Imperative of expanding financial inclusion

As Nigeria Deposit Insurance Corporation, NDIC and Central Bank of Nigeria, CBN, strategise on financial inclusion, experts say collaboration among stakeholders the way to go, UDO ONYEKA, reports.

The operations of financial system are crucial to people’s savings, credit, payment and risk management needs. More importantly, the inclusiveness of this system tends to benefit the poor and other disadvantaged groups in the society.

The heightened interest in Financial Inclusion, FI, by Nigeria can be traced to its effect on financial development and economic growth.

For instance, many studies have shown that financial development tends to increase economic growth and reduce inequality and poverty.

This is because improvements in the financial sector is expected to aid savings, capital formation and ease the external financing constraints that companies and entrepreneurs face which then lead to higher growth.

Increased savings can be engendered by including the poor and disadvantaged groups in the formal financial system, considering their large numbers.

According to Dr Afolabi Olowookere of African Centre for Shared Development Capacity, University of Ibadan, this small saving group represents a means of financial diversification, which can enhance financial stability and economic growth of a country.

He said it has been shown that in countries with low levels of financial inclusion, households and small firms resort to informal financial services and these can be counter-productive.

Olowookere said considering the benefit of financial inclusion, many economies including Nigeria have come to recognise the potential of inclusive financial systems, which is now becoming an important political issue to financial markets regulators and operators.

According many experts, Nigerians financial sector has witnessed significant developments in recent years as both regulators and private operators have instituted policies and strategies for its expansion. Although many of these efforts have always been targeted at financial inclusion, experts believe that what remains, however, is for the impact of the country’s financial sector development to reflect in the growth of the real sector.

For instance, President, Lagos Chamber of Commerce and Industry, LCCI, Mr. Goodie Ibru, said over 80 per cent Nigerian enterprises still describe poor access to finance as the most difficult problem they face.

National Mirror gathered that Nigeria ranks low in indicators of financial inclusion, even among its peers. For instance, the World Bank Global Findex data shows that only about 30 per cent of Nigerian adults have accounts with formal financial institutions.

This value is below those of Kenya and South Africa, which have values of 42 per cent and 54 per cent respectively. Therefore as parts of its efforts to address the problem of low level of financial inclusion, Nigeria has put together a National Financial Inclusion Strategy, which is designed to increase the number of Nigerians that are included in the formal financial sector to 70 per cent by the year 2020.

To achieve this laudable objective, financial experts have said that collaboration among financial sector stakeholders is very crucial. Olowookere said that an important section in this Strategy considers the issues of monitoring and evaluation, adding that this is to measure and ensure that the Strategy has the desired impact by collecting a comprehensive data from financial industry stakeholders twice a year.

According to the Central Bank of Nigeria, CBN, Governor, Mallam Lamido Sanusi financial consumer protection efforts and financial literacy initiatives of the CBN would help bring people on board the formal financial system, especially when the financial system is sound.

He said the key mandate of the CBN is the promotion of a sound financial system, which would instill confidence in users of financial services. Sanusi said “as regulators, we have a responsibility to maintain public confidence in the financial sector by addressing all factors that would undermine the sector’s long-term stability, without which it would lose its relevance as a medium of economic interaction and payments.

Maintaining public confidence demands ensuring that the sector keeps up with all pertinent global developments to make sure it remains relevant to the needs of the public from which it derives its mandate.

“A stable financial system is also a precondition for economic growth and development, hence financial inclusion especially when promoted in the broader context of economic inclusion, can raise financial conditions and improve the standards of lives of the poor and the disadvantaged.

Access to affordable financial services would lead to increasing economic activities and employment opportunities for rural households with a possible multiplier effect on the economy”, Sanusi said. He said the CBN in collaboration with other stakeholders launched the financial inclusion strategy in October 2012.

The overall goal of the strategy is to reduce adult exclusion rate from 46.3 per cent in 2010 to 20 per cent in 2020, the achievement of which is expected to support the empowerment of many Nigerians, facilitate their involvement in economic activities and enable them contribute to national economic growth and development.

Sanusi said the CBN strategy on financial inclusion defines clear objectives and sets specific targets across five primary products and services namely payments, credits, savings, pensions and insurance through a broad range of coordinated interventions with high priority on the following areas: transformation of the Know Your Customer,KYC regulation into a simplified risk-based tiered framework, development and implementation of a regulatory framework for gent banking and development and implementation of a national financial literacy framework.

Others include implementation of a comprehensive consumer protection framework to safeguard the interest of consumers of financial products and services, to continue to pursue adoption of mobile payment system and other cash-lite policy efforts and implementation of credit enhancement schemes/programmes to empower micro, small and medium enterprises, SMEs.

