inclusion for the adult population by the year 2020. Some of these developments include : (i) the signing of an MoU in 2018 between the Central Bank of Nigeria (CBN) and the Nigerian Communications Commission on digital payment systems. (ii) collaborative efforts between the CBN and Nigeria Inter-Bank Settlement System (NIBSS) to create a regulatory sandbox for innovative financial services, (iii) partnership between the Committee of Bank CEOs and the private sector to roll out a 500,000-agent networks nationwide.

Through a partnership with the Cherie Blair Foundation for Women, VISA and the First Bank of Nigeria, Youth for Technology Foundation (YTF) launched mobile financial services for Women in Nigeria, an initiative that provides female entrepreneurs in the country with an innovative, mobile-technology solutions to solve the problem of financial exclusion.

Through this project, 2,500 women from 10 states in Nigeria (Abia, Lagos, Osun, Rivers, Anambra, Oyo, Abuja, Kaduna, Kano and Bauchi) will become mobile banking agents. With the help of the FirstMonie mobile banking platform, they will offer Nigerians branchless banking and mobile financial services.

YTF is providing these women with training in entrepreneurship and financial capabilities as well as ongoing support, monitoring and evaluation. Based on the bank’s average agents-tocustomer rates, the initiative expects to positively impact 75,000 Nigerians in its first year.

Also, some banks, including First City Monument Bank (FCMB), have recruited agent banks through which they will offer their services to customers in remote parts of the country. FCMB signed a memorandum of understanding with World Savings and Retail Banking Institute on how to deepen its financial inclusion efforts.

The memorandum outlines a framework to deepen agency banking, financial inclusion and savings culture in the informal and agribusiness sectors. As part of the terms of the partnership, in addition to the stated areas of support, WSBI will provide technical oversight supervision on a regular basis to ensure the achievement of mutually agreed goals set by both institutions.

According to the memorandum, the project involves FCMB rolling out an integrated savings account – named ‘Kampe Account’ – to offer financial services under phase one of its plan to 150,000 unbanked and under-banked farmers across five states through agricultural agents operating under the bank’s agency banking proposition.

Recently, Nigeria unveiled the rules that will allow wireless carriers to transfer cash, softening a previous policy that protected the turf of banks. The action followed the inability of banks to reach all the adults who desire financial services. Telecommunications firms, including South Africa’s MTN Group Ltd., are now interested in applying for licenses that will allow them, and even supermarket chains, to create units that can collect deposits and maintain savings accounts.

“These guys are going to grab all the bottom-of-thepyramid transactions,” said Bismarck Rewane, chief executive officer of Financial Derivatives Co., a risk advisory group based in Lagos. “This is a disruptor to the traditional way of doing things.”

The way forward

First, create an enabling environment for the expansion of digital financial services (DFS). DFS have proven to be a lowcost approach to reaching unserved and underserved customers. Kenya and Ghana are ahead of Nigeria in mobile money transactions. The Central Bank of Ghana in its last report on bank performance said mobile operators in the country recorded total mobile transactions in 2017 worth N12.5 trillion or $35.9 billion, a 98.5 percent growth from last year.

Similarly, Kenya, Africa leader in mobile money operation also recorded 89 percent increase on the value of transaction to N12.9 trillion ($45.3 billion).

“The findings illustrate the difficulty of cracking the financial services market in Nigeria via mobile payments services, hence the need for MMOs to focus on their primary market of deepening digital inclusion in the grassroots,” said John Chukama, a consultant agency banker.

Secondly, appointment of and the rapid growth of agent networks with nationwide reach. Agents — particularly cash-in / cash-out (CICO) agents — act as the entry point for financial inclusion and facilitate the crucial conversion between cash and digital money.

Thirdly, harmonise Know Your Customer requirements for opening and operating accounts/mobile wallets on all financial services platforms.

Fourthly, create an enabling environment to serving the most excluded, so that inclusion efforts do not focus solely on the ‘lowest hanging fruit’ (and thereby increase inequality).

Lastly, improve the adoption of cashless payment channels, particularly in government-to-person and person-to-government payments, in order to (a) establish trust by leading by example, (b) provide a sufficient load volume to drive the business case for building and growing distribution networks and (c) put in place a compelling mechanism to include large numbers of unserved and underserved people.