Feature: Expanding the frontiers of financial services
By Elvis Eromosele
“This is precisely the sort of thing that we need financial inclusion to mean in Nigeria – to help to reduce poverty.”
Alake Suleman is 45 years old, he is popularly referred to as Baba Kareem. He is the definition of a journeyman. He is a certified ‘labour’ on construction sites, a respected grasscutter cum gardener and an itinerary real estate agent.
He never had a bank account in his first three decades on earth. He is not lettered, and cannot read or write in English. The compound where he lives is not connected to the main source of power supply, so he doesn’t have a utility bill, and never had one either from his previous abode.
He used to send money to his mother in the village through interstate transporters until recently. Now, he uses a kiosk a street away for the same purpose. For the first time banking has reached Baba Kareem. Agency banking has brought financial inclusion closer home to him.
Today, financial inclusion is not just a term for Baba Kareem, it is a new way of life. It has brought the reality of easy banking service home. It is not as if Baba Kareem knows what financial inclusion is.
According to the World Bank, “Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.”
Reports indicate that over two billion adults are without a bank account. Women, young people and persons who live in rural and suburban areas made up a significant percentage of the unbanked. This shows why it is important and urgent. Too many out of the financial systems and are thus deprived.
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The World Bank is big on financial inclusion. It sees possibilities every time it is mentioned. To the World Bank, financial inclusion is a key enabler to reducing poverty and boosting prosperity.
With the potential to reduce poverty and boost prosperity, financial inclusion should concern everyone.
In Nigeria, the rapid and widespread deployment of information communication technologies (ICTs) and CBN policies has led to progress in financial inclusion. Banks, fintech firms and digital mobile services providers have all pitched in. But the truth be told, so much more still needs to be done. A lot of people are unbanked and underbanked. There are the ones that have to be reached.
A close look would suggest that what exists in Nigeria currently is only partial financial inclusion. It may look good in the media but it is largely thin on the ground. So, what we see is agency banking, focused on cash withdrawals and deposits, transfers and some payment. This in itself is not bad. In fact, it is a step in the right direction.
It is now time to move forward. We have celebrated too long at this stop we need to move on. It is time to move beyond transfers and payments to other parts of financial inclusion that makes it so admirable. It is time to consider micro/nano lending and microinsurance.
As Sri Mulyani Indrawati, Minister of Finance of Indonesia, former head of the World Bank Group put it; “Financial inclusion matters not only because it promotes growth, but because it helps ensure prosperity is widely shared. Access to financial services plays a critical role in lifting people out of poverty, in empowering women, and in helping governments deliver services to their people.”
This is precisely the sort of thing that we need financial inclusion to mean in Nigeria – to help to reduce poverty.
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Experts concede that access to fund plays an important role in the process of reducing poverty. Lending is about access to funds. Funds to invest in a new or existing business, to meet emergencies and urgent needs. This is a way out of poverty for many.
Crowdsourcing is today emerging as a popular way to raise funds along with peep to peep (P2P) lending. We can do better. Small loans should be an integral part of financial inclusion.
No, we are not talking microfinance institutions (MFI) that have gradually left their key function and are comparing themselves and competing with banks. Many have introduced conditions people struggle to meet. It should be more in the mode of nano finance. This is access to small amounts largely interest-free.
Nano finance refers to a system which provides the opportunity for the poorest of the poor, especially women all over the world to have access to individual interest-free loans of not more the equivalent of 20 USD to support their livelihoods, emergency needs, school fees for their children and health care for their family.
This is where mobile money can play a huge role. Let the banks talk to the fintech firms and telcos. The potential is humongous.
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Another important area is microinsurance. Microinsurance is described as a mechanism to protect low-income households against risks, such as illness, a death in the family, or crop failure. The whole idea is the creation of a value proposition for the informal economy, to reach those who would otherwise be underserved by mainstream commercial and social insurance schemes.
It is, however, only beginning to find ground in Nigeria. In a country where over 90 million people live in poverty, microinsurance would be a hit. Health insurance is an indispensable part of this insurance. Insurance for the bottom of the pyramid would truly be a game-changer. Insurance firms with foresight should begin to jostle for a slice of the cake in this space.
Investopedia explains that financial inclusion strives to remove the barriers that exclude people from participating in the financial sector and using these services to improve their lives. It is also called inclusive finance.
So, it is time to remove the barriers. It is time to grant people access to funds. This is true financial inclusion.
Yes, there are challenges. The two biggest ones include a population that is largely financially illiterate and infrastructural facilities that are mainly inadequate and sometimes totally unavailable. They are not insurmountable. They can indeed be overcome with persistent and directed action.
The whole idea behind financial inclusion is the opportunity to help to alleviate poverty through access to the various classes of financial services
Financial inclusion may well be an all-important driver for economic growth. The government must explore how to employ it to curtail the menace of poverty. The future is definitely financial inclusion.
* Eromosele, a Corporate Communication professional and public affairs analyst lives in Lagos.