Market News

Barely two weeks to the end of the year, Nigeria’s hope of achieving 95 per cent financial inclusion by December may not be realised as emerging socio-economic challenges, including escalating digital fraud, rising mistrust and deepening poverty slow the process.

Banks have struggled to regain confidence since last year’s botched currency redesign from which over 70 per cent of small businesses confirmed they have not fully recovered. The situation was worsened by recent industry-wide digital server migration that left millions scampering for help for weeks.

The rising volume of cash outside the banking system is a telling reflection of the low confidence level. As of October, the figure jumped by nearly seven per cent to a new high of N4.29 trillion, which is over 94 per cent of the total currency in circulation.

The extremely high currency out of the financial system means an increasing number of individuals and businesses resort to traditional methods of saving as against taking their money to banks. It also weakens banks’ financial intermediation role since liquid cash is the strongest money base.

The Central Bank of Nigeria (CBN) in 2022, launched a strategic policy framework in line with its goal of achieving a 95 per cent financial inclusion by 2024.

The report, unveiled by former President Muhammadu Buhari, included the Revised National Financial Inclusion Strategy, National Strategy for Leveraging Agent Networks for Women’s Financial Inclusion, National Fintech Strategy, Nigeria Financial Services Maps, and the Payment System Vision 2025.

At the end of the target year, data show that Nigeria’s financial inclusion rate has grown from 56 per cent in 2020 to 64 per cent in 2023. This suggests that the banks onboarded less than eight per cent since the inclusion roadmap was unveiled.

Painfully, with the slow growth, about 40 million adult Nigerians are still excluded from the formal financial system.

While there are some positive achievements, the exclusion has been driven largely by little or irregular income among other factors, according to EFInA and A2F report.

There is no gainsaying the fact that the crisis would have been further compounded in 2024, going by the sluggishness of the economy as a result of government policies. The policies have resulted in many businesses shutting down and exiting the country – a trend that has pushed many Nigerians into the labour market.

The Manufacturers Association of Nigeria (MAN) said about 767 manufacturing companies shut down last year. The association also reported that up to 365 companies experienced distress in 2023 due to rising inflation and interest rates coupled with the exchange rate crisis.

The National Labour Force Survey (NLFS) of the National Bureau of Statistics (NBA) said 3.6 per cent of Nigerians are outside the labour force, while over 80 per cent are into self-employment. That is, some 1.2 million people were discouraged from seeking employment in the first quarter, suggesting that the scourge of joblessness is becoming endemic.

Analysts have established that there is a correlation between employment and financial inclusion.

Indeed, EFInA observed that the sluggishness of the economy in 2023 also contributed to slow inclusion in the country. For instance, it noted that real output growth rate of 2.54 per cent in Q3 2023 was higher than the 2.51 per cent recorded in Q2 2023 and 2.25 per cent recorded in Q3 2022, stressing that weak economic fundamentals led to a 17-year high inflation rate of 25.8 per cent as at August 2023.

It said the sluggish growth with high inflation has left millions of Nigerians in poverty, with 63 per cent (133m) of Nigerians multidimensionally poor in 2022.

Today, many Nigerians continue to rely on physical financial coping mechanisms to meet their goals, address liquidity distress and cope with shocks. Both active physical mechanisms, such as taking on additional work and cutting back on expenses and passive physical mechanisms, such as doing nothing, remain prevalent choices.

With over one-third of adults reporting low financial capability and relatively low access to formal efficient mechanisms to meet financial needs, Nigeria reports a 12 per cent drop in the proportion of adults, who are financially healthy.

Accordingly, Nigerians are facing high liquidity distress and shocks (health, economic and climate) ultimately impacting financial well-being with the report showing that in the face of an emergency, 78 per cent of adults (87 million) will find it difficult to generate N75,000 in seven days.

According to data from EFInA and A2F, which compared 2020 and 2023, lack of access to banks, which was 31 per cent in 2020 grew to 33 per cent in 2023; institutional exclusion also grew to 29 per cent in 2023 from 22 per cent.

While unemployment barrier dropped from 21 per cent in 2020 to 16 per cent two years later, with the cost of banking also witnessing a drop from 15 per cent in 2020 to 10 per cent in 2023.

Further analysis of the EFInA report points to fundamental reasons Nigerians do not have bank accounts. For instance, 25 per cent of the people claimed not to have enough money; 24 per cent said income is not regular; 21 per cent said banks are too far from where they live or work while 16 per cent pointed towards no job.

Another 12 per cent said it costs too much to reach a bank; nine per cent of the people preferred to hold cash or keep money in the house; seven per cent claimed it is expensive to have bank accounts and five per cent claimed lack of trust in the banks.

Indeed, while the number of active bank accounts in Nigeria increased to 151 million in December 2022, according to the Nigeria Inter-Bank Settlement System Plc (NIBSS), 72.8 million are dormant.

Parts of the challenges confronting financial inclusion include low levels of awareness, this is even as limited understanding of product offerings continues to hamper trust in other formal (non-bank) products. For instance, while 72 per cent of the populace relatively trust commercial banks, only 41 per cent trust the operations of microfinance and digital-first banks just only 37 per cent trust insurance providers.

Nigeria’s financial inclusion drive is also battling cases of fraud. According to EFInA, a significant proportion of formally-served Nigerians face challenges related to fraud incidence, poor service, high banking costs and lack of clarity in financial information.

Currently, 24 million (33 per cent) formally-served Nigerians have experienced taking a financial product or service and later being surprised by unexpected fees or charges. A relatively low 30 per cent (22 million) have been informed about changes to fees or charges associated with financial products or services in the past 12 months (27 million) (38 per cent) of formally served Nigerians do not agree that bank fees or charges are affordable.

Nigerians have also complained about poor services. For instance, 17 million (24 per cent) complained that they were not always served on time when they visited a bank branch, while 26 million (37 per cent) were not satisfied with customer support. 14 million (19 per cent) feel that the bank platform is always down, while 14 million (20 per cent) have been unfairly treated by a staff/agent of a financial institution.

Only (34 million) 48 per cent of formally served Nigerians feel that information on financial products or services is consistently provided in a clear and easily understandable manner.

According to EFInA, in the past 12 months (196,000) six per cent of those using microfinance banks experienced losing money/money missing from accounts, such as card/PIN fraud while using their microfinance account. 2.3 million adults reported fraud-related experience with a financial service agent.

Lack of infrastructure is another challenge confronting inclusion. The Automated Teller Machines (ATMs) are supposed to give a fillip to the process, but as it is, the machines are found mostly in the urban areas and even most times without cash. This has pushed Nigerians to embrace Point of Sales (PoS) terminals, which have equally become extremely exploitative.

According to Inlaks data, there are about 22,600 ATM locations across the country for over 220 million people. Nigeria, according to Inlaks, requires about 60,000 ATMs to meet up with its growing population and banking population of 106 million adults.

Checks showed that in 2010, Nigeria had roughly about 7,100 ATMs and the number grew to over 11,000 in 2011 because the CBN mandated the removal of the offsite deployment by banks. This meant that banks would no longer invest in ATMs outside their branches. The CBN ceded the deployment to independent ATM deployers, which couldn’t run the project due to the cost.

The ban was eventually lifted, allowing banks to invest more in ATMs. The number of ATMs then grew from 11,000 in 2011 to 16,000 around 2016 and 21,000 in 2019. It grew to 22,600 in 2021, where it has remained as of December 2023.

In the report, titled: ‘Unlocking Insights to Accelerate Financial and Economic Inclusion,’ prepared by EFInA and A2F, poverty is a major reason for financial exclusion, saying nearly 50 per cent of adults have no financial account because they have no income.

EFInA noted that complementary policies to financial inclusion that tackle endemic poverty with regard to social investments in education, vocational skills, entrepreneurship, health, and market-friendly economic policies are important to ensure the wider social impact of financial inclusion.

With the submission that exclusion has a human face, the report said there are significant disparities in the data released that demonstrated the face of exclusion. It stressed that it is predominantly in the North and rural communities, saying it is more likely to be female, youth or farmers.

“We must be intentional. We must ensure that the incentives exist on both the supply side and demand side to serve excluded communities. We must be intentional about serving these communities,” EFInA stated.

Accordingly, the report noted that though the naira redesign policy advanced digital finance but had broad negative impacts. It said businesses and households saw more harm than good, stressing that about 70 per cent of entrepreneurs reported setbacks with losses in revenue and market disruptions.