Fintechs’ financial inclusion agenda in Nigeria: So far, how far?

Nigeria is an intriguing, interesting place to do business. All over the world, investors, governments and international financial institutions continue to wrap their heads around this enigmatic contraption that is our country.

On one side, we have the most promising statistics: a compelling population of over 200 million people with an incredibly young average age of 18. A near-perfect geographic placement; nestled just within an aquatic splendour of beautiful springs, crossing rivers and the ever-bustling Atlantic Ocean.

A vast mass of rich arable lands, beautiful hills and gorgeous mountain ranges; an almost limitless abundance of countless mineral resources, including Crude, Gold, Bitumen and the next wave – Lithium.

On the other hand, years of drawn-out slow growth, punctured by sliding Naira, galloping inflation, unaffordable lending, and crumbling infrastructure, makes Nigeria one of the most unbelievably oxymoronic nation-states on the globe.

In this complex web of promising and ominous is the financial inclusion question. But what really is FI, as it’s often called? Why is it a thing? Why are Fintechs and Financial institutions all wrapped in the promise and concept of financial inclusion? 

Let’s take a dive…

ChatGPT states that Financial Inclusion is the process of ensuring that all individuals and businesses, regardless of their financial status, have access to useful and affordable financial products and services, including credit, savings, insurance, and payment services, that meet their needs.

The objective is to help people participate in the formal financial system and achieve greater financial stability and prosperity. This can be achieved through technology, innovative financial products, and increased outreach by financial service providers to underbanked and underserved populations. Financial inclusion can improve the quality of life for individuals and communities, promote entrepreneurship and economic growth, and reduce poverty.

If we are breaking that down, Financial Inclusion simply means bringing a mass of people into the financial ecosystem. Encouraging, educating and attracting the level of participation and involvement that creates incremental value not just for the participants but also for the government. But why is that also a thing? It is simply because every financial system gets its life and strength from its depth. 

Every country is only as strong and prosperous as its economy, and economic health and strength are almost always premised on the size of its participants, the weight of their contributions and the value exchange within that economy. 

In Nigeria, therefore, to achieve the desired growth, which can fund our infrastructural and other developmental needs, we need to bring even more people into the economic and financial ecosystem to increase participation, value creation and exchange.

Someone may ask, though, why do we have citizens excluded in the first place? Is it not true that the oldest Bank in the country has existed since the 19th century? How can Nigerians be excluded en-masse when banks like UBA, First Bank, Union Bank, Wema Bank and others existed even before Nigeria’s independence?

Financial inclusion is only a thing because some people are excluded. How did they become excluded to start with? 

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Well, the reasons are varied, but the top among those is access – with many Nigerians living in the villages and without access to banks and formal financial services before the oil boom of the 70s. 

Next is our historical ties to mass illiteracy, closely tied to access and underdevelopment in Nigeria’s pre-oil boom. 

Another critical point is the socio-cultural element, where Nigerians traditionally mistrusted financial institutions: first in the pre-independent era as vehicles of the colonialist and then in the post-oil-boom era as unstable conspirators who could fold up at a moment’s notice.

The implication is that we have had perhaps four generations of Nigerians who have lacked access and been ill-informed and uneducated about the benefits of the banking and financial system.

Many have been untrusting – some with justifiable reasons and have generally stayed away from playing in the system. Multiple generations have chosen the alternate financial system in their localities, whether the cashless open-barter of ancient times, communal cash-based cooperatives of recent times, or the comfort of their pillows and ceilings as personal vaults.

Inadvertently, development has slowed, value creation and sustenance have crawled even slower, and the Nigerian government and people have remained poorer; altogether suffering the consequences of stashing money outside the formal system that could have driven multiple value creation – including in lending, savings, manufacturing, enterprise growth, investment, salaries, taxes, etc.

Read also: Editorial: Fintechs and the fuss about financial inclusion when there is none

So why the Fintechs, and what’s their play with Financial inclusion?

It is heartwarming to say that the central bank has generally been very forward-looking in the last 20 years. With the appointment of Charles Soludo in 2004, monetary policy and regulation of the financial system has been largely forward-facing, starting with the Banking Sector reforms in 2004, culminating in the successful Banking consolidation of 2005.

By 2007, it was clear that more needed to be done, and the Payment Systems Vision (PSV 2020) was launched. At the core of the vision was to drive more inclusion and power-aggressive growth via the deregulation or re-regulation of the financial space.

