Unsurprisingly, the Central Bank of Nigeria has reactivated the plan to make more Nigerians gain access to financial services. Currently, millions are excluded from the formal financial services on offer by the deposit money banks, pension and insurance companies and investment organisations. At a stakeholders’ conference in Abuja, during which he unveiled four policy documents, the CBN Governor, Godwin Emefiele, restated government’s commitment to implementing fresh initiatives and bringing in more Nigerians into the financial system. It is a splendid initiative, but there are significant obstacles to achieving the goal.
For now, 36.6 million people have no access to financial services. That figure is 36.8 per cent of the adult population, data from Enhancing Financial Innovation and Access, which is funded by the DFID and the Bill & Melinda Gates Foundation, state. This is a slight improvement, but far from the target to involve 80 per cent of the adult citizens in financial services by 2020, just over a year away.
The Federal Government initiated the National Financial Inclusion Strategy in 2012 after a study revealed that 46.3 per cent Nigerian adults were unbanked and did not have access to quality financial services. Millions of Nigerians in the rural communities have never had a bank account, let alone own insurance schemes or stocks. As of 2018, only 33 million Nigerians had been enrolled in the Bank Verification Number scheme. A 2016 survey by the EFInA stated that 23.9 million adults saved their money at home.
Essentially, banks are situated in the cities and towns, locking out rural dwellers from their services. Bank services in the urban settlements are annoyingly poor. Long queues, excessive delays at the ATMs, poor IT infrastructure for transferring money, non-dispense errors/debits and other tiresome debacles are associated with them, but none more than spurious, illegal and excessive charges. With the CBN benchmark lending rate at 14 per cent, bank customers who require loans are reluctant to sign up because the interest rates vacillate between 26 and 30 per cent, depending on the sector of the economy. All this discourages customers.
A 2017 report by the World Bank found that, along with China (225 million), India (190 million), Pakistan (100 million), Indonesia (95 million), Mexico and Bangladesh, Nigeria is home to nearly half the world’s unbanked population of about 1.7 billion. In Nigeria, this is due in part to financial illiteracy in the rural areas. Many Nigerians – particularly the wealthy – conceal their funds in unusual places like water storage tanks, ceilings, septic tanks and coffins.
Among other deterrents, those who withdraw from their savings accounts more than thrice in a month attract no interest. Similarly, ATM card holders who withdraw more than thrice from other banks in a month pay a penalty of N65 for every transaction after then. This is harsh. Emefiele’s predecessor, Lamido Sanusi, had abolished this fee, but it has been reinstated. If Emefiele is desirous of meeting the 2020 target, he should reverse that oddity.
Financial experts argue that low financial inclusion is a lose-lose situation for an economy. With Nigeria having a huge informal economy, the money available there ramps up liquidity surplus, and, in turn, fuels inflation. In the first half of 2018, the CBN used N848 billion to mop up N13.9 trillion from the interbank money market, but credit to the various sectors of the economy fell in the same period. Inflation is 11.44 per cent. This is farcical.
Apart from boosting savings, the World Bank says financial inclusion enables the poorest and most vulnerable in the society to exit poverty, helps to drive economic growth and empowers people with skills and knowledge to make the right financial decisions.
With Nigeria’s population growing rapidly, the CBN should give priority to this project so as not to exclude more adults from the financial system. Its monetary policies, especially the benchmark rate, should be geared towards the single-digit. Regulations that encourage transparency and risk reduction in banking should be enforced; banks that commit infractions on customers’ accounts should be punished.
When it is highly risky to use banks, customers will design various means to keep their money safe. This denies the formal economy of the needed funds to lend to businesses. In small towns, banks lock up shop because of insecurity. In Offa, Kwara State, robbers attacked five commercial banks in the town last April, killing 23 people, including nine police officers. On January 24, three people reportedly died after a bank robbery in Ila-Orangun, Osun State. To boost confidence in the banks, the Federal Government should strengthen security nationwide.
Globally, about 70 per cent adults have bank accounts, leaving about 1.7 billion still unbanked. The World Bank says a strong consumer protection is key to ensuring that expanded access to financial service benefits consumers, enabling them to make well-informed decisions on how best to use financial services, building trust in the formal finance sectors, and contributing to healthy and competitive financial markets. The CBN should, therefore, do more to protect consumers by promoting responsible and sustainable financial services.
To achieve the 80 per cent target, the CBN should pursue and broaden the scope of mobile money schemes, which it has started with the Shared Agents Network Expansion Facility. It should build confidence in the point of sales scheme and implement policies for seamless money transfer, while also reducing the cost of transferring money and getting banks to streamline their charges. It should encourage the spread of solid community/microfinance banks that will cater to the rural areas and traders, artisans and SMEs.