How Nigerian Banks are Tackling Financial Inclusion

Financial inclusion, the provision of a broad range of quality, low-cost, and affordable financial products and services to all segments of society, and most importantly to the poor and vulnerable, has been one of the leading drivers in Nigeria’s economic development agenda. Increasing financial inclusion for a nation with a large segment of its working-age population unbanked or underbanked is not just a social imperative but also an economic development, poverty reduction, and overall well-being imperative. Nigerian banks, as banking industry leaders, are at the forefront with inclusive and innovative on-boarding of financially excluded and integrating them into the mainstream of the formal financial economy.

Understand the Nigeria Financial Exclusion Dynamics

Nigeria, as vast as it is to be the largest economy of Africa, is faced by a deteriorated financial exclusion crisis. Some dynamics combine the compounding problem:

-Poverty and Income Inequality: Most Nigerian individuals exist under the poverty level, with irregular and sparse incomes, and therefore conventional banking services will seem too expensive or irrelevant to their survival needs.

-Geographical Barriers and Infrastructure Shortfalls: Large rural areas with poor road infrastructures, low electricity levels, and poor telecommunication networks pose big logistical challenges to conventional brick-and-mortar banking.

-Financial Illiteracy and Awareness: Most people possess rudimentary financial literacy knowledge, which does not allow them to understand and believe in conventional financial products and services.

-Cultural and Religious Influences: In some regions, cultural values or religious beliefs will dissuade specific financial behaviors.

-Challenges of Identification: The lack of broadly accepted and easily verifiable identification documents poses a significant obstacle to most people who would be interested in employing formal financial services.

-Trust Deficit: There has been a past negative experience by segments of the people with traditional financial institutions, and therefore this has created a trust deficit.

The solutions to these multidimensional problems have to be tackled comprehensively.

They have to be tackled by collective efforts by the banks, the government, regulatory authorities, fintech operators, and other stakeholders.

The Central Bank of Nigeria’s Strategic Framework

The Central Bank of Nigeria (CBN) has taken the lead in steering the financial inclusion agenda through the development and execution of the National Financial Inclusion Strategy (NFIS). Initially launched in 2012 and subsequently revised periodically, the NFIS provides a master plan and sets targets to deepen access to and usage of financial services by various strata of society. The NFIS key objectives are:

-Increasing the proportion of financially excluded adult Nigerians.

-Increasing coverage of pension, insurance, credit, and savings products, as well as payment services.

-Augmenting the delivery channel for financial services, e.g., bank branches, microfinance banks, ATMs, POS machines, and agents.

-Facilitating financial literacy and consumer protection.

The CBN has also made some regulatory guidelines and frameworks available to enable the utilization of the NFIS, including those relating to agent banking, mobile money business, or simpler Know Your Customer (KYC) requirements.

Strategies Adopted by Nigerian Banks in Financial Inclusion

In regard to the CBN strategic plan and the enormous opportunity of tapping into the unbanked segment, Nigerian banks have employed various techniques in deepening financial inclusion:

1. Agent Banking:

Agent banking is one of the pillars of financial inclusion efforts of Nigerian banks. Agent banking entails the utilization of third-party retail outlets, including local convenience stores, pharmacies, and petrol stations, as agents to perform simple financial services on behalf of the banks. Agent banking logically extends the coverage of financial services beyond the conventional bank branches, especially to under-served rural and semi-urban communities.

-How it functions: Agents carry point-of-sale (POS) terminals or mobile apps through which they can perform transactions like account opening, cash deposit and withdrawal, bill payment, and fund transfer.

-Benefits: There are a number of benefits of agent banking, such as reduced operation costs for the bank relative to opening traditional branches, convenience for the customers in accessing financial services locally, and ability to reach an enormous unbanked number of customers.

-Examples: Certain Nigerian banks possess a wide agent network within the country. For example, First Bank’s Firstmonie agent network and Access Bank’s Access Closa agent network have made a considerable contribution towards serving the local communities. The Shared Agent Network Expansion Facilities (SANEF) scheme by the CBN and other agencies has also driven the growth of agent networks within the country.

2. Digital Financial Services:

Building on the swift innovations in technology, Nigerian banks are placing greater emphasis on digital banking services in a move to foster financial inclusion. Internet banking, mobile banking, and other electronic platforms provide instant and inexpensive mediums whereby customers have access to and utilize financial services.

-Mobile Banking: With an increasing number of individuals owning mobile phones, mobile banking apps and USSD platforms are now effective avenues for financial inclusion. Customers can conduct a range of transactions including account opening, balance checking, money transfer, bill payment, and airtime recharge using their mobile phones, internet-free in the context of USSD.

-Internet Banking: Although it serves a more technologically advanced demographic, internet banking websites also promote financial inclusion through the provision of an accessible means for customers to maintain their accounts and make transactions online.

-Digital Payment Platforms and Wallets: Banks are also developing or joining hands with their own digital wallets and payment platforms, which customers can access through mobile applications. The platforms tend to streamline the onboarding process and enable smooth and secure digital transactions.

-Bank Verification Number (BVN): The introduction of the Bank Verification Number (BVN), a single biometric identification number for every bank client in Nigeria, has been at the forefront of strengthening the integrity and security of the financial system and enhancing financial services access.

