Financial inclusion in Nigeria (1), By Dotun Eyinade

The Nigerian government, in its National Financial Inclusion Strategy adopted in 2011, had set for itself an ambitious target to financially include 80 per cent of its adult population by the year 2020. Needless to say, that target was not achieved as only 64 per cent were included by the end of 2020. The economic downturn, the security challenges in northern parts of the country, poor literacy rate, and low trust in financial service providers are factors militating against financial inclusion in Nigeria. 

Kamoru, a Nigerian engineer, was visiting Accra, Ghana for the first time during his honeymoon in December 2021. As soon as he walked out of the arrival lounge of the Kotoka International Airport, Accra, he opted to get a phone line. He was naturally drawn to an MTN sim card, his preferred network in Nigeria. The shop attendant had asked him if he would like to also top up his mobile money account as soon his sim card was activated. He had read about the ubiquity of mobile money in East Africa and was surprised that it was also the rage in neighbouring Ghana. The shop attendant gave him a crash tutorial on the working of mobile money, and he came away impressed with the ease of using mobile money, especially its use case for sending money to relatives living in rural communities without banks and ATM machines.

While millions of Nigerians like Kamoru have access to financial products and services such as bank accounts, pensions, loans, and insurance products, EFINA, an independent think tank funded by the United Kingdom’s Foreign, Commonwealth and Development Office (FCDO) estimates that a staggering 38.1 million of Nigeria’s adult population are without access to basic financial products and services.

What It Means To Be Financially Included

According to the World Bank, financial inclusion means individuals and businesses having access to basic financial services and products such as bank accounts, loans, and insurance, in a manner that is sustainable and affordable. When there is little or no access to these financial products or services, recourse is made to cash-based transactions – with its attendant risks – and savings are done through informal means, such as esusu, ajo or the local thrift collectors.

Having access to a transaction account is the first step in the road to financial inclusion. This could be in the form of a digital wallet or a bank account. With an account or a digital wallet, people or businesses can save, transfer, and receive money. Those with access to transaction accounts/wallets have better chances of saving for the rainy day, buying insurance products that can help them weather difficult seasons and can even benefit from government’s social investments, such as subsidies and grants. 

In Nigeria, financial service providers are largely concentrated in urban areas, resulting in limited access to financial products and services for those who reside in rural and, in some cases, peri-urban areas. This demographic trend is in keeping with other parts of the world where those financially excluded are clustered in rural households.

The Burden of Financial Exclusion

Financial exclusion is symptomatic of poverty and, in a perverse sense, further deepens inequality. The implication of having a huge swathe of the population without access to basic financial products and services is that their exclusion puts them even in more precarious economic conditions. While Nigerians with bank accounts or mobile wallets can access critical loan products and build a credit history, those without access to digital financial services and products are shut out from these life-changing services that could improve their financial situations.  

In Nigeria, financial service providers are largely concentrated in urban areas, resulting in limited access to financial products and services for those who reside in rural and, in some cases, peri-urban areas. This demographic trend is in keeping with other parts of the world where those financially excluded are clustered in rural households. Those without financial access are also likely to be found in areas without access to electricity, as financial exclusion is also correlated with poor access to modern energy services.

Financial Inclusion and Gender

There is also a peculiar gender dimension to financial inclusion. In a 2019 survey carried out by EFINA in Nigeria, financial exclusion for women stood at 36 per cent, relative to 24 per cent for men. Equally noteworthy is the fact that Nigeria trails less populous peers such as Kenya, South Africa, Tanzania and Uganda, in terms of decreasing the gender gap in relation to financial inclusion.  In Nigeria, women are more likely to rely on informal financial services such as thrift collectors for savings, than men. This gap is even starker in relation to insurance products, where the survey revealed that only 1 per cent of women were insured, despite their vulnerability to unplanned events and unexpected expenses. Some of the gender- specific barriers against women accessing financial products and services include long distance to financial access points, especially for women resident in rural communities and lower literacy levels. 

Financial Inclusion and Youth.

Despite its youthful population, a significant portion of Nigeria’s youths are like its female folk, financially excluded. EFINA estimates that “Young adults, between the ages of 18-35, are significantly more likely than older adults to be financially excluded.” As of 2018, a report published by EFINA showed that only about 21.5 million young people, out of the 56.7 million estimated youths, have bank accounts. Financial exclusion of youth is also correlated with other socio-economic issues such as youth unemployment and underemployment.

Digital financial services, such as mobile money, represent a faster route to drive financial inclusion. While the requirements to open bank accounts – regulatory ID card, proof of residence – may be deemed onerous for the rural poor, the ownership of mobile phone and a sim card offers an easy access to financial inclusion. Thankfully, mobile phones are ubiquitous in Nigeria, even in remote communities.

Government’s Tall Ambition

The Nigerian government, in its National Financial Inclusion Strategy adopted in 2011, had set for itself an ambitious target to financially include 80 per cent of its adult population by the year 2020. Needless to say, that target was not achieved as only 64 per cent were included by the end of 2020. The economic downturn, the security challenges in northern parts of the country, poor literacy rate, and low trust in financial service providers are factors militating against financial inclusion in Nigeria. Policy responses from the Central Bank of Nigeria in the last five years are indicative of full commitment on the part of the government to deepen financial inclusion. Interventions such as the Shared Agent Network Expansion Facility (SANEF), and the licensing of Payment Service Banks are policy instruments designed to reach the unserved and the underserved and to incentivise last mile access.

Routes To Financial inclusion. 

Digital financial services, such as mobile money, represent a faster route to drive financial inclusion. While the requirements to open bank accounts – regulatory ID card, proof of residence – may be deemed onerous for the rural poor, the ownership of mobile phone and a sim card offers an easy access to financial inclusion. Thankfully, mobile phones are ubiquitous in Nigeria, even in remote communities. It is estimated that there were 187.9 million sim connections in Nigeria as at January 2021. As seen in East Africa and neighbouring West Africans countries, mobile money products have resulted in moving a huge swath of the previously unbanked into the ranks of the financial included. In Nigeria, the uptake of mobile money has been abysmally low. Of the factors adduced for the low penetration of mobile money, the regulatory regime that was put in place by the Central Bank of Nigeria provided little incentives for mobile network operators to take the lead in creating mobile wallets. The Central Bank of Nigeria has now developed more friendly regulations, which recognise the role of digital financial products such as mobile money in driving its financial inclusion agenda.

What Next

In the next installments of this series, we will look at financial inclusion in relation to energy access and food security and how access to basic financial services can catalyse access to modern energy services and improve food security.

Dotun Eyinade is a public policy advisor. He works at the intersection of financial inclusion and energy access and previously worked in management consulting.