Three months after the Central Bank of Nigeria (CBN) lowered its hammer on Bureau de Change operators over alleged infractions, the Manufacturers Association of Nigeria (MAN) has restated its support for the apex bank’s decision. Taiwo Hassan reports
In the beginning, a sizable number of the country’s population were excluded from the array of financial services. This wasn’t a deliberate decision, but it was because essentially the banking space of the old was predominantly ascribed to elitists’ engagement. Banks and auxiliary financial houses were domiciled in major cities.
Rural areas and far-flung settlements were deprived of the presence of banking and other financial services. The Central Bank of Nigeria, however, changed the status quo of banking by broadening beneficiary’s base. It introduced financial inclusion in Nigeria in 1977. According to CBN’s definition, “financial inclusion means that individuals and businesses 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.”
The services include, but not limited to, payments, savings, credit, insurance, pension and capital market products. Between 1977 and today, various efforts have been put into the financial inclusion initiative by the apex bank to enlist as many eligible Nigerians as possible in the financial inclusion net.
The Central Bank of Nigeria (CBN) adopted the National Financial Inclusion Strategy (NFIS) in 2012. Essentially, NFIS’s goal is to promote a financial system that is accessible to all Nigerian adults at an inclusion rate of 80 per cent by 2020. CBN’s strategy articulated the demand- side, supply-side and regulatory barriers to financial inclusion, identified areas of focus, set targets, determined key performance indicators (KPIs) and established the implementation structure. A CBN status report on NFIS indicated a total of 40.1 million adult Nigerians (41.6 per cent of the adult population) were financially excluded in 2016. Further analysis has revealed that 55.1 per cent of the excluded population were women, 61.4 per cent of the excluded population were within the ages of 18 and 35 years, 34.0 per cent had no formal education and 80.4 per cent resided in rural areas.
NFIS was built on four strategic areas of agency banking, mobile banking/mobile payments, linkage models and client empowerment. Between 1977 and now, much grounds have been covered in the area of financial inclusion visa- vis various means of payment transactions that have evolved. Today, apart from banking hall, the traditional channel of financial transaction, new digital channels of financial services have evolved. There is Automated Transfer Machine (ATM), agent banking, Point of Sales (PoS) and electronic banking transfer, among others.
This was done to bring banking services to more eligible adults by substantially reducing the number of financially excluded. Speaking recently at the just concluded annual seminar for finance journalists and business editors in Enugu, CBN Governor, Mr Godwin Emefiele, noted that much ground still needed to be covered in achieving the financial aid target. Represented by Deputy Governor, Edward Lametek Adamu, Emefiele, however, noted that improving access to finance for individuals and businesses through digital channels would help improve financial inclusion, lower the cost of transactions and increase the flow of credit to businesses. The governor noted that 2007 marked a turning point in the country’s payments system terrain with the launch of CBN’s Payment Systems Vision 2020 (PSV 2020).
This, he said, identified a series of recommendations to increase the resilience of the payment system infrastructure and workstreams to encourage the usage of electronic payment methods. Since then, he said, the country had continued to introduce initiatives that would help simplify payments and deepen financial inclusion. The governor said over the past 14 years, the Nigerian payment system had evolved significantly with extensive technological development backed by deliberate enabling regulation by CBN.
“This has, no doubt, accelerated the development of novel financial products, services and channels all of which have placed Nigeria at the forefront of the financial innovation race. “Due to the lockdowns associated with the management of COVID- 19, financial traffic to digital platforms increased significantly in 2020. “Indeed, the spread of the virus at the time accelerated the speed of digitalisation of many sectors of the economy. Expectedly, discussions have increased around the issue “of the digital economy, just as more opportunities have come up for financial institutions and other players within the payment ecosystem to innovate and provide more efficient options for payments and settlements,” he noted. He said the advent of COVID-19 and its aftermath left in its trail certain trends, which altered the financial industry landscape and accelerated shift towards digital financial services.
