Banking the unbanked, still the CBN’s major hurdle

Reducing the huge population of Nigerians who still lack access to financial services is certainly a major challenge facing the Central Bank of Nigeria (CBN), particularly as it tries to create a robust banking sector and drive one of its mandate of promoting a sound financial system and fostering Nigeria’s economic growth.

Although a global phenomenon, Nigeria is one of African countries habouring huge number of its citizens with greater number of population without access to financial services. According to Kofi Annan, former United Nation’s Secretary-General, “The stark reality is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector.”

Financial exclusion is the unavailability of banking services to people living in poverty. It is believed to be one factor preventing poor people from exiting poverty, by forcing them to manage their finances on a cash-basis only and restricting their access to equitable sources of credit. Financial exclusion can therefore make poor people vulnerable to loan sharks.

Unfortunately, robust economic growth cannot be achieved without putting in place well-focused programmes that increase access of poor and low income earners to factors of production, especially credit. Microfinance is about providing financial services to the poor who are traditionally not served by the conventional financial institutions.

For instance, a study by the Enhancing Financial Innovation & Access (EFInA) in 2010 revealed a marginal increase of those served by formal financial market from 35 percent in 2005 to 36.3 percent in 2010, five years after the launching of the microfinance policy.

But, when those that had financial services from the informal sector such as savings clubs/pools, ‘Esusu, Ajo,’ and money lenders were included, the total access percentage for 2010 was 53.7 percent, which means that 46.3 percent or 39.2 million adult population were financially excluded in Nigeria. Nigeria ranked below South Africa, Kenya and Bostwana with 26.0 percent, 32.7 percent, and 33 percent, respectively.

The survey, EFInA ‘Access to Financial Services in Nigeria 2010,’ showed that the main barriers why people do not have bank accounts include unsteady income, unemployment and distance to bank branches.
To further buttress the high level of financial exclusion in the country, Sanusi Lamido Sanusi , the CBN governor, puts the ratio of bank branch to the total population at 24, 224 persons.

According to him, there were 24 deposit money banks with 5,789 branches and 816 microfinance banks, bringing the total bank branches to 6,605, indicating a high level of financial exclusion. Financial inclusion, the opposite of exclusion or inclusive financing, is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society. Unrestrained access to public goods and services is the sine qua non of an open and efficient society.

It is argued that as banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of public policy.
The term “financial inclusion” has gained importance since the early 2000s, and is a result of findings about financial exclusion and its direct correlation to poverty.

Financial inclusion is now a common objective for many central banks among the developing nations, particularly as it remains a major factor in driving economic growth they are committed to.
Against this backdrop, the apex bank revised the 2005 Microfinance Policy, Regulatory and Supervisory Framework for Nigeria in April, 2011.

Besides, it has undertaken a number of strategic initiatives, including a commitment at the 2011 Alliance for Financial Inclusion (AFI) Global Policy Forum held in Mexico, to reduce Nigeria’s financial exclusion rate from 46.3 percent to 20 percent by 2020.

Other strategies include, the conclusion of the National Microfinance Development Strategy (NMDS) - a roadmap to guide orderly growth in the industry and enable microfinance institutions (MFIs) and MFBs to be viable to attract investments and enrich its monetary policy projections and enhance transmission mechanism.

The CBN also developed the National Financial Inclusion Strategy (FIS) that will further facilitate access to the otherwise disadvantaged groups like the farmers, women, aged citizens, self-employed, jobless school leavers, and SMEs considered by banks as costly, risky and unviable.

Sanusi said that the microfinance development fund (MDF) would be established in 2012 to improve access to affordable and sustainable source of finance by microfinance institutions and microfinance banks.
He is hopeful that the Cashless Nigeria Initiative, which commenced in Lagos in January 2012 and would be flagged off in other states of the federation, would further boost the payment system and improve access to financial services.

In his view, Modupe Ladipo, CEO, EFInA, recommends that in order to achieve universal access to financial services, banks will need to adapt their systems to low-value, high volume transactional environment with numerous points of access, at which people can conveniently conduct financial transactions.