Will the in­tro­duc­tion of PSBs im­prove fi­nan­cial in­clu­sion in Nige­ria?

Financial Nigeria Magazine - - Contents - De­tail Com­mer­cial So­lic­i­tors is dis­tinct as Nige­ria's first com­mer­cial solicitor firm to spe­cial­ize ex­clu­sively in non-court­room prac­tice. Based in La­gos, Nige­ria’s busi­ness cap­i­tal, DE­TAIL is to­tally com­mit­ted to its clients’ busi­ness ob­jec­tives and repu


Ac­cord­ing to a World Bank re­port (the Global Fin­dex Data­base 2017), nearly half of about 1.7 bil­lion un­banked pop­u­la­tion in the world live in just seven de­vel­op­ing economies: Bangladesh, China, In­dia, In­done­sia, Mex­ico, Nige­ria and Pak­istan. In a bid to drive fi­nan­cial in­clu­sion rate up­ward, the Cen­tral Bank of Nige­ria (CBN), on 23rd Oc­to­ber, 2012 – in col­lab­o­ra­tion with other stake­hold­ers – launched the Na­tional Fi­nan­cial In­clu­sion Strat­egy (NFIS) with a view to en­sur­ing that over 80% of the bank­able adults in Nige­ria have ac­cess to fi­nan­cial ser­vices by the year 2020. In other words, the aim of the NFIS is for the fi­nan­cial ex­clu­sion rate of bank­able adults in Nige­ria to re­duce to 20% by that year.

As part of its strat­egy to achieve this tar­get, the CBN has been pro­mot­ing sev­eral fi­nan­cial ini­tia­tives in the fi­nan­cial sys­tem such as, mi­cro­fi­nance bank­ing, agent bank­ing, tiered know-your-cus­tomer re­quire­ments and mo­bile money.

How­ever, de­spite these laud­able ini­tia­tives by the CBN aimed at re­duc­ing fi­nan­cial ex­clu­sion in Nige­ria, fi­nan­cial in­clu­sion re­mains be­low ex­pec­ta­tion as the ta­ble be­low shows:

Con­se­quently, in a con­certed ef­fort to fur­ther deepen the fi­nan­cial in­clu­sion rate (to con­sol­i­date on­go­ing ef­forts), the CBN, through the draft Guide­lines for Li­cens­ing and Reg­u­la­tion of Pay­ment Ser­vice Banks (PSBs) in Nige­ria (the pro­posed Guide­lines), is propos­ing the es­tab­lish­ment of PSBs in the fi­nan­cial sys­tem. PSBs are ex­pected to lever­age on mo­bile and dig­i­tal ser­vices to boost ac­cess to fi­nan­cial ser­vices for low­in­come earn­ers and the un­banked seg­ments of the pop­u­la­tion. The key ob­jec­tive of the PSBs is es­sen­tially to en­able high-vol­ume, low-value trans­ac­tions in re­mit­tance ser­vices, mi­cro-sav­ings and with­drawal ser­vices in a se­cured tech­nol­ogy-driven en­vi­ron­ment, par­tic­u­larly in the ru­ral ar­eas.

High­lights and Key In­no­va­tions Un­der the Pro­posed Guide­lines

A) Op­er­at­ing struc­ture of PSBs in Nige­ria

It is pro­posed that PSBs will op­er­ate mostly in the ru­ral ar­eas and un­banked lo­ca­tions with not less than 50% phys­i­cal ac­cess points in “ru­ral ar­eas” as de­fined by the CBN from time to time. They can also es­tab­lish Au­to­mated Teller Ma­chines in some of these ar­eas (Clauses 3(i) and (ii) of the pro­posed Guide­lines). PSBs are also at lib­erty to op­er­ate through bank­ing agents in line with the CBN Guide­lines for the Reg­u­la­tion of Agent Bank­ing and Agent Bank­ing Re­la­tion­ships in Nige­ria (Bank­ing Agent Guide­lines) and use other chan­nels, in­clud­ing elec­tronic plat­forms, to reach out to their cus­tomers.

The pro­posed Guide­lines re­quire PSBs to es­tab­lish co­or­di­nat­ing cen­tres in clus­ters of out­lets to su­per­in­tend and con­trol the ac­tiv­i­ties of their var­i­ous ac­cess points and bank­ing agents. PSBs are fur­ther re­quired to be tech­nol­ogy-driven and to con­form to best prac­tices on data stor­age, se­cu­rity and in­tegrity.

In ad­di­tion, PSBs are also re­quired to set up con­sumer help desks at their main of­fices and co­or­di­nat­ing cen­tres to at­tend to con­sumer-re­lated is­sues.

