A 2018 report published by Brookings Institute states that Nigeria has overtaken India as the country with the largest number of extremely poor people. With over 87 million people living in extreme poverty, Nigeria has overtaken India’s 73 million. Even though the numbers are seemingly close, they are proportionately different relative to population sizes with Nigeria, 44 percent and India, 4 percent.
With this number increasing by six people every minute, turning around the fortunes of the current 87 million (estimated to become 91.5 million by 2020) deserves urgent national attention.
Our conviction at Lagos Business School (LBS) is that financial inclusion is one of the critical developments required to transform poverty into prosperity. Our thesis is simple: the access to and use of affordable financial services (financial inclusion) contributes to the health and efficiency of the economy and is a lever for poverty reduction (SDG #1).
Financial inclusion is an arduous task that cannot be achieved with one magic bullet. Nigeria’s journey to financial inclusion officially commenced in 2012 with the introduction of the National Financial Inclusion Strategy (NFIS), which spelt out the Central Bank of Nigeria’s (CBN) aim of achieving 80 percent inclusion by 2020. With just over a year until the target date, progress remains slow and dependent on various levers. The recent refresh of the NFIS lays the foundation for a more actionable strategy that also prioritises rural areas and northern states where financial exclusion is highest and extreme poverty is most prevalent.
In our 2017 State of the Market report, we support our thesis with several critical domains in need of policy interventions. What follows are policy suggestions and recommendations which we consider paramount to the accomplishment of Nigeria’s financial inclusion goals:
The need for legislation that supports the security and protection of critical infrastructure is the first priority. With the high costs of operating bank branches, the most cost-effective way to deliver financial services today is through digital channels, hence the need for ubiquitous telecoms infrastructure of acceptable quality. Theft and vandalism of telecoms infrastructure also take their toll on providers, thereby raising costs and eroding service quality. Unfortunately, since its proposal in the early part of this decade, the critical infrastructure bill, which is meant to identify and secure this infrastructure, is yet to see the light of day.
Secondly, financial inclusion efforts are capital-intensive and require commitments from stakeholders, especially financial service providers, to venture into regions where exclusion is highest. A review of the spectrum pricing policy for rural area penetration by the Nigerian Communications Commission (NCC) would induce cheaper or free spectrum licenses. Furthermore, reviewing the Universal Service Provision Fund (USPF) and Nigerian Information Technology Development (NITDEV) fund in order to deploy them for the enhancement of rural telephony in stipulated catchment areas, as well as supporting providers with well-defined incentives (like tax holidays) would make these priority regions attractive to the private sector.
Thirdly, financially-excluded adult Nigerians do not reside in urban areas and are not close to financial access points hence, they are disadvantaged by having to incur higher costs (transportation, time) to access financial services. Providing financial services at the last mile would require the nationwide distribution of third-party agents. Nonetheless, the sustainability of these agents would require differentiated business models that take economic activity and other factors into consideration. Through the Shared Agents Network expansion facility (SANEF), banks have made bold commitments to the growth of agent networks. However, onboarding agents need to be complemented with economic models that ensure agent sustainability. Financial inclusion success is a scale business (low value, high volume transactions); hence increasing the number of transactions will also require government’s participation — digitizing payments and distributing them through these agents.
If the government can implement the ameliorative policy reforms we have highlighted, the financial inclusion needle will move in the right direction. Not just that, these reforms will also have a far-reaching impact on other aspects of the economy, stimulate economic activity, create more jobs and ultimately translate into prosperity for Nigerians.
The fate of over 87 million people depends on it.
