Financial Inclusion

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What is Financial Inclusion?

Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable. An estimated 2 billion working-age adults globally have no access to the types of formal financial services delivered by regulated financial institutions. For example, in Sub-Saharan Africa, only 24% of adults have a bank account even though Africa’s formal financial sector has grown in recent years.[1] It is argued that as banking services are in the nature of a public good, the availability of banking and payment services to the entire population without discrimination is a key objective of financial inclusion.

According to the World Bank, around two billion people don’t use formal financial services and more than 50% of adults in the poorest households are unbanked. Financial inclusion is a key enabler to reducing poverty and boosting prosperity. WBG President Kim has called for Universal Financial Access (UFA) by 2020. We’re scaling up support to reach an additional one billion people, and are working with partners to achieve UFA.

Framework for Financial Inclusion

FISF has two main components:

Financial Inclusion
Financial Inclusion

The Country Support Programs (CSPs) are structured as three to four year-long technical assistance programs organized under four thematic areas. Technical assistance provided under the CSPs will build on and contribute to strong public and private sector commitment to financial inclusion, design and implementation of key policy and regulatory reforms, financial infrastructure development, and improved effectiveness of major programs in key areas such as Government-to-Person payments and financial capability of key population segments.   

The Knowledge component supports analysis, synthesis and knowledge sharing in key underserved areas, such as financial inclusion of women and individuals engaged in the agriculture, and efforts to leverage digital payments to provide access to a broader set of financial services.  

Together, FISF-supported activities will help catalyze private sector financing, knowhow and innovation, resulting in a broad range of financial services – payments, savings, insurance, credit –being used by low income individuals and micro, small and medium enterprises (MSMEs), who are currently un-banked or under-banked. 

Country Support Programs Thematic Areas

Knowledge:

Financial Inclusion of Agriculture-Dependent Households: Since individuals engaged in agriculture are estimated to constitute more than 25 percent of financially excluded, improving their access to financial services is critical to achieving the Universal Financial Access. This population segment includes farmers, farm workers, and MSMEs owners and workers linked to agriculture.

According to the World Bank, around two billion people don’t use formal financial services and more than 50% of adults in the poorest households are unbanked. Financial inclusion is a key enabler to reducing poverty and boosting prosperity. WBG President Kim has called for Universal Financial Access (UFA) by 2020. We’re scaling up support to reach an additional one billion people, and are working with partners to achieve UFA.

Women and Finance: Considering that access to finance gap between men and women hasn’t decreased, improving access to financial services for women and MSMEs owned or managed by women is key to achieving the Universal Financial Access and requires special attention.

This activity will provide support for select CSPs as well as global research aimed at increasing women’s access to diverse financial services. 

Digital Inclusion and Acceleration: Work is ongoing to foster knowledge on financial inclusion through digital finance. The FISF is also estimating the size of the global business-to-business (B2B), consumer-to-business (C2B), and Business-to-Consumer (B2C) payments market, and compiling innovative models with a particular focus on small retailers.

Benefits of Financial Inclusion

 

Financial Inclusion in Nigeria and FSS 2020

The FSS 2020 represents a holistic and strategic road map and framework for developing the Nigerian financial sector into a growth catalyst that will enable Nigeria be one of the 20 largest economies by 2020. The Financial System Strategy (FSS2020) identified six stakeholders within the financial sector. These were the providers of financial services, which are regarded as the suppliers in the value-chain of financial inclusion. The group included the banking institutions, non-bank Financial institutions, insurance companies, capital market players, pension institutions, and technology providers together with their regulatory bodies, all important to the process of financial inclusion.

The Financial System Strategy (FSS2020) initiatives include:

  • Development of varied financial products;
  • Enhancement of payment processes;
  • Development of credit system; and
  • Encouragement of a savings culture

Profile of Financial Inclusion Stakeholders in Nigeria

Financial Incusion
Financial Incusion

Challenges of implementation in Nigeria

  • Lack of total buy in by money deposit banks. To ensure achievement of the FSS2020 targets, the Central Bank of Nigeria has now issuedannual targets to money deposit banks with respect to: number of accounts to be opened, number of loans to be given out, number of branches to be opened and ATMs to be installed and the Local Governments where they must be opened and installed. If this is the right strategy will be proven by the responses of the banks.
  • Lack of confidence by the group targeted in the banking sector. This could be as a result of literacy level of the group and the general apathy of banks to also support SMEs due to lack of “adequate collateral”.
  • The limits placed on maximum balances on these accounts; especially Tier 1 and Tier 2 could also be a form of discouragement.

My views

  • The concept of Financial Inclusion is noble however, the implementation in Nigeria needs to be stepped up. The means of identification has been an issue. Survey has shown that most traders belong to various cooperatives or trade associations that issue identity cards to their members. The Central Bank and the Federal Ministry of Trade and Commerce need to agree to accept these cards as authentic means of identification if these associations or cooperatives are duly registered. This will increase the confidence of the average trader and encourage them to open and operate their accounts.
  • Granting loans should also be through these cooperatives and associations with guarantees for their members. This should provide more confidence to the banks to lend to this group of customers and also address the issue of “adequate collateral”.
  • Issuing targets to money deposit banks is not a solution if the root cause of the problem is not addressed. The Central Bank needs to be more proactive and do more detailed study of the market, the banks and the groups concerned rather than employing coercion

Forum Discussion

Do you think government policies and Central Bank policies support the implementation of Financial Inclusion in Nigeria? If you were given the responsibility, what would you do differently?

References

https://en.wikipedia.org/wiki/Financial_inclusion

http://www.worldbank.org/en/topic/financialinclusion

http://www.worldbank.org/en/news/press-release/2013/04/21/financial-inclusion-support-framework-launched

Financial Inclusion in Nigeria: Issues and Challenges. Occasional Paper No. 45 – Central Bank of Nigeria.

Delivering Financial Inclusion through E-Payments in Nigeria – EFINA, 2013

The National Financial Inclusion Strategy – Central Bank of Nigeria, 2012.

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