Nigeria risks crisis if CBN allows Telcos into financial services

The Central Bank of Nigeria (CBN) has clearly defined policies that disallow mobile network operators, often referred to as Telcos, from the direct provision of financial services. These policies continue to be challenged by various parties, including the Bill & Melinda Gates Foundation (“Gates Foundation”) and EFInA (Enhancing Financial Innovation & Access), a financial inclusion advocacy group based in Nigeria, even though the CBN position matches the position of most other Central Banks around the world.

And for good reason too. The primary risk at hand is that two major sectors of the economy will be in the hands of the same companies and covered by two regulators. In any country, having two regulators overseeing a single company is an issue, but in Nigeria, where we have seen major challenges with two regulators overseeing companies – an even greater problem.

Imagine if MTN and Etisalat had mobile money licences. There would have been a financial crisis when Etisalat declared it could not pay its billion dollar debts to the banks in 2017. Even if the Etisalat company with the mobile money license was a separate legal entity, as long as consumers related it to Etisalat they would simply be asking for their money back to be sure they don’t lose their hard-earned money. This could have also led to what is known as a “run on banks” where consumers also request their money back from banks who are unaffected by the situation. Such a scenario would have plummeted Nigeria into financial crisis.

The CBN is rightly concerned about driving financial inclusion in Nigeria. It has a dedicated unit on the matter and that focus has led to a lot of good policy and advocacy, and we are starting to see results. However, according to EFInA (which is also partly funded by the Gates Foundation), there are currently 46.9m Nigerians covered by formal financial services (48.6% of adults). This means that 49.5m Nigerians are excluded from formal financial services. The CBN has created a few policy frameworks to turn the situation around.

The CBN is putting pressure on the banks to offer products for the mass market and work with shared agent networks to bank the unbanked in Nigeria. We have seen early successes with GT Bank, Union Bank and Diamond Bank to name a few. The CBN has also created regulatory frameworks for mobile money regulation and a shared agent banking. Mobile money regulation has correctly been limited to banks and non-Telcos to ensure that there are no cross-regulator issues and risks are properly managed. The shared agent network regulation has been setup to encourage any institution to create an interoperable agent network for all financial institutions to leverage. This framework permits Telcos to participate since the key strength Telcos might bring to solving financial inclusion is their distribution network.

Both of these policies have not fully hit their stride because of other issues which the CBN has recently either resolved or is in process to resolve. The two major issues with the mobile money regulation were the limits on transactions for KYC 1 transactions – previously set at N3k per transaction (which was too low for anyone to use), is now set at N50k per transaction. The second issue is that mobile money operators were not allowed to use the funds in their pool accounts to earn interest and thereby provide basic savings products. We understand the CBN is about to change that and allow for basic savings accounts through mobile money.

This is a welcome development. CBN has also licensed at least 3 shared agent networks and is open to allowing Telcos to have shared agent networks. Building shared agent networks by Telcos is fine. In that role, Telcos do not control the actual finances of customers. The banks and licensed mobile money operators control the finances and own the brands. The risk is averted.

The CBN needs to exercise patience to let its regulatory frameworks come to life and not inadvertently put Nigeria on a course where companies would be deemed too big to fail. The CBN current approach is perfect as it focuses the Telcos on their key strength and allows them to play to that strength while ensuring that the financial services itself are owned 100% by entities who are owned by companies not regulated by another Nigerian regulator. If we thought MTN resisting the Nigerian Communications Commission’s US$5bn fine was a big issue, we have not seen anything yet. Imagine what can happen should the CBN make the mistake of allowing Telcos into financial services.

Today, in just about 3-4 years of real mobile money operations, Nigeria has at least 15,000 mobile money agents and 10m mobile money customers. This compares very well to 5,000 bank branches and 30m customers from all banks. Experts estimate that should the market be allowed to thrive under current policies we will have at least 60,000 mobile money agents and 30m mobile money users by 2020. The CBN should stay the course and leave things as they are to flourish.
*Abiodun is a financial analyst.