Financial Inclusion is defined from the Nigerian context as an ideal state ”when adult Nigerians have easy access to a broad range of formal financial services that meet their needs”. Access to financial services by a broad spectrum of any country's population would accelerate the pace of growth and development. This is because more people will be empowered to contribute to economic activity, thereby enabling the business environment, creating jobs, building skills, transferring expertise and technology and providing a competitive market environment for innovation to thrive. The benefits of economic activity and the impact of access to financial services have been widely documented and the literature of economic growth and development is replete with success stories in countries who have unleashed entrepreneurship by creating an enabling financial system that promotes access to finance tailored to the needs of each income segment of the demographic. A World Bank/IMF (2017) data provided insights into the relationship between ”Account ownership in a financial institution” and ”GDP Per Capita” and found a strong positive correlation of 0.79 indicating that these variables are related and move in the same direction. In addition, the data also provides evidence relative to the linkages between GDP per capital and bank account penetration. Using a regional classification and cross-sectional data, triangulating GDP Per Capita and % of Adults with accounts in a financial institution, the data amplified the dependencies between account ownership and the per capita income across countries. Also it elucidated the relationship between GDP and account ownership in high come countries and the figures revolve around 94%. This evidence underscores the importance of providing financial access points and how this works in tandem with GDP per capita. Moreso, account penetration and Human Development Index (HDI) was found to have a correlation of 0.88, indicating that access to financial services generates momentum towards development. Based on the accumulation of research evidence through years of data collection and analysis, the Financial Inclusion Secretariat advances the following assumptions as valid in terms of financial inclusion especially in developing countries, and more specifically, Nigeria:
- Poor people, children, women, youth and rural people are the most vulnerable during financial, economic and environmental crises. They lack most of the basic buffers against shocks such as savings, insurance, credit and pensions, hence they are overexposed to shocks from systemic turbulence.
- The cost of serving the poor is not necessarily disproportionately high relative to the returns, but rather we need to take more steps to onboard this segment to the financial services landscape as it is beneficial to economic and social development.
- The risks inherent in providing services and extending facilities to the poor do not outstrip the returns, as commonly thought, however, what has often been missed, are the potentialities and innovations that could materially expand access to finance without the huge cost outlays often required to erect structures for financial services.
- New technologies provide a business justification for advancing financial inclusion as they offer benefits for drastically reducing transaction and operational costs by FSPs, and also helping extend access to difficult to reach areas thus helping drive critical mass and achieve objectives.
The National Financial Inclusion Strategy 1.0 (2012-2018)
The Central Bank of Nigeria joined the global network of policy makers to commit to and sign the ”Maya Declaration” in 2010 to reduce financial exclusion in Nigeria to 20% by the year 2020. This commitment led to a National Financial Inclusion Strategy in 2012 with the aim of achieving adult financial inclusion of 80% by 2020. The baseline of financial exclusion as at 2012 stood at 46.3%. At the point of conception of the NFIS, the baseline for Payments was 21.6%, Savings (22.4%), Credit (1.8%), Insurance (1.0%) and Pensions (5.0%). In addition, actual DMB branches by 2010 stood at (6.8 per 100k population), MFB branches (2.9), ATMs (11.8), POS Devices (13.3) and Mobile Agents (0.0).
Financial Inclusion Targets
The target was to scale Payments to 70%, Savings (60%), Credit, Insurance and Pensions by 40% respectively by 2020. In addition, DMB branches were to be scaled to 7.6 per 100, 000 population, MFB Branches (5.0), ATMs (203.6), POS Devices (850), Mobile Agents (62.0). The focus of the NFIS formulated in 2012 was around several facets such as accessibility, affordability, diversity/choice, simplicity/convenience, and usage. These key areas were considered as critical considerations and action points that needed leveraging to advance financial inclusion. Five barriers were identified as follows:
- Lack of income: This challenge was to be tackled through the provision of no-frills accounts
- Long distance to access points: Key solutions envisaged were to implement agent banking and mobile money services
- Lack of knowledge about financial services: It was decided that financial literacy and consumer protection initiatives would serve to veritably address this issue.
- High cost of services: Providing facilities using the MSME development fund and other facilities would go a long way to cushion the costs of services and also provide a springboard for extending services.
- Cumbersome KYC requirements: The implementation of tiered-KYC guidelines would ensure that all categories of customers, especially those at the bottom of the pyramid are included by scoping requirements in relation to their status.
Between 2012 and 2017, many regulatory changes took place to ensure that financial inclusion is sustained. It was necessary that the regulatory environment was amenable to the desired changes requisite for advancing financial inclusion. For example, a tiered-KYC regime was introduced in 2013, and the release of Takaful Guidelines made in 2014. By 2017, a range of regulatory changes had taken place and they ranged from microinsurance, cashless policy, Bank Verification Number (BVN), non-interest banks, regulation of agent banking, guidelines on bank charges, framework for licensing super agents, national financial literacy framework, guidelines on mobile money services, transaction switching in Nigeria, Bancassurance referral model, licensing and regulation of payments services banks, operations of electronic payments channels, and the setting up of the Financial Inclusion Secretariat in the CBN. The commitment on the part of CBN and its stakeholders to provide an enabling environment for facilitating access to finance for the excluded necessitated these multiple regulatory and structural changes.
