How can emerging economies improve existing financial inclusion strategies? Case study on Nigeria
Financial inclusion is increasingly becoming a desirable goal, both globally and at national levels. This is due to the perception that a more inclusive financial system could induce faster and improved outcomes for the Sustainable Development Goals. The reasoning is that extending affordable financial services to a wider segment of the population, especially poor borrowers and small sized firms, in a convenient manner, could open up economic opportunities by eliminating credit barriers, encourage entrepreneurship, create employment and provide more income for consumption, savings and investments.
Current state of financial inclusion (FI)
Several countries including Nigeria have adopted national strategies to address the difficulties in providing financial services to low-income citizens, in order to speed up the pace of FI. Since Nigeria introduced a national FI strategy in 2012, the number of citizens with access to bank accounts and credit have significantly increased. While access to non-bank services such as insurance and pension, has scarcely improved.
However, there is still room for greater inclusion as Nigeria is still far from meeting its target, which is to reduce the proportion of citizens aged eighteen (18) years and above without access to any form of formal or informal financial services, currently at 36.8% to 20% by 2020, and a further reduction to 5% in 2024. In addition, certain demographics face even worse exclusions. Specifically, women, rural dwellers and citizens living in the north-west region have far less opportunities in accessing financial services. By inference, when these exclusions intersect, the impact could be even more severe.
Gaps in the national financial inclusion strategy (NFIS)
A review of the current NFIS, FI regulations and interventions in Nigeria reveals some policy gaps which weaken the effectiveness of the initiatives adopted in reducing barriers to FI. Some of the observed gaps are summarised below:
- The strategy does not fully recognize that developmental problems are intertwined and systemic, therefore FI interventions are not properly integrated with other development initiatives such as the social protection scheme.
- Not sensitive to real-time changes, as the strategy was only reviewed after a six year period, thereby limiting the scope for flexibility and adaptability. There is also undue time lag in monitoring progress.
- The multiplicity of FI regulations and frequency of revisions suggests that policy reforms are not properly coordinated and thought through comprehensively. Poor sequencing of reforms can be challenging for stakeholders to fully absorb and comply with regulatory changes.
- Some sections of various FI regulations/policies appear to be counterproductive.
- The FI vision is mostly driven by the central bank. There is insufficient input and involvement from the legislative arm, non-bank regulators and private sector.
- The progress indicators measured are not robust enough. There is scope for expanding measurement beyond level of access to financial services, to include assessment of affordability of services since this is a major FI barrier. Also, actual usage and quality/variety of financial products should be measured.
- Progress surveys appear to focus on households alone, omitting details of inclusion/exclusion of enterprises.
- Absence of impact assessment to evaluate the impact of FI on related development problems. This is useful in identifying specific initiatives that work best and in what context, in order to guide policy making and improve future interventions.
- Certain external factors that could affect anticipated goals have not been considered. Examples include; adequacy of data governance laws, availability of internet access and affordable smart devices, ongoing conflicts in financially excluded regions, and capacity to effectively regulate activities of newly licensed suppliers.
Considerations for better policy formulation
A more holistic strategy approach is required, one that incorporates; increased flexibility to accommodate changes in the financial landscape, enhanced collaboration and commitment from all stakeholders, and stronger linkages with related development intervention programs. There is also need for better policy coordination and improved monitoring and evaluation. Future revision of the NFIS should extend consideration beyond market forces, to cultural foundations, socio political factors and underlying local context that influence financial service delivery in the country.
The findings from this study add to the emerging FI literature especially in a developing country context, and serves as a guide for policy makers, development practitioners, market actors and other stakeholders in making informed decisions. The full report can be accessed here.
About the author
Sone Osakwe is a development economist, who is committed to understanding how poverty and inequality can be reduced to achieve improved welfare and more inclusive societies. Her expertise include research, policy and practice, domestic revenue mobilization strategies, advocacy, among others. She is currently a Research Fellow at the Centre for the Study of the Economies of Africa (CSEA). Before joining CSEA, Sone worked as a fiscal policy advisor at Deloitte & Touche. She holds a Master’s degree in International Development and Economics from the University of Bath. She is also a chartered accountant. Contact details are provided below: