Nigerian Fintech driving financial inclusion through Crypto adoption

Nigeria is home to Africa’s largest economy, yet access to essential financial services can be stubbornly elusive in the region. As recently as 2023, only 64% of Nigerian adults had what a Bloomberg report classified as “formal financial service.”

Clearly, there’s room for improvement in achieving financial inclusion for much of Nigeria’s vast populace. Blockchain-enabled fintech, which is certainly not a cure-all for Nigeria’s challenges, holds the promise of promoting inclusion for the unbanked and underbanked – and indeed, there are already signs of progress toward this end.

Binance CEO Richard Teng commented on the need for financial inclusion during a World Economic Forum event in Davos, “Digital assets, conceived as tools to democratize financial access, offer a lifeline for the 1.4 billion unbanked and billions more around the globe underserved by the incumbent systems. In a world where basic financial services are still a privilege, crypto offers a practical alternative to systemic exclusion.”

Teng continued, “Furthermore, in the world’s most inflation-riddled nations, digital assets like Bitcoin and stablecoins – tokens designed to track the value of other assets such as the U.S. dollar – provide a stable store of value in the face of currency devaluation. For families reliant on remittances, crypto slashes fees and speeds up transfers. Meanwhile, decentralized finance (DeFi) tools are enabling loans and savings where traditional banking fails to reach.”

Approaching Inclusion through Better Oversight

To help extend crucial blockchain-based financial services to Nigeria’s unbanked and underbanked – and to help quell concerns about oversight – arms of the nation’s government will need to work directly with blockchain entities. Fortunately, partnerships of this nature are currently in progress, albeit still in the early stages.

A prominent example is the partnership between the Central Bank of Nigeria’s payments clearinghouse, known as the Nigeria Inter-Bank Settlement System (NIBSS), and Zone, a decentralized payments firm. In this collaboration, NIBSS has access to Zone’s established blockchain network and can thereby decentralize and improve its Payment Terminal Service Aggregation (PTSA) operations.

Since these operations can now occur on a blockchain network, payments can be monitored in real time, permanently recorded, and completed efficient at relatively low cost to the parties involved. NIBSS CEO Premior Oiwoh elaborated on the vast benefits, explaining, “The strategic alliances will revolutionize the ecosystem, offering improved operational efficiency, cost savings and enhanced financial inclusion, ultimately positioning Nigeria at the forefront of the global payment space.”

In other words, even reluctant regulators would be hard-pressed to find fault with the NIBSS-Zone partnership. Rather than providing a haven for bad actors, Zone’s blockchain network is actualizing the vision of a streamlined mechanism for remittances while enhancing governmental oversight.

Zone CEO Obi Emetarom claimed that this collaboration will result in “delightful experiences to end-users,” which may be optimistic but the point is well taken. If the availability of life-changing financial services is promoted on a wide scale, then there’s something “delightful” about this venture.

The Hunt for Unicorns

Of course, Zone isn’t the only blockchain-associated firm to watch in Nigeria’s fintech landscape. There will hopefully be many more to come, and Nigerian fintech Moniepoint is setting a powerful example.

Moniepoint, which provides personal banking services along with payment solutions for institutional-grade firms, achieved what’s known in economic nomenclature as “unicorn” status. Last year, the company garnered $110 million worth of funding from multiple investors, including American technology giant Google.

With that $110 million, Moniepoint could be called a “unicorn” as it had received $1 billion in start-up funding. In exchange for the funding (particularly from Google), Moniepoint is expected to advance its digital payments and banking solutions throughout Africa.

This underscores the win-win possibilities as surely more fintech firms will seek to achieve “unicorn” status while promoting financial inclusion in Nigeria. Going forward, the world will be watching closely as Nigeria makes strides toward regulatory clarity, more efficient blockchain-based payment systems, and greater outreach to the nation’s underserved individuals.

Building a Legal Framework

Fintech firms have tremendous opportunities in the 2020s to effect reform and open up Nigeria’s economy to all participants. However, reform efforts won’t go far without a clear and established legal framework in which to operate.

Regulatory clarity is a pressing issue as Nigeria is among the world’s most active nations in terms of cryptocurrency usage. As reported by the Governor of the Central Bank of Nigeria, Olayemi Cardoso, leading cryptocurrency exchange Binance facilitated a whopping $26 billion in transactions from Nigeria.

That’s astonishing, especially when one considers that in 2021, Nigeria’s government prohibited banks from operating accounts for cryptocurrency service providers. Thankfully, the Central Bank of Nigeria (CBN) lifted this ban in late 2023.

That was a quantum leap forward, but there was still vast room for improvement. Last year, Federal Inland Revenue Service (FIRS) Chairman Zacch Adedeji proclaimed, “We cannot ignore the cryptocurrency ecosystem; it is a crucial part of the current economic environment,” but then acknowledged, “However, in Nigeria, there are currently no laws regulating cryptocurrency activities.”

As it turns out, the “currently no laws” statement may be an exaggeration. Nigeria’s crypto-friendly fintechs should have some measure of legal clarity, at least, as the nation’s Securities and Exchange Commission (SEC) published a 54-page “New Rules on Issuance, Offering Platforms and Custody of Digital Assets” document in 2022.

Then, in 2023, the Nigerian government released its “National Blockchain Policy for Nigeria” document. It’s a brief document with a mission statement but not much regulatory clarity, though at least the government is taking steps toward a larger framework in which Nigeria’s fintech stakeholders can thrive in the coming years.