Financial inclusion in Africa a distant dream
A rare sight? Formal banking rates in Nigeria range from a maximum of 49 per cent in the South-West Region to a low of 19 per cent in the North-West Region, according to a recent report by the Central Bank of Nigeria (Image: World Folio)
Even as financial innovations like mobile banking platform M-Pesa proliferate in Kenya, it appears that the regular banking system across Africa does not guarantee financial inclusion to those residing in the continent.
As the example of one of Africa’s most populous economies, Nigeria, makes clear, financial inclusion is at an all-time low. Only 18% of people in Northern Nigeria have access to either formal or informal financial services, according to a recent report by the Central Bank of Nigeria (CBN).
Also, the CBN report makes it clear that a majority (80.4%) of the people fully excluded from both formal and informal financial services hail from rural areas.
Earlier this year in April, KPMG has disclosed that only about 20 per cent of the population is banked, in a report which stressed that two-thirds of the country’s population “have never banked at all before.”
With formal banking rates ranging from a maximum of 49 per cent in the South-West Region to an abysmal low of 19 per cent in the North-West Region, the situation is certainly pitiful in the West African economy, one of the continent’s largest economies.
Overall, Nigeria is desperately in need of a National Financial Inclusion strategy to reduce the number of people who do not possess a bank account.
Due to high physical distance to bank branches in most rural areas, lower levels of economic activity, and sub-par education levels and financial literacy, the population finds it difficult to be part of the formal financial services sector.
Only 13 per cent of the North-west’s population keeps their money in banks, 15 per cent in the North-east and 27 per cent in the North-central, said the report titled ‘National Financial Inclusion Strategy’.
The South-West has less people excluded with an average of only 33% without banks in both urban as well as rural areas compared to the Northern regions, the report noted.
The “informally included” primarily live in the North-Central region, where 23 per cent of adults have access to only informal services, it added.
One way to boost financial inclusion in Northern Nigeria is to make physical access to financial institutions easier.
There are 5,797 bank branches, 9,958 ATMs and 11,223 POS terminals in Nigeria since December 2010.
Compared to the number of clients per branch in Kenya and Tanzania where there are 3,922 and 8,595 clients respectively, each branch in Nigeria has 3,882 clients. The number of clients served in each branch should be doubled to be at best-in-class levels.
According to the report, the country has a very low credit penetration with only 2 per cent compared to Tanzania’s 16 per cent and South Africa’s 32 per cent. Every 1,000 adults in Nigeria have 15 loan accounts and this rate is much lower than Malaysia which has 963 loan accounts for 1,000 adults.
To develop the economy, financial inclusion is crucial. In 2010, 46.3 per cent of Nigerians were excluded from financial services.
To implement the strategy, stakeholders have been identified and roles and responsibilities have been attributed to them.
The key initiatives in the Strategy include a tiered approach to Know Your Customer (KYC), agent banking, mobile payments, cash-less policy, a financial literacy framework, consumer protection, and the implementation of credit enhancement schemes and programmes.
Payments, savings, credit, insurance, pensions, DMB and MFB branches, ATMs, POS, banking agents, and youth and women are given specific targets.