The non-progress on financial inclusion in Nigeria by Ogho Okiti

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On Thursday June 7th, ThisDay reported, “Nigeria achieved 5% reduction in financial inclusion in 8yrs”.

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There are three key messages in the report, when combined, provide a basis for the examination of the progress and implications for the growth of financial inclusion in Nigeria. First is the context in which the report was written – that the target set for the reduction in the numbers of those unbanked in the country have been missed. In 2010, the central bank had projected that the percentage of those financially excluded will be reduced from 46% in 2010 to 20% by 2020.

The target set was based on the survey conducted in 2008 by Enhancing Financial Innovation and Access (EFINA). The survey had concluded that 53.0% of Nigeria adults were financial excluded in 2008, and reduced to 46.3% in 2010. To speed up the adoption of bank accounts, the central bank launched a broad and ambitious strategy in 2012 with the plan to reduce the unbanked to just 20% in 2020, an expected average reduction of about 3.2% on an annual basis. Essentially, this means an infusion and accommodation of over 4 million Nigerians on an annual basis. Put in context, it means the infusion of the equivalent of the population of Edo State into the financial network on an annual basis. But, by merely recording 8% reduction in 6 years, Nigeria has been left behind just as it has been left behind in dealing with poverty and in the global rating of critical economic performance indices.

That brings us to the second point in the report, which is that the Central Bank of Nigeria (CBN) is disappointed that the growth in rate of financial inclusion is slow. This disappointment is understandable, for two main reasons. The first of these is that, given the numbers, there has been very insignificant progress in the last 6 years. This disappointment is clearer in context of absolute figures, rather than percentages. In absolute figures, the country has only managed to increase the number of those financially inclusive by a mere 500,000. Thus, if population growth is taking into consideration, we are literally where we started in 2011. Essentially, the percentage reduction of about 5% is worse than it looks.

The second of the reasons the CBN is disappointed is that the CBN is particularly concerned about the cash in the system and its implications for the conduct of monetary policy. In the absence of significant progress in financial inclusion, those outside of the financial system will continue to virtually conduct all their economic transactions and exchanges in cash. Given the problem this poses for monetary policies, the promotion of financial inclusion and cashless transactions have become not only a development objective, but a monetary policy one. As long as those outside the banking system, which are called the unbanked, continue to keep and hoard cash, they leave an uncertain gap for the conduct of monetary policy. So, closing the cash use loop will apply pressure on black markets and allow for easier monetary policies, including dynamic innovative approaches.

Though implicit, the third point in the report is a catastrophic demonstration that the policies towards improving financial inclusion since 2012 has so far failed to make a dent. Since, the CBN has applied major tools of banking to expand financial inclusion. These measures include agent banking, linkage banking, credit enhancement programmes such as the Agricultural Credit Guarantees Schemes (ACGS), and the implementation of the micro, small, and medium enterprises (MSME) development Fund. What underlines all these measures is the incentive to bring the unbanked into financial system via the attraction of credit subsidies. The measures have not succeeded in reducing financial exclusion for two major reasons. First, the schemes, as large and varied as they are, are still available to a very insignificant minority compared to the numbers of those unbanked. Second, the incentive is not adequate because it fails to deal with the basic exchange they embark on a daily basis. The measures that will work will facilitate their already “simple” life and use of cash.

Now, consider that in the period that it has taken us to reduce financial inclusion by mere 8%, we have witnessed significant rise in crypto currency. Two years before the target for the reduction in financial exclusion was set in 2010, Satoshi Nakamoto, considered a pseudo name for the person or a group of persons that provided the pathway for the use of blockchain technology for the use of digital cash exchange system. While the developments of crypto currency has been very strong, there are now debates on how and what the developments will mean for financial inclusion. However, before the consideration whether digital currencies can help boost financial inclusion and thereby increase economic activities, the developments of the digital currencies rather show and demonstrate the gap that economies such as ours has to fill to keep up with technology and exchange developments. Essentially, it rather puts the inability to meet the target set six years ago in painful perspective. For now though, to the extent that developments in crypto currency may help boost financial inclusion by helping to deal with the key problems of lack of trust, high costs, and inaccessible financial institutions will be of huge importance.

Dr Okiti, an economist has served as an analyst at the UK’s office of national statistics and in the office of the Chief Economic Adviser to the Nigerian President.

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