How Financial Inclusion can Expand Your Business

The primary goal of financial inclusion is to ensure that unbanked and underserved individuals and communities have access to useful and affordable financial products and services that meet their needs –payments, collections, credit, savings and insurance – delivered in a sustainable and responsible way.

Unboxing The Financial Inclusion Opportunity

Financial Inclusion is essential to the progress of the community as access to financial touchpoints facilitate day-to-day living, and helps families and businesses plan for everything from short-term goals to long-term goals and unexpected emergencies. As account holders, people are more likely to secure access to other financial services, such as credit and insurance, to start and expand businesses, invest in education or health, manage business risk, and weather financial shocks, which can improve the overall quality of their lives.

In Nigeria, financial inclusion has had a widespread effect across the economy over the past few years ranging from job creation, Foreign Direct Investment, private sector innovation, and a push to open low-cost accounts, including mobile wallets and digitally-enabled payments.

Impact of Financial Inclusion on the Nigerian Economy in The Last Five Years

Employment: The World Bank Group considers financial inclusion a key enabler to reduce extreme poverty and boost shared prosperity and this view can be deemed credible based on its effect on the Nigerian economy. According to the Shared Agent Network Expansion Facility (SANEF) July 2020 report, there are 384,736 agents nationwide. This invariably translates to employment opportunities for over 300,000 Nigerians (exclusive of operators - MMOs and Super Agent employees). The employment opportunity covers a good mix of agents, agent aggregators, agent shop handlers, licensed MMOs and their employees as well as licensed Super Agents and their employees.

Financial service touchpoints: To bridge the gap between unbanked citizens and access to financial services, the importance of financial service touchpoints is made apparent. Financial Inclusion has brought to fruition, the availability of financial services touchpoints in areas/locations previously unreached and deemed as under-served communities. There has been growth in the number of agent touchpoints and volume of financial inclusion services such as POS cash out, G2P Disbursements and payments (e.g. Tradermoni, GEEP etc.), funds transfer and wallet creation in under-served or rural communities. These have improved the economic development of these communities.

Branding, merchandising and advertising investments: One clear trend with financial inclusion is the creation of job opportunities and the emergence of micro, small new businesses. As a result, investment in advertising and brand identity has increased. The huge investment in this area has created an avenue for state governments to earn internally generated revenue from operators and agents alike. However, this poses a disincentive for Super Agents & operators as it impacts startup capital and agents available trading capital respectively.

Foreign Direct Investment (FDIs): There is growing evidence that when financial sector development is inclusive it can reduce rates of poverty and inequality. When the previously unbanked citizens save and

invest, banks and other financial institutions mobilize these savings for investments that, in turn, help grow the country’s productive sector and spur foreign businesses. In addition, Nigerian Fintechs in the digital financial services space have received multiple rounds of funding and seed capital by way of foreign direct investments from donors and investors across the globe in the past five years.

International donor organisations e.g. Bill and Melinda Gates Foundation also drive Foreign Direct Investment through their partnership with EFInA to sponsor projects on raising financial inclusion rates across the country.

All these highlight the potential and the need for a wider-scale promotion for financial inclusion for the Nigerian society.

Harnessing the Buying Power of the Financially Excluded

The cost-and-access benefits of financial inclusion have as much potential to help financial institutions lend to even poorer communities and reach rural clients as they do to help commercial banks reach the lower middle class.

According to the EFInA Access to Financial Services in Nigeria 2016 survey, 40.1 million (41.6%) of the adult population have no access to any formal or informal financial services. Mobile money uptake and awareness level in Nigeria remains low at about 1% and 16% respectively. In addition, EFInA Access to Financial Services in Nigeria 2018 Survey highlighted that out of the 100M bankable adult population in Nigeria, 39.7 have bank accounts, 8% have formal sector employment, 16.7% own business (non-farming), 11.2% own business (farming), 23.4% rely mainly on farming for income and about 53.4% save regularly.

Based on this data, we can broaden our understanding of the population of adults who do not have access to any financial service (formal or informal) in Nigeria, their savings and credit patterns, remittance behaviours, payment channels and their potential to use formal financial services to manage their finances.

We can say that the buying power of the financially excluded is enormous. Based on the economic and social metrics, transactions from this segment are low value, high volume. This buying power can be harnessed in several ways including:

• Development/Deployment of Agent/service touchpoints: Evidence shows that financial inclusion allows individuals and households to participate in the national economy, manage consumption and health risks, expand small businesses that create jobs and contribute to national savings and government. By deploying touchpoints in the rural and semi-rural communities where bank and financial touchpoints are in limited supply; this buying power can be harnessed.

• Deployment of products & services that meet the lifestyle of the unbanked and rural dwellers: Despite limited access to banking services, Nigerians have long practised traditional

forms of cooperatives in their communities whereby groups of individuals contribute to informal saving schemes and credit associations for their mutual benefit like Esusu or Ajoo. This unbanked sector is also reliant on micro-loan services from credit associations that serve their interests. By offering access to the financially excluded, they have additional access to a wider range of services that can boost the collective standard of living in those rural communities and improve on their financial literacy awareness.

• Retail-based pricing considerations: Inefficient pricing isolates consumers who would otherwise sign up for a product or service. This is especially true for the financially excluded that earns below minimum wage. By ensuring the retail prices for financial services and other products are pocket-friendly, it would encourage customer loyalty and repeated use of the available services.

• Deployment of Technology-driven Solutions: As history has shown, technological innovations are one of the major drivers in financial adoption. For example, USSD is a mobile-based service that requires no onboarding for users and after a short while, has gained widespread adoption. Now, USSD is currently the best available communications technology to deliver mobile financial services to low-income customers. This shows how effective technological adoption drives the spread of financial inclusion.

In addition, research from other countries where mobile money adoption is high has shown a positive correlation between high mobile money adoption and higher levels of formal financial inclusion. In Nigeria where the financially excluded population remains high at 40.1 million adults, an expansion of mobile money adoption and usage in the country presents a real opportunity to provide the poor with access to financial services as well as other social benefits and services.