Wednesday, October 16, 2019
/01:44 PM / By CBN / Header Image Credit: Alliance for Financial Inclusion
After a dip in the financial inclusion headline number in 2016, the biannual financial inclusion survey number shows a marginal increase from 58.4 per cent in year 2016 to 63.2 per cent in 2018. The measurement also disaggregated financial inclusion data on state-by-state level for the first time. While the data showed significant improvement in the in the North West and North East zones, the two zones remained more disproportionally excluded than any other zone at 62 per cent and 55 per cent exclusion rates respectively. The Southwest remained the only region to have surpassed the targeted 20 per cent exclusion rate by 2020, with 19 per cent exclusion rate recorded in 2018.
2018 is a Year of Landmark Financial Inclusion Policies and Initiatives
In addition to being a measurement year, 2018 can be described as a very important year that brought a massive shift in financial inclusion policy approach. First, the National Financial Inclusion Strategy was revised to address changes in the regulatory and technology landscape with a view to accelerate the achievement of the strategic objective of 80 per cent Financial Inclusion by year 2020. The core of the Revised National Financial Inclusion Strategy (NFIS 2.0) focused on a first principle approach with two overarching principles; creating a level playing ground and adopting a risk-based approach and encouraging stakeholders to play in the area of their core strength or comparative advantage. The strategy also seeks to leverage Digital Financial Services (DFS) to drive financial inclusion by enabling Digital ID, expanding agent network, focusing on business cases that would drive Government to People (G2P) and People to Government (P2G) payment amongst other priority area.
As a direct offshoot of the revised strategy, the Central Bank of Nigeria (CBN) Issued a Payment Service Bank (PSB) Licensing and Regulatory framework. In line with the NFIS 2.0 principle of providing a level non-traditional player like the Telco's, Fast Moving Consumer Good companies (FMCGs) and all entities with large distribution network to leverage on their existing structure and provide financial services for the unbanked. According to the policy trust promoters of PSB would have 25% of their presence in the excluded areas.
One issue that has bedeviled the penetration of Financial Services to underserved area is insufficient fixed location agents. To achieve the financial inclusion target of 80% by 2020, Nigeria requires 62 Agents per 100,000 adults of which as at December 2017only 28.2 agents per 100,000 adults had been recorded. To address this issue; the Body of Bank Chief Executive Officers (CEOs) and the CBN setup the Shared Agent Network Expansion Facility (SANEF), which has amongst other objectives, the mandate to increase agent network by half a million by 2020. Most of these agents would be located in areas with high unbanked population like the North West and North East regions.
In order to ensure the presence of at least one financial services access point in all 774 local government areas in Nigeria, the Central Bank of Nigeria has licensed a National Microfinance Bank (NIRSAL) that would leverage the locations of NIPOST in all 774 Local Government Areas (LGAs) in Nigeria deepen financial inclusion has been proposed. This is intended to fast track access to credits to MSMEs and facilitates inclusive economic growth.
In the same vein, the Alliance for Financial Inclusion (AFI), at its annual Global Policy forum which was held in Sochi Russia in September 2018 issued the Fintech Accord for Financial Inclusion. The Accords seeks to leverage Fintech for Financial Inclusion. Nigeria is a signatory to the Accord. Similarly, Nigeria was recognized on the global stage for its sustained country commitment to financial inclusion. In this regard, the CBN was awarded an AFI Medallion for its lead role in the AFI network as a provider of in-country knowledge exchange on the implementation process of the NFIS. To improve pension penetration to the informal sector, the National Pension Commission (PENCOM) published the guidelines for the Micro Pension Plan in September 2018. The major change in the financial services sector occurred in 2018 occurred in the Microfinance sector where a recapitalization exercised occurred. The exercise is focused on strengthening Microfinance Banks and making them more efficient.
