Financial inclusion remains one of the biggest challenges for Nigeria’s banking sector, with companies, public bodies and international specialists all investigating ways to bring more people into the formal sector. The target for the Central Bank of Nigeria (CBN) is an 80% inclusion rate by 2020, up from 41.6% in 2016. Most of the debate so far has been focused on mobile money platforms. These have given people a chance to access basic financial services via a smartphone or basic handset, using the Unstructured Supplementary Service Data technology platform for facilitating online payments, including both the sale and use of pre-paid airtime.
But banking, while utilising components of the finance and telecoms sectors has presented a tricky regulatory challenge. The CBN’s concerns involve allowing telecoms companies to move partially into banking services, even if through formal banks. Additional concerns include the potential for airtime to become a de-facto currency in Nigeria, and various fraudulent uses for the technology. After refusing to license telecoms companies as mobile money operators, the CBN reconsidered its position in July 2017. At the end of that year a memorandum of understanding was signed by the CBN and the Nigerian Communications Commission to allow telecoms companies to participate in mobile money operations through a special purpose vehicle. As of late October 2018 telecoms companies were still restricted from directly offering mobile money services.
Future of Finance
For those interested in financial inclusion, however, the massive reach of telecommunications companies suggests that these concerns are merely obstacles that can be overcome.
“I do not believe that the success of financial inclusion is a question of who or what entity is running the show,” Emeka Onwuka, CEO of financial technologies consultancy Parkway Projects, told OBG. “We should envision both needs as well as solutions.” With telecoms firms eager to replicate the experience of mobile money in Kenya, where it has become very popular, it is clear there is commercial interest in finding solutions that markets and consumers want.
In terms of accessing credit, underserved areas of the economy and individuals seeking funds must often avail of state-backed interventions. One such example is the various agricultural lending schemes that banks use to lower the risk of lending and offer consumers low rates and extended maturities.
However, these schemes have proven insufficient in scaling up lending to drive commercial interest. To fully ameliorate access to financing, providing another data point and more evidence to support reform has allowed for the justification of lighter touch regulations with respect to financial inclusion that the CBN had been reluctant to offer. Godwin Emefiele, governor of the CBN, has meanwhile promised to work across public agencies on regulatory reform, including the Nigerian Communications Commission. In November 2017 Emefiele admitted that the 80% inclusion rate goal was ambitious and one that the sector would not be able to reach on its own. Help from telecoms firms would be needed, he said, noting that with a subscription rate of 150m Nigerians, the mobile phone industry’s ability to reach far more people would be crucial to the effort.
By mid-2018 questions about interoperability issues had arisen. Mobile money platforms often require a human interface, in the form of agents who complete money transfer deals, or offer services on point-of-sale terminals to customers in remote areas who cannot reach a bank or a telecoms branch office. An agent network could be built exclusively by a mobile phone operator to service its own customers and mobile money platform, or it could be the work of a third party, with the agents helping customers with the platform of their choice, making them a part of the financial services infrastructure available to all the operators.
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