So far, so good
Much ground had been covered in the implementation of financial inclusion strategy, no doubt. Much still needs to be done. The CBN governor stated this recently. According to him, 36 per cent Nigerian adults are still excluded from financial services. According to data sourced from CBN, the percentage of Nigerian adults served by formal sector service providers increased from 36.3 per cent in 2010 to 43 per cent in 2012, 48.6 per cent in 2014 and remained at that level in 2016. It also noted that the banked population grew consistently from 30 pet cent in 2010 to 32.5 per cent, 36 per cent and 38.3 per cent in 2012, 2014 and 2016 respectively. The formal other including the microfinance banks, insurance companies, pension funds and similar service providers grew between 2010 (6.3 per cent) and 2016 (10.3 per cent).
The informal sector (non-governmental organisations (NGOs) and financial cooperatives) declined from 17.4 per cent in 2010 to 9.8 per cent in 2016. This showed that more Nigerians were using formal financial services as envisioned in the strategy. In 2016, 58.4 per cent of Nigeria’s 96.4 million adults were financially served, leaving 41.6 per cent financially excluded.
“The proportion of those who were banked was 38.3 per cent, those in the formal category was 10.3 per cent and those served by the informal sector 9.8 per cent. This shows that only 48.6 per cent used formal services, compared with 70 per cent that is targeted in 2020,” CBN data revealed. According to data sourced from the apex bank on usage of various channels of digital transactions, there had been a persistent increase in the value of ATM and PoS transactions in Nigeria.
As at Q4’20, the value of ATM transactions equalled N1.8 trillion, while the value of POS transactions equalled N1.3 trillion. The figures reflect an increase in financial inclusion. Nigeria is said to have recorded a high growth in digital financial channel utilisation with approximately 35 per cent growth in the total population who carries out digital transactions. Debit card ownership has similarly grown by 30 per cent between 2011 and 2017, although the growth in the use of other mobile platforms is said to have been quite low.
E- naira as masterstroke
Following up to the consistent implementation of each phase of Financial Inclusion Strategy (NFIS), leveraging fintech, CBN is on the verge of bequeathing to Nigerians a Digital Currency (CBDC) – e-naira. The media space is agog with sensitisation of digital naira. ENaira is a digital form of cash and is a direct liability on CBN, while the customer deposits are direct liabilities of the financial institution. E-naira is a product of CBN’s painstaking research. The apex bank, under Godwin Emefiele, began researching digital currencies in 2017.
The governor cashed in on the momentum generated by the growth of crypto currency transactions to explore options available on the digital economy. The bank had set aside October 1, 2021 for the launch of e-naira. However, its launch was postponed to another date because the October 1 date coincided with the Independence Day celebration of Nigeria. The benefits of digital naira are enormous. The bank listed some of its gains to include increased crossborder trade, accelerated financial inclusion, cheaper and faster remittance inflows, easier targeted social interventions, as well as improvements in monetary policy effectiveness, payment systems efficiency and tax collection. Speaking on gains of e-naira at a recent workshop for finance journalists in Enugu, Dr. Hassan Mahmud, Director, Monetary Policy Department at CBN, itemised some of the key features of CBN’s digital currency.
He said CBN’s digital currency will offer parity of value and will operate as a non-interest-bearing asset. Nigeria’s digital currency, Mahmud explained, will function under a tiered anti-money laundering and Know Your Customer (AML/KYC) structure with different transaction limits. He said the AML/KYC pyramid will reportedly encompass unbanked citizens to provide their national identity-linked phone numbers for verification. “Users in this category will be limited to a daily transaction of N50,000 (about $120). Provision of collateralized e-Naira credit to IMTOs via their banking partners in the country. Secondly, CBN prefunding IMTO accounts, but this method might carry significant exchange fluctuation risks,” he espoused.
CBN has deepened Financial Inclusion Strategy (NFIS), no doubt, considering the position the country was in 2012 when NFIS was launched and the current position. CBN’s introduction of digital currency is by no means a formidable feat in the quest to achieve a near total financial inclusion.