A brimming policy, which had noticeable involvement of varying government and private sector stakeholder contributions, the PSV 2020 was the bedrock upon which the CBN licensed different players to step into the financial eco-system. Then entered those young and spicy gangs called Fintechs.

For Fintechs, many largely started with payment gateways to merchants and wallet services to individuals to address the access problem, with eTranzact’s Pocketmoni, Interswitch’s Quickteller and Paga’s wallet service leading the charge to solve the access to financial services problem.

In fact, the government stepped into the wallet play in 2012 by launching the Agric e-Wallet system powered by another FinTech Cellulant, which onboarded 1.2million farmers in 120 days and ultimately about 17million farmers overall – the majority of whom had never been involved in the formal financial system. The wallet was to provide government subsidies to small-holder farmers for input purchases and fertiliser discounts, which was a rapidly successful initiative that even gained multiple global recognitions.

Soon enough, with wallet holders already provided access all over the country but with limited points to cash out or redeem value, the FinTech Agent Banking system emerged. Nigerians nationwide were recruited as Agents and facilitators for wallet holders who wanted to access the value in their wallets or pay for critical services. This was a real inclusion driver for Nigeria as the banks were largely unwilling or unable to play in some of these locations earlier considered remote and unprofitable. 

Of course, to go along with these innovative products was heavy education and engagement. Newer products and services were also introduced, and the formalisation of Fintech as critical players necessitated the restructuring of license regimes and categorisation of players and their playing turf to drive expected growth.

Read also: Technext’s Top 5 Fintech Players of 2022

Soon enough, foreign players like OPay got involved. The Telcos refused to be bystanders and jumped into the fray; first as Super Agents and now as Payment Service Banks (PSB), the banks became aggressive and rolled out Agency banking. It was the dawn of a new day. 

In 2015 when the CBN-instructed Bank Account Verification (BVN) exercise was first undertaken, Nigeria had less than 40 million unique Bank accounts. That figure has grown by about 50% to about 57 million unique accounts seven years later. While it will be disingenuous to claim that this growth is all attributable to FinTechs, it will equally be shallow to imagine such milestone growth without Fintechs in Nigeria.

What next? What more can and should be done?

With a population of approximately 220 million citizens, Nigeria maybe has an Economic Citizen population of somewhere between 150 million and 180 million – these are those that can pay for services and be paid themselves, commonly citizens from 15 years to maybe 75 years. If this assumption is anything to go by, about 70% of Nigeria’s economic catchment is still excluded. So clearly, there is more to be done.

Continuous education of the citizen is one; another is non-stop innovation of best-fit services and products that meets critical use cases. Smarter Fintechs realise that web/mobile apps will not solve all our problems in a nation where smartphones are expensive, and internet penetration is less than 50%. 

Another initiative that will drive penetration is deeper collaboration. The oncoming Open Banking policy of the CBN will expectedly power this. Currently, many FinTechs are based in Lagos or some of the leading regional cities in Nigeria.

The implication is that such Fintechs are far from locales where Fintech propositions are most needed, so they typically build solutions for Nigerian city use cases rather than rural Nigeria.

Open banking to the rescue?

With Open Banking, that chasm will be shortened as anyone with access to critical financial services APIs could build better-fit solutions that drive real-life value for users in rural Nigeria and drive inclusion.

Of course, there is more to be done in digitising critical service aggregation – services like Nano Loans, Micro Insurance, Micro Pensions, Local Transport and even custom services like Agric subsidy, crop storage, produce purchases, agro-investments etc., are use cases that best meet the yearnings of our people.

To conclude, Financial inclusion as an agenda will continue to be a non-stop pursuit. Bodies such as the CBN, EFiNa, FinTech Associations and others will continue to invest time, resources, ideas and propositions to solve this puzzle as we seek to bring more people into the inclusive universe. But it is important to note that trying to include those who are economically exclusive financially is a difficult ask.

Nigeria and its leaders must continue expanding and growing its citizens’ economic prosperity through heavy investment in free market policies and infrastructural regeneration. These will attract investments and diaspora Nigeria enough to power growth and almost naturally force inclusion.

When substantially more Nigerians get employed in formal jobs, have to operate as registered entrepreneurs or have to seek funding to grow their business because of growth opportunities in the market, they will inadvertently seek the financial system and become included without being preached to or coerced into doing so.

That really is the future of this inclusion question, and Fintechs are critical players in that attractive but far-away future.

The best time to start such a pursuit was yesterday; the next best time is now.

This article was contributed by Lanre Adelanwa Basamata. He is an experienced marketing communications professional with years of experience in the Nigerian Fintech industry.