B) Per­mis­si­ble­ac­tiv­i­ties

Un­der the pro­posed Guide­lines, PSBs are re­quired to carry out the fol­low­ing per­mis­si­ble ac­tiv­i­ties: i) Op­er­a­tion of sav­ings ac­counts and ac­cep­tance of de­posits from in­di­vid­u­als and small busi­nesses; ii) Carry out pay­ments and re­mit­tance (in­clud­ing in­bound cross-bor­der per­sonal re­mit­tances) ser­vices through var­i­ous chan­nels within Nige­ria; iii) Is­sue debit and pre-paid cards as well

as op­er­ate elec­tronic purse; iv) In­vest in Fed­eral Gov­ern­ment of Nige­ria and CBN se­cu­ri­ties and carry out such other ac­tiv­i­ties as CBN may from time to time pre­scribe.

C) Non-per­mis­si­ble ac­tiv­i­ties

Para­graph 4.2 of the pro­posed Guide­lines pro­hibits PSBs from car­ry­ing out the fol­low­ing ac­tiv­i­ties:

I) The grant of any form of loans, ad­vances and guar­an­tees or trade in the for­eign ex­change mar­ket ex­cept as per­mit­ted in B(ii) above; ii) Un­der­take in­sur­ance un­der­writ­ing or any other trans­ac­tion, which is not pre­scribed by the pro­posed Guide­lines; and

iii) Es­tab­lish any sub­sidiary ex­cept as pre­scribed in the CBN Reg­u­la­tion on the Scope of Bank­ing and An­cil­lary Mat­ters, No 3, 2010.

D) Eli­gi­blepro­mot­ers

The na­ture of per­sons per­mit­ted un­der the pro­posed Guide­lines to act as pro­mot­ers of PSBs are: bank­ing agents (within the mean­ing of the Bank­ing Agent Guide­lines); telecom­mu­ni­ca­tions com­pa­nies through their sub­sidiaries; and su­per­mar­kets/re­tail chains.

Fur­ther­more, Mo­bile Money Op­er­a­tors that in­tend to con­vert to PSBs are re­quired to com­ply with the re­quire­ments of the pro­posed Guide­lines. How­ever, CBN may from time to time, con­sider the el­i­gi­bil­ity of other en­ti­ties as the above list is not ex­haus­tive.

E) Fi­nan­cial­re­quire­ments

The fi­nan­cial re­quire­ments for the reg­is­tra­tion of a PSB, which are sub­ject to vari­a­tion by CBN, are as fol­lows: i) Min­i­mum cap­i­tal: N5 bil­lion. ii) Non-re­fund­able ap­pli­ca­tion fee:

N500,000. iii) Non-re­fund­able li­cens­ing fee: N2


Po­ten­tial Im­pact and Draw­backs

Ac­cord­ing to the CBN, as at 2016, only about 58.4% of Nige­ria’s 96.4 mil­lion bank­able adults were fi­nan­cially served and only 48.6% of all adults used for­mal fi­nan­cial ser­vices (CBN Ex­po­sure Draft of the Na­tional Fi­nan­cial In­clu­sion Strat­egy Re­fresh at page 6). This is a far cry when com­pared with South Africa, where 68% of the bank­able South Africans used for­mal fi­nan­cial ser­vices as at 2012. This, there­fore, shows that a large por­tion of the bank­able pop­u­la­tion in Nige­ria were un­served or un­der­served as at 2016.

Ac­cord­ingly, it is hoped that the in­tro­duc­tion of PSBs into the fi­nan­cial ser­vices sec­tor should go a long way in boost­ing the fi­nan­cial in­clu­sion drive of the coun­try. The pro­posed Guide­lines give the CBN the power to de­ter­mine ru­ral cen­ters and un­banked lo­ca­tions within which a PSB is re­quired to have not less than 50% of its phys­i­cal ac­cess points. How­ever, the draw­backs high­lighted be­low may mil­i­tate against the full suc­cess of the PSB scheme.

