Tackling Barriers to Financial Inclusion

The barriers to financial inclusion must be tackled in order to enhance the adoption of banking services, reduce poverty and inequality, writes Obinna Chima

The quest to reduce the population of adult Nigerians without access to financial services requires alignment of digital payment strategies with the nation’s financial inclusion goals.

While the nation has recorded some progress in the achievement of its National Financial Inclusion Strategy goal, which seeks to reduce the number of adult Nigerians without formal access to financial services to 20 percent by 2020, there are still 39 million adult Nigerians without access to any formal financial services.

Indeed, financial inclusion is a state where financial services are delivered by a range of providers, mostly the private sector, to reach everyone who could use them. Specifically, it means a financial system that serves as many people as possible in a country.

Clearly, the principle of financial inclusion has assumed greater level of importance in recent times due to its perceived importance as a driver of economic growth.

According to the Central Bank of Nigeria (CBN), giving access to the hundreds of millions of men and women (all over the world) who are presently excluded from financial services would provide the possibilities for the creation of a large depository of savings, investable funds, investment and therefore global wealth generation.

In other words, access to financial services that are well suited for low-income earners promotes enormous capital accumulation, credit creation and investment boom. Usually, the low-income earners constitute the largest proportion of the population and so control enormous chunk of the idle fund in the economy albeit held in small amounts in the hands of each of the several million members of this group. Harnessing and accumulating these resources provides a huge source of cheap long-term investable capital.

However, experts have stressed the need to continue to ensure the adoption of innovative digital payments solutions that offer convenient, affordable and reliable financial services, driven by collaboration among stakeholders, as well as enabling regulatory framework that encourages competition and innovation.

These were the recommendations of financial experts led by the Deputy Governor, Operations, CBN, Mr. Bayo Adelabu, at the recently held annual retreat of the Committee of E-Business Industry Heads (CeBIH) in Ogun state, with the theme: “Repositioning Digital Payments to Achieve the Financial Inclusion Goals of FSS 2020.”

The Chairman of CeBIH, Mr. Dele Adeyinka, noted that 39 million adult Nigerians were still without access to basic financial services, 10 years after the inauguration of the payment systems vision 20:2020 as a driver for financial inclusion.

He however noted that ensuring that this huge number of people has access to financial services by 2020, is not only a challenge but also an opportunity for the industry.

“Meeting this demand and need is a huge challenge. But it also presents very big opportunities. It is with this back ground in mind that CEBIH decided to take a cursory look at this policy frame work at this 2017 retreat, particularly as we are only three years away from the magic year 2020 referred to by the policy,” Adeyinka said.

Opportunities for Financial Inclusion

To Adelabu, the National Financial Inclusion Strategy places greater emphasis on availability of payments services for the extension of financial service. He pointed out that the expectation of the strategy was to have 70 per cent of adult Nigerians have access to payments services by the year 2020 in order to reduce the exclusion rate to 20 per cent by year 2020.“While this may appear daunting, it is not beyond your reach. In fact, it opens the industry up to opportunity of having more customers, diversifying its deposit base and increasing revenues,” he said.

The retreat also featured a video presentation featuring interviews with fishermen, farmers, artisans and other informal sector operators, explaining their difficulty in accessing financial services vis-a-vis operating bank accounts and accessing loans from banks.

In his comment, Adelabu noted that the video among other things revealed that opportunities abound, saying there are lots of opportunities to drive financial inclusion.

He said the video also confirmed what is generally believed to be the solution to financial inclusion challenge.

He added: “The video makes a compelling case that electronic business is the only solution to grow our financial inclusion objectives.

“Digital or electronic channel is the only solution to the frustration expressed by the people interviewed in the video because it is cheaper and no need for distance. We have the solution in our hands but how do we achieve this.”

On her part, Dr. Yinka Davis of the Lagos Business School, explained that digital financial services wouldhelp remove many of the barriers to financial inclusion encountered by the financially excluded.

Digital Financial Service (DFS) she noted is affordable and eliminates barriers of distance and access.

According to Davis, DFS among other things delivers lower transaction cost, ease of remittance, improved security and efficiency.

“It results into employment opportunities, it enhances commerce and supports microfinance”, she said, adding, “The potential of DFS is enormous if well exploited. It is not about big value transactions but low value transactions that happen frequently”

According to her, research had shown that there is an informal equivalent for every financial service offered by banks, and hence the challenge for banks is how to get people in the informal sector to patronise them.

This, she stressed requires that banks build products and services based on understanding of who the people are and what really need.

Speaking on the use of mobile phones to deliver digital payments, Davis noted that there is need for increased awareness and home grown mobile payment solution that incorporates use of local languages for payment transactions.

Also, the Chairman of SecureID, Mr. Adedotun Sulaiman, made a case for digital payment products based on customers’ needs, stressing, this is one of the lessons the financial sector needs to learn from consumer goods and mobile services industries.

He said: “It is also pertinent to highlight the instructive lesson that the financial services sector needs to rapidly absorb very useful insights from the experiences of consumer goods and mobile services industries, which happen to have leapfrogged banking as far as achieving far greater outreach and penetration of their products and services, and herein lie the imperatives for industry players.

“Specifically, these insights lie in the following areas: understanding consumer needs and staying connected as the needs evolve; designing products that adequately address those needs and create a customer pull;leveraging and riding on deep, broad, and resilient, third party distribution networks which are not necessarily part of their owned infrastructure; and effective branding, marketing, promotion and active consumer engagement and education”.

Furthermore, Sulaiman pointed out that tackling the nation’s financial inclusion challenge also requires a framework of incentives and disincentives to promote financial inclusion in the country.

He also cited the need for regulators and policy makers to encourage innovation around development and widespread mobile technologies and their integration with banking infrastructure, which he noted, “has increasingly enabled the delivery of convenient banking services to demographics and locations previously under-served, on the back of increasing access to data and devices by more people in emerging markets.”

The Big Data factor

To Emeka Okoye of Cymantics, there is need for financial services to take advantage of the opportunitiesoffered by the explosion of digital data in their quest to extend financial services to more people.

In his presentation, Okoye stated that the high mobile phone penetration across the nation offers financial inclusion a huge opportunity to offer the unbanked with a “customer-centric” approach.

He added: “Every time these individuals make a phone call, send a text, browse the internet, engage social media, or top up their prepaid cards, they deepen the digital footprints they are leaving behind.

“These digital footprints are helping to spark a new kind of revolution in lending. In the last few years, a cluster of fast-emerging and innovative firms, FINTECHs, has begun to use highly predictive technologies and algorithms to interrogate and generate insights from these footprints. Together, these consumer, data, and digital revolution trends are helping to change the landscape of inclusion and reach, offering the promise that billions of previously “invisible” consumers can be “visible” for the first time.”

He explained that among other things, big data can help financial institutions extend credit to consumers who previously had to rely on expensive and sometimes exploitative informal credit, if any, because they had no formal credit history; Identify customers who lack formal identification documents; Design new products to fit the actual needs and realities of consumers, based on their behaviour and demographic information; Enter new markets, increasing competition on price, quality and innovation.

However, in his concluding remarks, Adelabu called for increased investment in digital payments and cooperation especially between banks and financial technology firms.

“The scale of transactions that we can drive through digital channels is therefore a compelling business case for you to increase investment in this segment of banking business. This business case, as you may have observed, is driving the interest of FinTechs into your terrain and failure to be agile in responding, not necessarily by stifling the space but by collaborating with the new entrants will impact you negatively,” he said.