‘A case for the unbanked, excluded’

Dr Olayinka David-West is an Academic Director at both the Lagos Business School and Enterprise Development Centre (EDC) of the Pan-Atlantic University. An information system professional with over two decades experience, she has passion for the effective use of Information Technology in business. In this interview with CHIJIOKE NELSON, she speaks on poor financial services-induced poverty in the country and a financial inclusion study in collaboration with Bill and Melinda Gates Foundation.

Can you give a background to the financial inclusion project?
If you look at the case of financial inclusion in Nigeria, especially at the level of the unbanked, whether in rural area or in the city, it emphasises the point that it is expensive to be poor and because the unbanked lack access to financial services, we have a situation where even if they have access to the services, they pay more in terms of the transportation cost and risks, which worsens their situations. Especially in the rural areas, it costs more to get to a bank or financial service point to be able to transact. A couple of years ago, the CBN came up with FSS 2020 initiative and part of it is how to enhance financial inclusion. The national financial inclusion strategy developed in 2011, actually set a target of 80 per cent financial inclusion in both formal and informal segment.

That 80 per cent is a moving target because the population is growing on an annual or a daily basis. So, the bottom line is that we are trying to fill a gap right now, but we have achieved about 60 per cent inclusion, both formal and informal. The FSS 2020 deadline, which is about four years to go, is not very long. Again, when we look at financial inclusion across the world, especially Africa, we find out that mobile phone has reached the access level that banking has never been able to reach.

So we have a situation where in Nigeria, for instance, we technically have more than 100 per cent tele-density, but how can we take that explosion and put financial services on top of it to enhance access and reach? That is one of the biggest challenges. Also, in the course of looking at it, we know there are regulatory issues and infrastructure constraints. When people want to have access to formal services but cannot, they go for the informal. Like I said, it is more expensive to be poor, because those informal access channels cost more.

So, when we looked at these developments, we concluded that in terms of access and inclusion, a lot of work has been done on the consumer side. For the supplier side, the challenge has been how we can begin to understand better the supply constraints; because one of the theories we have is that there is lack of innovation in the financial sector in terms of financial services for the poor. But how do we begin to address these things when we don’t know much about the supply side of financial services and mobile products. Nigeria has unique opportunities because we have the population, we have the services and the Central Bank has licensed quite a few mobile money operators, yet there seems to be a mismatch. So, how do we begin to close the mismatch? That is where our study comes in.

To what extent would you want the financial inclusion to reach?

When we talk about mobile telephone, we see what it has done for us in terms of reach, but why do I still need to transact with cash? My dream for Nigeria is how I can buy gala without cash, because that is what the people who need this service in other places are doing. It is not about paying for DSTV or paying for GoTv and things like that, but I am looking at the critical mass of the poor. Can I pay for a bus ride or okada using this system? How do we bring these into the system because they are the core of the informal sector and where the money is. Banks have only done retail business, but never done mass retail. I mean that rather than trying to make N100 per transaction with few, they can make one kobo or N1 in million places and if you can stimulate that kind of growth, you are formalizing, building capital and credit base, as well as adding value to the economy, society and giving people financial products and services at their own point of needs.

What challenges do you really see on ground?

We have so far, been trying to adopt technology, systems and mechanisms from other countries whose dynamics are totally different from Nigeria’s. Baba Ijebu is doing his own business and people are understanding his business; but what model do we have in terms of taking his concept to the last mile? In banks, we sit comfortably with our suits and ties, we don’t get dirty, but unbanked and financially excluded are in the market looking for direction. So, our project is trying to look at the business model suitable for delivering digital financial service to the poor, because we believe the country can deliver. One operator claimed to have more than 9000 mobile money agents, yet I don’t see them. How do we build a network of agents that people can easily cash-out and cash-in? Financial inclusion must reach the level where agent network will be more than ATM network. The confidence will be there, such that if I go to Abeokuta tomorrow I can cash out, if I go to Warri I can cash out.

Is this project going to bring out a new study?
While we are going to address the issues so far listed, even down to the value chains to see what can work, we are not going to do a consumer study again, but we will make use of existing consumer studies. Since 2008, Enhancing Financial Innovation and Access (EFiNA) has consecutively done detailed consumer studies on the state of financial inclusion in Nigeria every two years. So, we don’t need to reinvent the wheels, but based on the study, identify the gaps and begin to map out the footprints, the needs of different industry segment nationwide and apply the ideas. When you have an understanding of what is going on across segments and even regions, then you can begin to place product and services that would suit those areas.

What is the stage of this arrangement?
We have kicked-off the study by gathering the critical players and stakeholders at a closed-door session to tell them what we are doing. We engaged the providers, agents and also we have invited channel managers from Fast Moving Consumer Goods as well, because if you look at FMCG, they distribute materials, goods and services. How do they do it and what can we learn from them? Of course, it is not about reinventing the wheels, but building on traditional materials flows, which can be adapted to financial and information flows.

We need to start looking for those who are reaching consumers at the bottom of the pyramid and this is where our study and research are very interesting. In Nigeria, we have two issues- we don’t like to cooperate together and we are always competing with each other. Granted, Samsung and Apple compete but then, they complement each other. Who built Apple chips? Samsung! We must agree to work together because there are certain areas we can benefit mutually, as opposed to killing each other. Think about how many transactions we make every day- we buy petrol, lunch, recharge our mobile data, at least four or five transactions. How many of those can we convert from traditional cash to mobile? That is the essence of this project.

We are excited about the project and we realise we are the ones to solve our problems. Yes we have the support of Bill Gates and Melinda Foundation, but they will not come and do the work for you. Surely they will support because they believe that there is a vibrant market here, but they will not do the work for you. Let us challenge ourselves as Nigerians to do good for each other.

What is your view of the nation’s bank-led model of mobile money?
I think it is not just about having a model but also about other supporting structures that would help the model to work. For example, we have the ideology that it should be bank-led because it is money and at the end of the day, it is not physical money but virtual. Since the GSM companies started, they have been competing with the banks because small value person-to-person transaction is easier done by buying credit and transferring the number. So, it is about how to liberalise what we know as money and the structure we can put in place to support it. Whether we like it or not, banks don’t have mechanism for mass, at least for now, and we need to engage the rest of the community that has the mechanism for the critical mass to ensure success.

How would you assess the level of mobile money penetration?
In Nigeria we have the ideas, we have the market, we have the money to put behind these initiatives, but yet we don’t know how to drive these opportunities into services. Of course, NDIC has unveiled a framework for deposit insurance for mobile money business, which is another step to close a gap. So, those are the little things we all need to grow the eco-system. Even if it now means having two regulatory agencies coming together, they are all serving the same government and in one country. It is not impossible. But can we begin to get everybody to think differently about it? Because the objective is what we are focusing on now – 80 per cent inclusion by 2020.