Financial Inclusion in Nigeria

What is financial inclusion?

Financial inclusion has to do with creating initiatives to avail financial services and products to individuals and businesses, regardless of individual wealth or the size of their organization. The goal of financial inclusion is to lower the obstacles that prevent people from engaging with the financial system and utilizing its products to better their lives. Additionally known as inclusive finance.

Financial inclusion helps individuals and businesses plan and manage their finances from long-term goals to unforeseen situations. 

The goal of financial inclusion

The financial sector is always developing new strategies to offer goods and services to people all over the world and regularly make money in the process. For instance, the growing usage of financial technology has produced creative solutions to the issue of access to financing and created new avenues for people and institutions to get the services they require at fair prices.

The Universal Financial Access 2020 initiative, sponsored by the World Bank Group, which consists of the World Bank and the International Finance Corporation, guaranteed that by 2020, an additional 1 billion adults would have had access to a transaction account to store, send, and receive money.

Financial Inclusion in Nigeria

Financial inclusion, according to the World Bank, refers to people and businesses enjoying affordable and sustainable access to fundamental financial products and services such banking, loans, and insurance.  In the absence of significant access to such financial goods or services, cash-based transactions are used instead, which has dangers, and deposits are made using unofficial channels like esusu, ajo, or the neighborhood thrift collectors.

Financial inclusion enables the underprivileged to safely save money using financial services and reduces the dangers that they suffer due to economic uncertainties. Therefore, ensuring that everyone has access to financial services is a concern for all policymakers for the apparent reason that it has significant economic and social ramifications. Financial inclusion is now recognised as being essential to attaining inclusive growth in a nation and has become a strategy for accelerating economic growth.

Providing the adult population in the nation who are currently denied access to financial services would spur the development of global wealth. In other words, access to financial services that are suitable for those with modest incomes encourages massive capital accumulation, the issuance of credit, and a surge in investment. Typically, low-income earners make up the majority of the population, and as such, they hold the majority of the economy's idle funds, although in very modest quantities. 

The first step toward financial inclusion is primarily owing a transaction account. This could take the shape of a bank account or a digital wallet. Individuals or organizations can save, transfer, and receive money using an account or a digital wallet.

In its National Financial Inclusion Strategy, approved in 2011, the Nigerian government set a target for itself stating that by the year 2020, financial inclusion will account for 80% of its adult population. Naturally, the goal was not met because, by the end of 2020, only 64% had been included. Financial inclusion is hindered in Nigeria by the nation's economic downturn, security issues in the northern region of the country, low literacy rates, and licensing issues with financial service providers, according to news reports.

Financial inclusion has an odd gender component as well. Financial exclusion for women was 36% in a 2019 survey in Nigeria conducted by EFINA, compared to 24% for men. Women in Nigeria are more inclined than men to rely on unregulated financial services, such as thrift collectors, to save money. This disparity is even more pronounced when it comes to insurance policies, as the poll found that only 1% of women were covered despite their susceptibility to unforeseen incidents and unanticipated costs. 

Despite having a young population, many of Nigeria's youth share the same financial exclusion as the country's women. Young adults, defined as those between the ages of 18 and 35, are considerably more likely to be financially excluded compared to older adults, according to EFINA's estimates. Only roughly 21.5 million of the estimated 56.7 million young people had bank accounts as of 2018, according to a research released by EFINA. Young people's financial exclusion is linked to other socioeconomic problems like young unemployment and underemployment.

Financial exclusion in Nigeria

Financial exclusion is a sign of poverty and, unfortunately, makes inequality worse. The result of excluding a sizable portion of the population access to basic financial services is that they are placed in progressively riskier financial situations. Nigerians who have bank accounts or digital wallets can access important loans and establish creditworthiness, while those without such access are cut out from these services that could help their financial conditions.

Due to the high concentration of financial service providers in Nigeria's cities, those who live in rural and, in some circumstances, peri-urban areas have little access to financial services. 

This trend is consistent with other regions of the world where communities are dominated by those who are economically excluded. Since financial exclusion is often associated with limited access to contemporary electricity supply, it is expected that those without access to financial products and services will also be located in places without electricity.

Financial exclusion has the effect of reducing the scope of economic activity, hence reducing the potential for greater economic growth. In order to achieve financial inclusion, it is important to pay attention to both human and institutional factors, including provider sustainability, product affordability, and outreach to the most marginalized groups. Financial inclusion ensures that poor people's lifelong borrowing, saving, and payment capacity is improved.

Factors hindering financial inclusion in Nigeria

According to reports, Nigerians with access to financial services lack the fundamental resources and financial literacy needed to complete transactions: Only a small percentage of Nigerian adults claim to be financially literate enough to perform basic financial operations like opening an account, and this low level of financial inclusion is likely due to the lack of education surrounding financial services.

More than half the Nigerian adult population lack easy access to financial services like ATMs, banks, etc., which is one of the main obstacles to financial inclusion in Nigeria. For instance, the adoption of mobile money in Nigeria has been sluggish. Despite an improvement in mobile money awareness from since 2015, the majority of Nigerian individuals say they are still unaware of any nearby mobile money service points.

Consumers in Nigeria prefer to pay with cash, and the majority of the people work in the unorganized sector. This has led to a somewhat stagnating use of financial products and services.  The regulatory modifications that permit Nigerians to transfer money more easily undoubtedly contributes to the inability of informal financial service providers to cover service fees per transaction. Before 2017, restrictions prohibited Nigerians from sending money abroad in amounts more than $10 without first providing documentation.

In addition to being a barrier to Nigeria's financial inclusion, banks' reluctance is the main factor in why most Nigerians choose to pay in cash. According to experts, Nigeria's dependence on cash and the country's slow adaptation of formal financial services are due to financial institutions' and service providers' fears that new technology start-ups will enter the market and force established players to make opportunities for improved formal financial service options.

Nevertheless, initiatives are being made to increase financial inclusion in Nigeria.

In order for Nigeria to achieve its highest degree of financial inclusion, 70% of its adult population must be empowered, which will spur growth and development. The inclusion of this group in society would lead to an increase in the country's output, boost economic activities, and decrease poverty.