The term ‘financial inclusion’ has gained momentum in the Nigerian banking industry since the inception of the Nigerian Sustainable Banking Principles (NSBP) by the Central Bank of Nigeria (CBN) in the year 2012. But are Nigerian banks really in the true path of financial inclusion or inclusive banking?
The World Bank defines financial inclusion to mean when individuals and businesses, irrespective of net worth and size, have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way. It strives to address and proffer solutions to the constraints that exclude people from participating in the financial sector. The increased emphasis on financial inclusion reflects a growing realisation of its potentially transformative power to accelerate development gains, reduce poverty and boost prosperity.
Unfortunately, the real world financial system in Nigeria is far from inclusivity. By understanding what financial inclusion really means, one can infer that such frequent use of the term has led to ‘socialwashing’ – a deceptive claim about the social benefits of products and services by organisations to increase sales and enhance their public image – rather than promoting the interest of unbanked and the businesses of people at the bottom of the economic pyramid.
Nigerian banks can claim that incorporating financial inclusion in the marketing of their products and services has actually translated into helping many people to open basic bank accounts, but this is yet to impact positively on the lives of the people as it is often done with ultimate mission to satisfy the interest of the banks alone. This happens because, financial inclusion and access to finance are two different issues. Sometimes people may have access, but still choose not to use financial services when their needs cannot to be satisfied by the banking system. For example, according to the Global Financial Development Report 2014 released by the World Bank: when 6 million new basic bank accounts were opened in four years by South African banks, this significantly increased the share of adults with a bank account. But after a short time, only 3.5 million became active while the rest laid dormant, indicating that helping the poor and unbanked to create new bank accounts does not always translate into regular use and positive impacts.
Nigerian Banks Vs Isusu (Traditional Money Lenders)
According to Principle 5 of the NSBP : “A Bank should develop an approach that promotes accessible and affordable financial products and services to disadvantaged groups who are either not served or are underserved” in line with the CBN’s financial inclusion strategy. By catering to these needs, financial inclusion brings currently marginalised populations into the mainstream economy, improving their chances for resilient livelihoods and financial stability”.
Ease of Obtaining Loan
The activities of traditional money lenders and local self-help social groups otherwise known as ‘isusu’, who save money and give loans to the poor and underbanked have played pivotal roles toward financial inclusion than some of the financial institutions operating in the formal sector. One can agree that it is easier for the people at the bottom of the economic pyramid and SMEs to obtain loans from ‘isusu’ lenders than from Nigerian banks that demand for immovable collateral that are always impossible for the poor to present. For example, reporting on how Nigerian banks and their African peers have failed to support the poor and SMEs, the World Bank says that “commercial banks in Nigeria focus their lending on the oil and gas, telecommunications sectors and the associated value chains. But in Rwanda and Tanzania, where banks lend to SMEs, this is done simply because of the lack of alternatives”. The high interest rate that Nigerian banks enjoy from lending to the government or government securities such as bonds and treasury bills is another disincentive that has prevented the banks from lending to the poor and SMEs that make up the major part of the economy.
Use of Technology
The essence of digital financial technology is for the deployment of the cost-saving digital means to reach currently financially excluded and underserved populations with a range of formal financial services suited to their needs that are responsibly delivered at a cost affordable to customers and sustainable for providers. Inversely, in Nigeria, this has resulted in financial exclusion in the case of uneducated people and underbanked (adults that have secured regular bank accounts but are not privy to the digital banking system) that have been countlessly driven out of banking halls and directed to make use of digital banking platforms such as internet banking, mobile banking, ATM, and others.
But the contribution of the traditional money lenders, isusu, towards financial inclusion can be seen from how this informal sector have served the needs of uneducated people living in remote areas, who do not have access and capacity to engage in the modern banking system. This category of people have already been excluded from the modern banking system that demands that one needs to be educated and possess technological skills before s/he can adapt to the system. They have also removed the hassle in the filling of forms that negate the participation of uneducated people in the modern banking system.
Low Cost of Transaction
According to the World Bank, “Globally, 59% of adults without an account cite a lack of enough money as a key reason, which implies that financial services aren’t yet affordable or designed to fit low income users”. To be considered inclusive, a regular account maintenance with banks must therefore be relatively less expensive compared to informal alternatives such as isusu. Thousands of formal and informal micro, small and medium-sized enterprises (MSMEs) in Nigeria need low cost financing to thrive and grow.
For financial inclusion to be actually implemented in Nigeria, efforts should be made to ensure that all households and businesses regardless of income level, have access to and can effectively use the appropriate financial services they need to improve their lives. There is also the need to increase citizens’ financial literacy and capability so that they can understand different financial services and products that will actually exacerbate financial and economic instability, instead of creating bank accounts that end up lying dormant and have little impact on the economy.
Learning from the microcredit revolution shows that poor families in the informal economy are valuable clients, and that it is possible to serve them in large numbers sustainably. To advance financial inclusion, there is need for regular business innovations so that more people can access a broader range of products at lower costs.
If promoted, appropriate financial services can play a role in reducing extreme poverty, for national development.
For Nigeria’s economic and social development, financial inclusion is a critical instrument for achieving key objectives such as: reducing extreme poverty; improving individual and household welfare; reducing barriers to economic participation by women and disadvantaged groups; and spurring small enterprise activities.
1. Customer Empowerment in Finance. Antonique Koning, Gayatri Murthy, 10 August 2017