Managing Director, Nigeria Deposit Insurance Corporation, NDIC, Alhaji Umaru Ibrahim, said financial exclusion retards economic growth as SMEs are denied credit, as only large corporate and guaranteed wage earners in the public and private sector have access to credit.

Ibrahim said there need for appropriate regulation regime to support financial inclusion, adding that “the ability of the market to respond to this demands depends not only on providers developing sustainable and low-cost ways to providing such services, but also on having an enabling regulatory and supervisory environment backed by an effective deposit insurance system”. He said that the NDIC supports financial inclusion through guaranteeing deposits, especially small savers.

According to him, “This is the direct link between deposit insurance and financial inclusion. Deposit insurance is vital to financial inclusion because the poor need assurance that the services of the depository institutions are safe and available at all time.

“NDIC is also a supervisor that enhances financial inclusion by providing consumer protection through supervision of banks, continuous education and trust and policy formulation and oversight.

“The corporation also provides incentive for rural banking and prosecutes erring and reckless directors and management of banks.” He said financial inclusion, consumer protection and financial literacy are complimentary to each other and that in order to attract the unbanked poor to the formal financial systems, there is a need to educate this segment of the society with regards to various financial products and services available from formal financial sector.

According the NDIC boss, financial literacy is key for the attainment of National Financial Inclusion Strategy’s objectives, adding that to safeguard of the interest of consumers and sustain confidence in the formal financial sector, adequate consumer protection is necessary.

According to Enhancing Financial Innovation and Access, EFInA, a financial development organisation that tries to promote financial inclusion in Nigeria, in its survey of adults of 18 years and above in 2008, 2010 and 2012 shows that the level of financial inclusion in the country is low.

The outcome of the organisation’s 2012 survey shows that although 60.3 per cent of Nigerians are financially served, only 43 per cent are formally included and that males 47.4per cent are more financially included than females 38.3 per cent.

EFInA said inclusion in the formal financial sector varies across the geo-political zones in Nigeria in the following order; North West 22.5 per cent; North East 25.7 per cent; North Central 48.2 per cent; South East 52 per cent; South South 52.3 per cent and South West 57.7 per cent.

It said Nigeria performs relatively lower than South Africa, Namibia and Botswana in financial inclusion but the proportion of adults that are formally included has increased from 23.6 per cent in 2008 to 36.3 per cent in 2010 and 43 per cent in 2012. This implies that the number of financially included adults in Nigeria increased by 10.5 per cent between 2008 and 2012.

The organisation however said that the level of financial inclusion in Nigeria is still low, “adding that the level is even lower for groups such as women, less educated and poor households. According to EFInA there are many reasons why the poor and other disadvantaged groups may be excluded from formal financial services.

For instance, it said this group is often considered as not viable by formal financial service providers and therefore not considered when designing financial products.

The financial organisation therefore said that in order to include this group in the formal financial sector financial services providers such as banks should consider the group and to develop products that would be attractive to them, noting that the level of inclusion should be regularly monitored.

EFInA informed that for a large and developing society like Nigeria, it is crucial to ensure that measures of the extent of financial inclusion encompass different parameters that properly reflect the complexity and diversity of the country.

For instance, although measures and data provided by international organisations have the advantages of providing standardised crosscountry comparisons, they may not reflect the peculiarities of the local economy.

“Therefore, it is pertinent to keep on developing new kinds of identifiable indicators based on the evolving needs of the financial inclusion programme”, EFInA said. In order to lower the level of financial exclusion in the country the CBN said The National Financial Inclusion Strategy has identified some key stakeholders that will be involved in the implementation and allocation roles and responsibilities.

The stakeholders according to the apex bank include: Federal Government, CBN, National Pension Commission, National Insurance Commission, National Communications Commission, Operators in the financial sector and Development Partners among others.

It also said the Financial Services Regulation and Coordination Committee, FSRCC, which will be reporting to the National Executive Council on the state of financial inclusion in the country and will be responsible for coordinating initiatives across various regulatory bodies, give strategic direction for the implementation of the strategy and secure buy-in of government at the highest levels.

A Financial Inclusion Secretariat has been set up in the CBN to coordinate stakeholder activities towards increasing financial inclusion, collect and analyse financial inclusion data, track and monitor progress on financial inclusion and address capacity building initiatives.

“At the Bankers Committee Retreat held in Calabar, in December, 2012, Borno State was adopted for the Pilot Implementation of the Financial Inclusion Strategy. This was owing to the high financial exclusion rate in the state.

“The bank, in partnership with the Borno State Government and Bankers’ Committee launched the Pilot Phase in February, 2013”, the CBN said.

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