Challenges to Financial Inclusion in Nigeria

Nigeria with a 41.6 percent financial exclusion rate is faced with various challenges to achieving the set 80 percent financial inclusion target by the Central Bank of Nigeria (CBN) by 2020.

The Nigeria government, in its Economic Recovery & Growth Plan (ERGP) signed in April, 2017 recognizes the need to deepen the financial services sector as one of its key strategies to drive inclusive growth.

Although, no matter how simple or complex strategies in achieving the blissful gains of financial inclusions, it is an illusion to believe that the whole process is cost free, and such high fees by banks, irregular income, unemployment, long distance to access points and high illiteracy levels are the major barriers to financial inclusion in Africa’s largest economy.

Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs which includes; transactions, payments, savings, credit and insurance which will be delivered in a responsible and sustainable way, also access to a transaction account is cited as a first step toward broader financial inclusion since it allows people to store money, send and receive, as compiled from the World Bank.

According to survey by Enhancing Financial Innovation and Access (EFInA), about 40.1 million or 41.6 percent of Nigerian adults are financially excluded and 48.6 percent are financially included while 58.4 percent are said to be financially served.

The fee structure of Nigerian banks is up to four times higher than countries such as Germany, Australia and even India. However, this is partly due to the high operating costs of banks, as there is no regular power supply among other amenities that the financial service providers in the country have to acquire at high cost to ensure smooth running of their operations.

Therefore, access to financial services and products remain expensive to low income earners in Africa’s most populous nation, considering unemployment rate is as high as 18.8 percent and maiden income earned by this set of citizens in the country ranges between N10000 to N20000 per month, according to BusinessDay analysis.

This however makes it difficult for a person in such category to use a minimum of N1000 to open a savings account and use another N1000 or more to get an Automated Teller Machine (ATM) card. It will also be difficult to maintain the monthly charges that come with having a basic bank account, as he or she would have to pay for account maintenance fees, text message alert charges, ATM maintenance and the likes.

People on low incomes especially, have a deep mistrust of the formal financial sector, which is rooted in fears of exploitation. Past abuses, such as the inappropriate marketing and selling of financial products, have shown that poor people are highly susceptible to rapacious commercial interests, considering Nigeria is one of the most corrupt countries in the world, and as such some of its citizens have this perception towards the financial sector.

Poor Nigerians are particularly vulnerable due to widespread financial illiteracy, exacerbating the sense of mistrust and levels of exploitation fostered by these practices. Unfortunately, this is a systemic education problem within the country that cannot be addressed in the short-term.

Lack of information and high illiteracy rate is a hindrance as to why some financially excluded citizens do not know that there are bank account packages that do not require many documents to open a basic savings account.

“There is an account which the CBN has introduced through the various commercial banks across the country, which enable individual with no form of identification, water bill or other normally required documents to open a bank account, pending when they are able to provide them to upgrade the account. However, a Bank Verification Number is a basic priority to opening any bank account and the customer will also have to put some amount of money in the account to enable him or her carry out transaction,” a banker in the sector told BusinessDay.

Other challenges to financial inclusion in the country are the fact that Banks require too much paperwork and slow response times.

The financial services industry has created substantial barriers for individuals to access products such as loans. Banks require payslips and bank statements, and approval can take a long time. This is restrictive to people in the low income segment that often need money on the same day and do not have access to these documents.

When borrowing money to get to work or buy food, flexibility and near immediate response times are the key factors in determining the channel used. Despite the progress that has been made by formal financial institutions in these areas, regulatory requirements make it difficult for them to compete and therefore, in a pinch, many Nigerians turn to community loan sharks (known as Esusu), or friends and family.

A specialist in the sector however said it is the due process to follow in order to not incur bad loan, as the banks are not charity organization, and that if they are not careful with their dealings, it might result to taking them out of business.

In March, 2017, Enhancing Financial Innovation and Access (EFInA) released the findings from its survey on Access to Financial Services (A2F) in Nigeria According to the report, the key factor responsible for the increase in exclusion rate (from 39.5 percent to 41.6 percent) was the challenging economic environment in 2015-2016 which had a direct negative effect of low employment rate, lower disposable income and Increasing inflation rate with greater impact was felt by the bottom of the pyramid.

The key concern from the survey was the financial exclusion trend across varying regions in the country. The North West witnessed the highest increase in financial exclusion rate from 56 percent in 2014 to 70 percent in 2016, financial exclusion in the North Central increased from 33 percent in 2014 to 39 percent in 2016, and the exclusion rates in the South East also increased from 25 percent to 28 percent.

By contrast, improved performance was reported for the South West which witnessed financial exclusion rate decrease from 25 percent in 2014 to 18 percent in 2016, resulting in the region surpassing the target for 20 percent exclusion rate by 2020.

Meanwhile, the Central Bank of Nigeria (CBN) aims at ensuring 80 percent of Nigerian adults are financially included (have easy and affordable access to financial services and products) while Africa’s most populous nation will have 20 percent of its citizens financially excluded by the year 2020.

As such introduced different policies and strategies that can help achieve this aim and they include; the adoption of the rural banking programme in the late 1970. This was introduced by the CBN in 1977 with the aim of achieving one branch bank in each of Nigeria’s local government areas.

One of the critical initiatives in this same direction was the incorporation of Financial System Strategy (FSS2020). The initiative represents a holistic and strategic road map and framework for developing the Nigerian financial sector into growth catalysts that will enable Nigeria be one of the 20 largest economies by 2020, as compiled from the CBN website.

Endurance Okafor