“Access to financial services such as banking, lending services, microfinancing, and economic resources, i.e., financial inclusion have long been heralded as a way to reduce poverty.”
Nigeria’s growing population is estimated to be 186 million people. Nearly 87 million Nigerians are living in extreme poverty, according and Nigerians are living to the World Poverty Clock. And even more concerning is that the same monitoring tool indicates that the country’s poverty level is on a continuous and rapid rise, with about six people falling into poverty every minute. A lack of access to basic amenities such as food and water, an increased spread of diseases and mortality rates, against the country’s high corruption levels, poor educational system, and underutilization of resources are just a few of the factors which cause, make up, and enhance this dire situation. Despite the country’s economic growth, in February this year, it was reported by the AfDB that over 150 million Nigerians (81% of the population) live on less than $2 a day – a 20% increase in people since 2014.
Access to financial services such as banking, lending services, micro-financing, and economic resources, i.e., financial inclusion have long been heralded as a way to reduce poverty. Increased banking deposits provide available credit for all people across countries, and enable increased consumption and investment, which help to drive economic growth, and in turn, job creation. Ghana, Uganda and India have established and adopted financial inclusion strategies as a means to reducing poverty, and now find themselves seeing significant results.
In Uganda, inclusion rates have been on the rise (from 28% in 2009 to 85% in 2017), and the government has developed its national financial inclusion strategy for 2017 to 2022 to accelerate this further. Ghana has had even more
success in correlating its financial inclusion strategies with poverty reduction – from an inclusion rate of 41% in 2014, to 58% in 2017, also reflected in mobile money usage, which grew from 13% to 39% in the same period, the poverty population in Ghana declined from 24% in 2013 to 13% in 2018.
The Indian example provides an even stronger illustration of the alignment between financial inclusion and poverty levels – over an 8-year period ending in 2017, there was a 45% increase in the number of financially included citizens, and the country now has 65 people escaping poverty every minute. According to the World Poverty Clock, India has shown one of the fastest rates of poverty reduction in the world, and there are indications that poverty could be eliminated by 2030. India, which has had the highest global poverty rate (in terms of absolute numbers of people) for decades, has now been surpassed by Nigeria.
At the end of May 2018, a study showed that in comparison to India’s 73 million citizens (11% of the total population) living in extreme poverty, Nigeria, which has over 40% of its population living in extreme poverty, has now surpassed India. Furthermore, with a year-on-year population increase of 3%, and the overall number of Nigerians with access to financial services having dropped from 44% in 2014 to 40% in 2017, this report highlights an increased urgency for Nigeria to increase and improve its efforts in establishing stronger and more effective long-term approaches to financial inclusion.
The progress made so far in India provides numerous lessons for achieving success and avoiding pitfalls in Nigeria’s financial inclusion strategy. India has a long history of efforts by various Indian governments to push for increased financial inclusion, but few approaches have had as much impact as Prime Minister Narendra Modi “Pradhan Mantri Jan Dhan Yojana” (PMJDY) – a wealth scheme launched in 2014.This scheme was established to increase the number of people with bank accounts in the country, which in 2014 was at 53% of citizens aged over 15. This effort was based on no-frills accounts and government subsidy disbursements and drove a large number of account openings – with over 260 million accounts opened between 2014 and 2016. However, this no-frills account structure – which allowed the maintenance of accounts with or with little or no minimum balances – created significant systemic issues. These accounts were largely inactive and thus expensive to maintain, for no associated revenue, while lending done to the recipients quickly became non-performing, leaving significant liabilities on the bank’s balance sheets.
To address these risks, and reduce the burden on the traditional banking sector, the government has established a new banking license – payment banks – in 2014. This license essentially gives companies who already serve the poorest members of the wider population the ability to offer financial services. Companies of this sort could range from FMCG distributors to telecommunications and retail companies.
They provide customers with quick and easy access to a bank account, easy fund transfer, digital debit cards, and interest rates on savings accounts, which all combine to increase their attractiveness. The most successful is Pay TM, an e-commerce company that also operates under the payment banks license; in just two years of operations, they attracted 300 million customers. By April 2018, the Reserve Bank of India had given licenses to 11 banks, and there were six banks in operation. The successful adoption of these banks is indicative of a likelihood of being able to offer third-party products such as insurance, loans and mutual funds, in the near future.
As with all successful development-driving activities, the Indian government ensured that their efforts towards increasing inclusiveness was closely monitored, with clear benchmarks, such that all progress could be easily measured. The country launched its first financial inclusion index in 2013 – the CRISIL Inclusix – with the objective of becoming a critical gauge for measuring progress on financial inclusion based on branch penetration, deposit penetration, credit penetration and insurance penetration. This Index would also enable the government to see where an enhancement of tactics and changes in approach might be required.
However, while enormous growth continues to be recorded in India, a neglect of direct financial literacy efforts has been reported by many, who have illustrated a limited awareness of financial solutions amongst lower income populations and tech-savvy youths. In addition, payment banks face challenges of over-competition, and an inability to lend money, which result in access limitations. Thus, while India’s approach presents a strong model to follow, the Nigerian market needs to adopt its own market-tailored strategy, which accommodates all the various ways to develop a more inclusive society, from immediate banking access to enhanced literacy and awareness to an efficient leveraging of mobile and broadband technology.