The National Financial Inclusion Strategy 2.0 (2018-2020)
In 2017, the Bank began an evaluation and review of the NFIS to reflect the changing dynamics in the economic environment and the industry. The reasons for this review are not farfetched:
- In 2015, the Nigerian economy plunged into a recession. Exchange rate comparatives plummeted, and real incomes were slashed significantly, reducing the purchasing power of the Naira and making imports, which most Nigerians depended on, very expensive. The implications for financial inclusion are immediately apparent;
- The insurgency in the North East had displaced thousands of Nigerians and had taken its toll on economic activities especially on financial services. Access points, bank branches, communication and financial infrastructure were immediate targets of vandalism and banditry leading to a dearth of financial services. In the face of these disruptive factors, the assumptions of the NFIS 1.0 were challenged and required adaptation to cope with changes.
- The proliferation of Financial Technology (Fintech) platforms and the innovations occurring in the technology space rendered previous assumptions around channels of delivery obsolete. The original expectations that deploying ATMs, Bank and MFB branches and other channels would drive fast adoption of financial services across the length and breadth of Nigeria was challenged by new developments. A new paradigm was urgently needed to provide the leapfrog much needed in reaching the excluded, and the fintech space held out much promise.
- 4) The vast geography of Nigeria, its divergent demographic, the mostly dispersed rural populace embedded sometimes in remote and inaccessible terrains threw up challenges for the conventional methods of financial services outreach. The strategy required retooling to keep abreast of emerging innovations and strategies.
In the light of the above and other factors, the National Financial Inclusion Strategy was subsequently revised following a reflective process to appraise the journey so far in increasing access to finance for the unbanked and under-banked. The revised Strategy (NFIS2.0) highlights emerging global concerns, adopting a more focused approach with principles to improve access to finance for key priority segments including Women, Youth, Rural communities, Northern Nigeria and MSMEs. Some of the principles adopted include:
- The Creation of an appropriate regulatory and policy environment in which innovations can thrive.
- II. Massive rollout of agent networks in the most excluded regions of the country — the North East and North West.
- Simplification of the identity/Know Your Customer (KYC) requirements.
- Aggressive promotion of Digital Financial Services (DFS) and;
- The Creation of a digital payment ecosystem to support Government-to- Persons (G2P) and Persons-to-Government (P2G) transactions.
Steps towards implementation of NFIS 2.0
The implementation of the NFIS 2.0 had the following outlook:
- Emergence of an Industry-wide Implementation Plan: The FIS facilitated the development of an industry level workplan comprising of key activities from each stakeholder organization towards financial inclusion. The stakeholders included DMBs, MFBs, Development Partners, Regulators, Government and other varieties of actors.
- Development of Performance Measures for the Implementation Plan: Each activity in the implementation plan was allotted a performance metric to help monitor achievement and progress towards objectives. Targets were assigned to each component activity in addition to the headline targets and industry targets allotted to DMBs, MFBs and Agents.
- Developing a framework for women access to finance: In consultation with stakeholders, a framework for women access to finance is emerging and a gender desk has been set up at the Financial Inclusion Secretariat to coordinate activities and focus action on achieving women‘s financial inclusion leading up to 2020 and beyond.
- Increased focus on stakeholder commitment towards FI: There is currently an increased focus on mobilizing stakeholders across the 36 states of Nigeria and the FCT to drive access to finance. This has led to the formation of the Financial Inclusion State Steering Committees (FISSCO) spread across the states of the federation to reflect and drive grassroots action for inclusion.
- Governance of Financial Inclusion: Through the Financial Inclusion Steering Committee and Financial Inclusion Technical Committee, Working Groups and FISSCO, the governance of initiatives and activities focused on access to finance in Nigeria are conducted. These bodies provide oversight and coordination of activities to ensure continued commitment, collaboration and progress on allotted targets.
The Outlook for the next four years (2019-2024)
Current measurements of the status of financial inclusion in Nigeria stands at a headline figure of 64.1%, portraying progress as incremental and falling short of the 80% target stipulated for end of 2020. Distilling these outcomes down to specific segments, provides a performance outlay for payments at 45% as against a 70% target, Savings at 32% (60% target), Credit at 3% (40%), Insurance at 2% (40%), Pensions at 7% (40%), and the Formally served at 50.5% (70%) as at the end of 2020. These results have occasioned reflection and stocktaking to assess the key issues and drivers of continued exclusion and slow uptake of financial products and services in Nigeria. Consequently, a new strategy for 2021 to 2024 is being developed with key considerations focused around the gaps identified in the EFINA (2020) Survey which highlighted key issues around women, youth, North East and North West, rural areas, and MSMEs. The current target stipulated by Management and stakeholders is 95% inclusion by 2024 and the emerging strategy is the vehicle for delivering this.