Nigeria not ready to ensure financial inclusion for all

The Central Bank of Nigeria recently announced that Nigeria cannot reach its target of increasing financial inclusion in Nigeria to 80 percent by 2020. In fact, financial inclusion in Nigeria has gone backwards. Between 2014 and 2017, the percentage of banked adults dropped nearly 4 percentage points to 39 percent, while the sub-Saharan African average increased more than 8 percentage points to 43 percent.

The reason for this is clear: the decision of the CBN to block telecom network operators from applying for mobile-money licenses, rather preferring the service to be offered by banks is the main reason for the failure to drive financial inclusion in Nigeria. This went against the current trend in much of Africa that led to the inclusion of the very poor who hitherto could not afford to open bank accounts. Even the success of M-Pesa, a mobile payments app in Kenya with over 17 million active users and conducting more than $50 billion in cashless transactions yearly, did not convince the CBN to take the telco-led approach. The apex bank’s argument was that telcos are not licensed financial institutions and it was better for the specialists in banking to provide the services so people do not lose their money. Meanwhile, the telecom companies will provide most, if not all, the infrastructure for the scheme.

With the decision to go with the banks, the telcos simply stood by and watched as banks floundered, unable to drive the take-off of digital financial services despite the presence of over 21 licensed mobile money operators in the market.

Current figures show that less than 6 percent of Nigerians use their handsets for mobile money transaction, compared with 73 percent of Kenyans, where more than two-thirds of adults have a bank account, according to the World Bank. This need not be so as Nigeria, with more than two phones for every bank account and with a teledensity of over 108% is a potential global market leader for digital financial services.

It is well that the CBN is now reviewing the path it took in 2012 with a “refreshed strategy” and has also signed a cooperation agreement with the Nigerian Communications Commission to improve the penetration of financial services using mobile phones. It must however go beyond that by licensing mobile telecommunications operators to champion the drive. This way, they won’t just be providing platform for others to use but will champion it, invest in, effectively market the product and ensure their customers subscribe to it like in other climes.

The anxiety over the propriety of telcos performing banking services need not arise. There are precedents Nigeria can learn from. M-PESA in Kenya actually started as a product from a Micro-Finance bank, which was looking for a cheap platform to reach out to its customers spread all over the country. It eventually struck a partnership with Safaricom and that led to the birth of M-PESA which is now widely used across Kenya by both the financially included and excluded.

In Ghana also, the Bank of Ghana allowed the telecom companies to set up subsidiaries with own boards separate from their parent companies to provide mobile banking services. This has led to the relative success of digital financial services in Ghana.

Ability to scale is crucial to the success of mobile money- and clearly the banks cannot achieve this. Therefore, central to CBN’s new strategy should be a central role for the telcos. This is the only way to drive digital financial services and ensure millions of financially excluded Nigerians are financially included.

Christopher Akor