Firstly, tech­nol­ogy pen­e­tra­tion (par­tic­u­larly tele­phone and in­ter­net ser­vices), which is a ma­jor re­quire­ment to drive this fi­nan­cial in­clu­sive­ness in the ru­ral com­mu­ni­ties in Nige­ria (the tar­get mar­ket), still falls be­low ex­pec­ta­tion. Throw­ing more light on this, Prof. Umar Dan­batta, the Ex­ec­u­tive Vice Chair­man of the Nige­rian Com­mu­ni­ca­tions Com­mis­sion (NCC), had re­ported that over 200 com­mu­ni­ties that play host to about 40 mil­lion Nige­ri­ans still lack ac­cess to ba­sic tele­phony ser­vices in Nige­ria (The Guardian news­pa­per, 8th Novem­ber, 2017). The NCC Chief fur­ther stated that Nige­ria’s ac­tive in­ter­net con­nec­tion stood at over 90 mil­lion as at 2017, which is just 47.44 per cent pen­e­tra­tion (This is the case even though Nige­ria ranked num­ber one in Africa and 10th glob­ally in the same year). In ad­di­tion, cur­rent fig­ures also show that less than 6% of Nige­ri­ans use hand­sets for mo­bile trans­ac­tion (Busi­nessDay news­pa­per, 24th Oc­to­ber, 2018).

Also, ac­cord­ing to a 2015 re­port re­leased by the United States Cen­tral In­tel­li­gence Agency only 59.6% of Nige­ri­ans be­tween 15 years and above are lit­er­ate. There­fore, il­lit­er­acy, par­tic­u­larly in the ru­ral ar­eas, re­mains a con­spic­u­ous im­ped­i­ment to the full at­tain­ment of fi­nan­cial in­clu­sive­ness and the suc­cess­ful roll out of the PSB scheme.

Fur­ther­more, the pro­posed min­i­mum cap­i­tal re­quire­ment of N5 bil­lion set by the CBN to es­tab­lish and op­er­ate a PSB ap­pears pro­hib­i­tive and dis­cour­ag­ing when com­pared with the min­i­mum cap­i­tal re­quire­ment of the other fi­nan­cial in­clu­sion ve­hi­cles cur­rently op­er­at­ing within the Nige­rian fi­nan­cial ser­vices space. For in­stance, save for the reg­is­tra­tion of Na­tional Mi­cro­fi­nance Bank that cur­rently re­quires a min­i­mum paidup cap­i­tal of N5 bil­lion, the min­i­mum paidup cap­i­tal re­quire­ment to op­er­ate a newly reg­is­tered Unit Mi­cro­fi­nance Bank is N200 mil­lion. A newly reg­is­tered State Mi­cro­fi­nance Bank re­quires a min­i­mum paid-up cap­i­tal of N1 bil­lion (CBN Cir­cu­lar to all Mi­cro­fi­nance Banks dated 22nd Oc­to­ber, 2018).

Ac­cord­ingly, the pro­hib­i­tive cost of set­ting up a pro­posed PSB may serve as a dis­in­cen­tive for in­vestors hop­ing to in­vest in the scheme. Also, the na­ture of ac­tiv­i­ties, which the pro­posed PSBs are per­mit­ted to carry on, are more re­stric­tive than what is ob­tain­able un­der the mi­cro­fi­nance bank­ing ar­range­ment. For in­stance, while PSBs are pro­hib­ited from grant­ing any form of loans, ad­vances and guar­an­tees to their cus­tomers, mi­cro­fi­nance banks do not have sim­i­lar re­stric­tions. These re­stric­tions may, there­fore, make the PSBs scheme unattrac­tive as in­vestors can in­vest less and be able to achieve more by set­ting up a mi­cro­fi­nance bank.

A key con­sid­er­a­tion for the CBN to make the set­ting of PSBs at­trac­tive to In­vestors is to re­duce the min­i­mum cap­i­tal re­quire­ment from the pro­posed N5 bil­lion to about N500 mil­lion or N1 bil­lion, depend­ing on the na­ture of cov­er­age of the PSBs.


In con­clu­sion, whilst the ef­fort of the CBN in propos­ing this PSB ini­tia­tive is highly com­mended as it is ex­pected that it will help re­duce the fi­nan­cial ex­clu­sion rate in Nige­ria, in­vest­ments in the PSBs scheme may be hin­dered if the crit­i­cal draw­backs high­lighted above are not re­solved be­fore the pro­posed Guide­lines are fi­nalised.

Fur­ther­more, con­sid­er­ing that other cheaper fi­nan­cial in­clu­sion ini­tia­tives of the CBN have been un­able to drive up the fi­nan­cial in­clu­sion rate to an ex­pected level, it is left to be seen how this PSB ini­tia­tive will achieve the 20% fi­nan­cial ex­clu­sion rate by the year 2020.

The key ob­jec­tive of the PSBs is es­sen­tially to en­able high-vol­ume, low­value trans­ac­tions in re­mit­tance ser­vices, mi­cro-sav­ings and with­drawal ser­vices in a se­cured tech­nol­ogy-driven en­vi­ron­ment, par­tic­u­larly in the ru­ral ar­eas.

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