The Central Bank of Nigeria (CBN) along with players, stakeholders as well as regulators in the financial system have made financial literacy the goal of this year’s celebration. A 2010 survey by Enhancing Financial Innovation and Access (EFInA) shows that 36 per cent of the adult population in Nigeria have access to formal financial services. This means only an estimated 27 million out of 85 million Nigerians above the age of 18 are served by formal financial service institutions. Of the adult population, 17 per cent are served by informal institutions and 46 per cent are completely excluded. These 58 million unbanked Nigerians are the primary targets of Financial Inclusion.
To this end, the CBN and other stakeholders intend to implement a National Financial Inclusion Strategy that would reduce the percentage of adult Nigerians that are excluded from financial services from 46.3 per cent in 2010 to 20 per cent by 2020.
The number of Nigerians included in the formal sector is also expected to increase from 36.3 per cent in 2010 to 70 per cent by 2020 as this goal is being pursued through a broad range of coordinated interventions.
The financially excluded are those who do not use any financial service or product to manage their finances. They transact using cash. Most of them according to a 2012 study by EFInA, are women, rural dwellers, farmers and illiterates. 52.3 per cent of the financially excluded adult population are female, according to a study on Access to Financial Services in Nigeria, by EFInA.
But having a right to financial services is one thing, deciding to exercise that right is another issue. Most of the people who are financially excluded in Nigeria, actually chose not to exercise that right for sundry reasons. These reasons were revealed in a 2011 study on, Understanding the Low Income Population in Nigeria by EFInA.
The reasons include intimidating and stressful account opening process, long distance and associated cost of visiting banks; unexplained deductions; low interest rate on savings; increased fraud rate, etc.
Some of the low income people surveyed in the study list the challenges they experienced patronising banks. These include slow-paced services and long queues, unreasonable bank charges and hidden charges, unfriendly staff, ATM fraud, unreliable network, and the requirement for account opening and minimum balance.
In an effort to address some of these factors, the CBN introduced the tiered Know Your Customer (KYC) regulations, which introduces different account requirement for three categories of bank customers. The low-level KYC, which aims at making it easy for low income people to have bank accounts, requires only passport photograph and personal information for account opening. Also the CBN had directed banks to allow people to open accounts with zero balance.
To complement this, the CBN introduced the agent banking model, which is designed to bring financial services closer to where people live or work. Furthermore is the introduction of biometric electronic payment devices such as ATM and PoS, which allow use of fingerprint for access.
The Nigeria Deposit Insurance Corporation (NDIC) had also stepped up its game. Its managing director and chief executive, Alhaji Umaru Ibrahim, stated, “Deposit insurance is vital to financial inclusion because the poor need assurance that the services of the depository institutions are safe and available at all times they desire.”
He said the corporation in response to the concerns about safety of mobile money services, had decided to extend deposit protection to cover funds involved in such services. Most of the financially excluded people however, may not be aware of this protection and hence, does not have the confidence to exercise their right to financial services.
The lack of awareness, according to EFInA, is not limited to availability of deposit protection. “Lack of awareness of location of financial services is a potential barrier to deepening financial inclusion,” it said in its report on Exploring Opportunities for Financial Inclusion in Nigeria.
The implication is that educating and informing those financially excluded through a deliberately designed and executed financial literacy campaign, is a necessary ingredient of any financial inclusion programme.
According to Ibrahim, “In order to attract the unbanked poor to formal financial systems, there is the need to educate this segment of the society with regard to various financial products and services available from formal financial sector and to make the people aware of the advantages of being connected with the formal financial sector. Financial literacy is therefore key for the attainment of National Financial Inclusion Strategy’s objectives.”
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