The stages of financial inclusion
The discourse around, and drive towards financial inclusion, has been framed in terms of ‘access’ to financial services. Financial service offerings across industries and for all groups – from individuals at the bottom-of-the-pyramid to ultra-high net-worth individuals – have been experiencing a steady rise and evolution. Institutions have taken steps to simplify account opening procedures; others have introduced mobile money to ensure simpler, faster movements of money for the less savvy; and insurance products have become so cheap, that life protection costs as little as N1000.
Despite these efforts and their modest impact, we are yet to see a commensurate increase in the standard of living for individuals who have been provided with access to financial services. This makes it evident that access is only a part of the inclusion puzzle. This is a lesson that other countries are also learning. We have to look beyond the immediate drive to increase access and understand the various stages of financial inclusion.
Financial inclusion, according to Nigeria’s Central Bank, is the access to financial services of the adult population; in this first stage access is not just physical. Living and/or working in proximity to financial service points is certainly a crucial part of becoming and remaining included. However, there still remains a significant amount of work to be done to enable this. With limited cash or disposable income, there is a reduced need for a bank or mobile money account, and other savvy financial products like insurance. But without financial service providers providing quality services built to reach and empower those in need, inclusion is still a long way off.
Some of these problems may be eased when Payment Service Providers such as telecommunications companies and retailers, etc., begin to operate. Given that a significant proportion of the unbanked population interact with retailers more regularly; have a mobile phone and thus trust mobile service providers to a greater extent; enabling these new financial service providers who are entering the sector, is a crucial next step. Beyond this, however, we need to take greater care not to eliminate subsequent stages.
The second stage comes in the form of actual utilisation of financial services. Owning a bank account and having access to financial services is insufficient if one does not, in fact, make use of it. To this end, some Nigerian socio-cultural and economic factors might explain the status quo. Low income groups generally distrust financial institutions, and the banking crises that have plagued the sector over the last 10 years have only exacerbated concerns. The plethora of charges on bank accounts — from withdrawals from cash machines, SMS maintenance fees, account maintenance fees — for an economy with the highest global rate of extreme poverty, tends to translate to a reluctance to remain unbanked, even if one did already have an account.
The final stage of inclusion culminates in added value. For example, savings accounts appear to be the most accessible financial products, but their usage in Nigeria is such that many do not realise the benefits of interest payments from them. Many financial institutions also require credit-seekers to open (often, expensive) current accounts with them, compounding the limited enthusiasm that many have towards financial services. Despite the rise in banked Nigerians, the quantity of individuals saving has reduced by 6.7%, and the number of individuals seeking loans has reduced by 1.4%. This could also be as a result of limited flexibility and proliferation of varied loan structures, which cater to customer habits, needs, and cultures. In Northern Nigeria, for example, cultural sensitivities based on Islamic religious sentiment, and the dissonance towards traditional banking associations, mean that the most effective methods of providing credit to these audiences involves making no-interest investment-style loans available, through producer and consumer groups.
To truly deepen financial service penetration and ensure the attainment of Sustainable Development Goals (SDGs), financial service providers must confer a value on their users beyond mere ownership. There should be some level of empowerment inherent in being an owner or user of financial products. Can small farmers easily access loans to enable them scale operations? Are non-banking products readily accessible; e.g mobile phone insurance? Can a small business owner, in addition to owning a corporate account, also access financial services which make it easy for her to collect payment from her customers at lower marginal cost? If the answer to these questions across the board is in the negative, then we have only just scratched the surface of what financial inclusion truly means.
Some studies suggest that financial inclusion only helps poverty reduction and reducing income inequality when the overall economic conditions empower people to use the access they have to finance, for productive purposes like investing in children’s education. To truly achieve rates of financial service utilisation in Nigeria that are more commensurate to the extant services available, we need to now focus on improving the quality, as well as the quantity of financial services available to the people.
Ultimately, enabling access to financial services is the first stage in reducing poverty and enabling development. However there is much more. It is reductive to think about financial inclusion without an understanding of what constitutes value for the financially excluded. Deepening inclusion, by way of addressing the cultural sensitivities, behavioural traits, and preferences of prospective users; and cultivating trust among the unbanked, will be the tipping point in the race to eliminating financial exclusion and the attainment of the sustainable development goals.
•Usoro, General Manager, Mobile Financial Services at MTN Nigeria
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