NIMS and financial inclusion
The Nigerian National Identity Management Commission (NIMC) and MasterCard last Thursday announced plans to roll out 13 million MasterCard-branded national identity smart cards with electronic payment capability as a pilot programme. The national identity smart card is the card scheme under the recently deployed National Identity Management System (NIMS).
The programme, the partners said at the World Economic Forum on Africa in South Africa, would be the largest rollout of a formal electronic payment solution in the country and the broadest financial inclusion initiative of its kind on the African continent.
As part of the programme, in its first phase, Nigerians aged 16 and older, and all residents in the country for more than two years, will get the new multipurpose identity card which has 13 applications, including MasterCard’s prepaid payment technology that will provide cardholders with the safety, convenience and reliability of electronic payments. The cards are expected to have a significant and positive impact on the lives of most Nigerians who have not previously had access to financial services.
We commend the Federal Government for moving ahead with this bold initiative that aims to increase financial inclusion and access to credit for Nigerians. Nigerian consumers, small businesses and entrepreneurs are often starved of credit. The World Bank estimates that formal sector businesses in the country obtain only 1 percent of their financing needs from banks and other financial institutions. The lack of financial inclusion in Nigeria is stifling the growth of start-up businesses and SMEs, which are often the engine of economic growth in developing countries.
The link between financial inclusion and the NIMS lies in the fact that most banks and financial institutions in Nigeria are unwilling to extend credit or give even basic banking services to people with no formal means of identification. Despite being the most populous African nation and having the second largest economy, Nigeria is a mid-level player in the sub-Saharan banking sector and lags behind some of its peers in Africa with respect to financial inclusion.
In a bid to tackle this anomaly, the Central Bank of Nigeria (CBN) in 2012 rolled out a financial inclusion strategy that aims to ensure that a clear agenda is set for increasing both access to and use of financial services within the defined timeline, which is by 2020. According to the CBN, financial inclusion is achieved when adults have easy access to a broad range of financial products designed according to their needs and provided at affordable costs. These products include payments, savings, credit, insurance and pensions.
In 2010, 36 percent of adults – roughly 31 million out of an adult population of 85 m illion – were served by formal financial services in Nigeria. This figure compares with 68 percent in South Africa and 41 percent in Kenya.
In 2011, Nigeria’s financial services sector contributed 4.07 percent to its Gross Domestic Product (GDP), according to data from the National Bureau of Statistics (NBS). This compares with 11 percent for South Africa.
The middle class makes up about 23 percent of the Nigerian population, according to African Development Bank data, and according to the IMF, Nigeria has one of the 10 highest real income-per-capita growth rates in sub-Saharan Africa, implying that the average purchasing power of its population is increasing rapidly, while access to credit remains negligible.
The CBN notes that the existing banking infrastructure in Nigeria has the capacity to serve as a basis for expanding financial inclusion. As of December 2010, Nigeria had a combined total of 5,797 bank branches, 9,958 ATMs and 11,223 POS terminals. The average number of clients per branch is 3,882, compared to 3,922 in Kenya and 8,595 in Tanzania.
The lack of financial inclusion in Nigeria means that the robust economic growth of the past decade is not trickling down to the people who need it the most, as large corporates and guaranteed wage earners in the public and private sector are often those guaranteed of access to credit. The new NIMC and MasterCard national identity cards are an opportunity to change this.