3. Microfinance and SME Banking

Working towards recognizing the important role played by micro, small, and medium enterprises (MSMEs) in economic growth and the high level of financial exclusion among them, Nigerian banks are now placing greater emphasis on offering specialized financial products and services to MSMEs.

-Microfinance Banks (MFBs): While MFBs are standalone entities, commercial banks prefer to work in association with them or develop their own microfinance subsidiaries such that they could extend miniaturized loans, savings accounts, and other financial products to the low-income strata and small businesses.

-SME-Focused Products: Banks are creating separate loan products, business accounts, and financial advising services specifically intended to address SMEs’ unique requirements, which are usually of lower collateral burden than standard corporate loans.

-Government-Supported Schemes: Banks are involved in government-supported schemes like the Central Bank of Nigeria’s MSME Development Fund and the Agricultural Credit Guarantee Scheme Fund (ACGSF) to extend cheap credit to small businesses and agribusiness.

4. Financial Literacy Programmes and Awareness Programmes:

Improving low financial literacy is, in the end, the focus of consistent use of financial services. Nigerian banks are attempting to introduce financial literacy and awareness programmes to segments within society, i.e., the under-served and unbanked population.

-Workshops and Seminars: Workshops, seminars, and outreach programs are conducted by banks in order to pass on elementary financial literacy, advantages of formal financial services, and access to different financial products and delivery channels.

-Education Material: Education material such as brochures, pamphlets, and web sites is prepared and distributed by banks in local languages in order to establish awareness and accessibility.

– Partnership: Banks can win over citizens on a mass scale by partnering with schools, NGOs, and people leaders.

5. Target Segmentation Specific Products and Services

Since it has been realized that society segments would require varying needs of finance, Nigerian banks have now segmented products and services as a part of financial inclusion in trying to cater to youth, female, and rural citizen segments.

-Women’s Financial Inclusion Strategy: Banks are designing own-account products and programs to meet women’s financial requirements, usually to meet credit access, saving, and finance education.

-Children’s Services and Products: Banks are developing children’s services and products for children to utilize as children become economically empowered, usually through electronic channels and meeting saving, investing, and entrepreneurship.

-Rural Banking initiatives in partnership: Banks are trying out new rural entry points besides agent banking and the traditional branch, such as through mobile branches and even farm cooperatives.

6. Synergies and Collaborations

Financial inclusion is a process that persists continuously and involves several dimensions and therefore must be achieved through collective efforts of various stakeholders. Nigerian banks increasingly become part of the group of fintech firms, group of mobile network operators, group of government institutions, and group of multilateral development organizations to utilize their strength and ability.

-Fintech Association: Fintech associations help the banks introduce newer technologies and drive them to newer customers.

-Mobile Network Operator Partnerships: Mobile network operator partnerships drive digital penetration and depth of mobile money financial services provided.

-Government and NGO Partnerships: Government agency and NGO partnerships enable the banks to implement financial inclusion initiatives at a faster rate and build confidence among the people.

For more profound economic integration of Nigeria, multi-faceted effort has to be discovered taking into perspective:

-Investment in Infrastructure: Unrestricted free flow investment in electricity infrastructure, telecommunication infrastructure, and transportation infrastructure, most importantly rural infrastructure, has to be invested.

-Better Financial Literacy: Increased application of financial literacy initiatives and all media, print and electronic media, in an effort to cover each segment of society.

– Strong Consumer Protection: Strong consumer protection measures and faith in the system must be developed.

– Facilitating Digital Innovation: Facilitating digital financial service innovation without compromising on security and affordability is the challenge.

– Identification Hurdle: Simple identification and adoption of digital identity solutions will simplify overcoming this hurdle.

-Encouraging Cooperation: Ongoing cooperation between government ministries, banks, and fintechs is the top priority in making this a worthwhile and valuable exercise.

-Corporate Strategies

-Hit the Ground Running with Data:

With data, one can build insight into what unbanked people want and what they do and therefore lead to better and targeted financial inclusion policymaking.

-Regulatory Evolution

The regulatory structure will have to continue developing in a manner that enhances innovation and diminished risk as well as interaction. It is about being open to future arrivals and to technology.

-Usage Orientation: Greater accessibility through active and continuous use of financial services must be promoted to make financial inclusion productive. It means meeting part of the needs of various segments and offering corresponding and suitable financial solutions.

-Gender Gap Narrowing: The principal hurdles to women’s access to financial services need to be overcome through joint efforts, and the gender gap in financial inclusion needs to be minimized.

The Nigerian banks have been eager to take the initiative in spearheading financial inclusion efforts through a number of innovative vehicles like agent banking, digital financial products, microfinance products, literacy efforts, and high-end segment-targeted products. All these, along with the vision of the Central Bank of Nigeria and enhanced stakeholder collaboration, have led to tangible achievements towards formal financial mainstream integration of even more Nigerians. But all this has to come after centuries-old finance infrastructural problems of finance, financial literacy, trust, and price that have to be overcome before real inclusive and sustainable financial growth actually makes its way into the country. By continued innovation, collaboration, and leadership in the implementation of strategic programs, Nigerian banks are well set to lead the charge towards unlocking the economic potential of the financially excluded and towards a better and more inclusive Nigerians future. Purging the sector and economy of Nigerians of the financially excluded is not a one-stop endeavor, an endeavor that is attainable only through combined effort, sensitivity and responsiveness to the Nigerian diversity of needs.