Immobile in Nigeria

John lives and works in Nairobi. He does not have a bank account and he stores any excess cash he has at home, under his mattress. John’s family lives hours away, in rural Kenya.

Previously, when his wife unexpectedly needed money, John either had to make the long journey home by bus, or he had to find someone trustworthy who happened to be traveling in that direction to deliver the funds to her on his behalf.

In the event that John had to make the unscheduled round-trip journey himself, it often meant that he lost valuable time, not to mention the cost of missed business opportunities and the overshadowing security concerns, given that he was carrying relatively large sums of money over a vast distance.

Presently, John still does not have a bank account. However, when his wife needs money he simply locates his nearest mobile money agent, known as an ‘M-PESA’ agent in Kenya.

With over 40,000M-PESA agents throughout Kenya John never has to travel far to find one. He hands over hard cash to the agent who converts the cash into digital money by crediting John’s mobile account with an amount equal to the value of cash.

John has “cashed-in”. He now has digital money in his mobile account (or wallet), that he can electronically transfer to his wife.

Using his phone, John sends ‘x’ amount of his digital money to his wife’s mobile account and immediately receives a text notifying him that the transfer has gone through. Out in rural Kenya, John’s wife visits her nearest M-PESA agent and ‘cashes-out’ when the M-PESA agent deducts the digital money from her mobile account and hands her hard cash

M-PESA, a pioneering mobile payment service targeting the unbanked, was launched over ten years ago in Kenya by Safaricom, part of the Vodafone Group.

Once registered, customers can move money quickly and securely at their convenience, using their mobile phones for a variety of transactions.

The rapid adoption of the service by Kenyans has been phenomenal. In its first month twenty thousand customers signed up and today the product boasts approximately twenty million active users, equivalent to more than two-thirds of the Kenyan adult population.

It is difficult not to contrast the Kenyan mobile money revolution with the Nigerian status quo.

According to a 2016 report by EFInA, a Lagos based financial sector development organization, 98.7% of potential Nigerian consumers surveyed were not registered with a mobile money provider and had never utilized mobile money services.

Furthermore,76.7% of those surveyed did not know what mobile money is. These are stark numbers, particularly when viewed in the context of ‘financial inclusion’, which speaks to an individual’s ability to access financial products and/or services through banks or other formal channels.

Research has shown that access to financial services contributes to economic growth and helps to reduce poverty and socio-economic inequality.

Unfortunately, the same EFInA report indicated that a far from insignificant 41.6% of the Nigerian adult population is financially excluded.

There are at least three reasons why M-PESA has established a formidable foothold in Kenya. Firstly, at the time of launch the regulatory environment was conducive to innovation.

This approach enabled Kenya to fully embrace a “telecom-led” mobile money strategy. In effect, telecommunication companies were not restricted from providing mobile money services.

Secondly, Kenya had a significant unbanked population which was not being serviced by traditional banks who find it unprofitable to target customers who are at the bottom rung of the financial ladder.

Thirdly, Kenya had a high degree of mobile phone penetration, an integral factor in M-PESA operations.

Nigeria, too, has a large population of financially excluded citizens and a significant162 million active mobile phones lines.

It is therefore curious that mobile money services have not gained any real traction in Nigeria. A key reason for this is the way the sector has been regulated.

Unlike Kenya’s implementation of a “telecom-led” model Nigeria had, until recently, instituted what can be referred to as a “bank-led” model.

Telecommunication companies were consequently prohibited from operating mobile money services.

This created deadlock as the telecommunication providers saw little incentive in allocating resources to develop the infrastructure required for mobile banking to truly thrive; the obvious rationale being that investing in an enterprise, the main benefits of which will likely accrue to someone else has never made good business sense.

The banks in turn required access to infrastructure that was in effect controlled by the telecommunication companies.

In any event, Nigerian banks have tended to focus on the more profitable constituents of society, principally, large corporations and high net worth individuals. Mobile money services are more likely to target the poor and financially excluded.

Fortunately, there have been promising recent developments. In early 2018, the Central Bank of Nigeria (CBN) and the Nigerian Communications Commission signed a memorandum of understanding pursuant to which they agreed to collaborate on boosting financial inclusion levels in Nigeria, particularly vis a vis the mobile money space.

In October2018, the CBN published guidelines relating to the licensing and regulation of Payment Service Banks (PSBs).

Under this framework, entities deemed “eligible promoters” would be allowed to provide certain mobile money services to rural Nigerians. Crucially, telecommunication companies have been designated eligible promoters of PSBs.

Once licensed, PSBs will be permitted to conduct payment and remittance services, accept deposits from individuals and small businesses and operate electronic wallets, amongst other approved activities.

The MTN Group, a major player in the Nigerian telecommunications sector, has confirmed that it intends to apply for a PSB license with plans to launch a mobile money service around the second quarter of 2019.

This development is welcome progress that should, if properly managed and executed, go a long way in reducing the number offinancially excluded citizenry.

Nigeria must remain proactive in cultivating an environment within which all types of financial technology innovation, of which mobile money is but one example, can flourish.

The Nigerian government, in conjunction with relevant stakeholder industries, appears to recognize that more needs to be done to bring the unbanked out from the shadows.

This is clear from the CBN’s initiative to reduce the percentage of adult Nigerians without access to financial services to 20% by 2020.

However, due to a less than aggressive implementation strategy, the CBN itself has since acknowledged that the target deadline is not attainable.

Nigeria must go beyond making platitudinal policy pronouncements and instead follow through with the political will required to ensure a successful outcome.

Financial inclusion has been identified as a critical, public interest matter and now concrete, incremental steps must continue to be taken to address it. It will be worth it.

• Chioma is a trained lawyer at international “magic circle” law firm Freshfields Bruckhaus Deringer LLP, worked at Bank of England and currently Senior Counsel, Oliver Wyman