The Macroeconomic Environment in 2018 was Favorable to Financial Inclusion
These policies and initiatives were rolled out against the backdrop of a relatively stable macroeconomic environment, steady increase in foreign reserve balance, and the impact of sustained implementation of the Economic Recovery and Growth Plan (ERGP) and social and developmental initiative like the Conditional Cash Transfer Programme, the TraderMoni initiatives, and the Anchor Borrower Programme of the Central Bank of Nigeria. The stable macroeconomic environment together with these activities provided a conducive environment for financial inclusion in year 2018.
Addressing MSME Credit Gap through Development Finance Interventions
Based on the objective of Financial Inclusion in Nigeria, to achieve 80 per cent Financial Inclusion, it is expected that credit penetration should be at 40 per cent by the year 2020. Unfortunately, credit penetration is still at 3 per cent as at 2018. Lack of collateral and high interest rates among under challenges has hindered availability of credits especially to MSMEs. To address this gap, the Bankers Committee in April 2018 launched the Agri-Business Small and Medium Enterprise Investment Scheme (AGSMEIS). The scheme seeks to provide access to credit to MSMEs at a concessionary rate, with no collateral. Electronic transactions volumes across all digital channels with the exception of NEFT continue to increase. In total electronic transaction volume went up by 38.41 per cent in 2018 compared to 2017. Transaction volume in 2018 also went up by 34 per cent when compared to 2017.
Various Initiatives were embarked on in 2018 to improve Financial Inclusion
One key bottle neck for the implementation of the NFIS strategy is the lack of sufficient funds to carry out major activities. To tackle this challenge, the National Financial Inclusion Steering committee approved the implementation of a Financial Inclusion trust fund. 60 per cent contribution to the funds would come from Regulatory institutions who are members of the Steering committee while 40 per cent would come from other members. Another major highlight of year 2018 is the approval obtained by the National Identity card Management Commission (NIMC) to commence the ID card ecosystems project. The initiative seeks to decentralize and simplify National ID card capture while consolidating the disparate implementation of various government ID ecosystems in Nigeria. This is a major initiative as digital identification is one of the key priority area of the revised National Financial Inclusion strategy.
The Nigerian Postal Services (NIPOST) has taken major strides to improve the penetration of Financial services during the year under review. In addition to providing physical location in all 774 LGAs in Nigeria to house the NIRSAL Microfinance Bank, the agency also acquired a Super-Agent License to enable them to provide financial services agents around the country. Based on the Governing arrangement of Financial Inclusion, the tenure of the leadership of the Working Groups came to an end during the period under review. Elections were conducted at the Working Group level and new executives elected to see to the affairs of the working groups for another two years (2019 - 2020).
2018 Witnessed Increase in overall Financial Inclusion headline number but slow progress along Product and Channel Indicators
The effort of stakeholders in 2018 yielded positive outcomes that was obvious in the overall increase in the financial inclusion headline number of 2018, which puts the current inclusion rate at 63.2% 4.4% up from 56.8% in 2016. This progress notwithstanding, indicators shows that the actual performances across all indicators were below the target for 2018. For instance, the planned target for payments penetration for 2018 was 63.2%, but the actual target is 36.2%. Actual targets were also less than planned target across all products categories. The statics is similar for the channel indicators. Actual achievement of Commercial Bank branches per 100, 000 customers was 4.8, which is 2.7 less than the target of 7.5. Actual achieved for ATMs, POS and Agents are all less than planned.
While total number of registered Bank Verification Number (BVN) increased by 15% when compared to 2017, savings in formal institutions declined by 13.3%.
Overall, a good year for Financial Inclusion
2018 was indeed a good year for Financial Inclusion in Nigeria, not only because of an increase in the financial inclusion rate, but also due to deliberate policies and initiatives that would facilitate better rails, encourage participation of a broader range of stakeholders and better address the need of the financially excluded.
Nigeria remained a priority country for overall financial inclusion rates in Sub-Saharan Africa.
The strategy implementation process in the country continued to command appreciable attention and support from both the domestic and international stakeholders. This report is the 4th edition of the Annual Financial Inclusion report. It presents insights into the implementation of the National Financial Inclusion Strategy in Nigeria in year 2018.