Financial Inclusion: Evaluating Nigeria’s Position and Role of Financial Institutions

 Precious Ugwuzor 

As Nigeria intently seeks to turn its economic fortune around for the better, all cards are getting laid on the table to achieve its prosperity and sustainability ambitions. A developing nation, the country of 200 million-plus people grapples with peculiar socio-economic issues that often derail the daunting course.

In more recent years, Nigeria’s economy has plunged into the territory of desperation, with many key metrics reaching their lowest in decades. Notably, in February 2024, weakened economic fundamentals caused the country’s inflation to reach 31.7% — its highest in 24 years. The Nigerian economy, once the leading economic powerhouse in Africa as of 2022, is also projected by the International Monetary Fund (IMF) to relinquish its top position and descend to fourth place this year. This downward trajectory is attributed to a sequence of currency devaluations that have impacted the country’s economic standing.

Yet, the nation can find little solace in the IMF’s recently adjusted economic growth forecast that it is on course to record a 3.3% growth in 2024.

Nonetheless, despite recent reforms setting the stage for much-needed respite, the country remains in desperate need of fortifying its macroeconomic foundations, if it will realistically achieve sustainable growth. Of all its adaptive strategies to salvage its precarious economic situation, one that sticks out like a sore thumb needing critical attention is the financial disparities that persist significantly among the country’s growing population.

On their good days, for instance, the top-performing regions of Nigeria can boast metrics akin to those of upper-middle-income nations across the globe, but on their worst, the least prosperous states fall far below the benchmarks set by low-income countries.

Financial inclusion as a key factor in Nigeria’s economic recovery and growth

Regardless of their income level or location, all eligible citizens of a country deserve access to and usage of financial services including banking, savings, credit, insurance, and investments. The implications of a robust financial system, particularly built on the principles of inclusivity and transparency, on achieving economic stability cannot be overemphasised.

Citing data from the World Bank and the International Monetary Fund (IMF) in its rallying call for a financially inclusive society, the Central Bank of Nigeria (CBN) has noted the correlation between the relationship between ‘Account ownership in a financial institution’ and ‘GDP Per Capita’. The apex bank particularly highlights the interrelatedness between GDP and account ownership in high-income countries, where figures hover around 94%, underscoring the pivotal role of expanding financial access points in tandem with boosting GDP per capita.

It’s also little wonder why financial inclusion features prominently as a target in as many as eight of the 17 United Nations’ Sustainable Development Goals (SDGs).

For one, financial inclusion plays a pivotal role in driving economic growth by channelling savings into productive investments and fostering entrepreneurship. In Nigeria, where small and medium-sized enterprises (SMEs) are the backbone of the economy, access to finance is crucial for their survival and expansion. By providing affordable credit and banking services to SMEs, financial inclusion will ensure innovation, job creation, and overall economic activity.

Crucially, financial inclusion also has the power to uplift marginalised populations and reduce income inequality. In a country like Nigeria where poverty rates remain high, access to financial services can enable individuals to build assets, access education and healthcare, and weather financial shocks. The country can undoubtedly set its feet firmly on the path to economic growth and sustainability by creating a more inclusive society where women, rural communities, and low-income earners are empowered with financial tools.

Not least of the numerous promises financial inclusion offers on broader economic growth is the promotion of digital innovation. Mobile banking, digital payments, and fintech innovations have the potential to reach underserved populations in remote areas where traditional banking infrastructure is lacking. Nigeria, with its burgeoning youth population and tech-savvy entrepreneurs, can harness digital innovations to quiet the pace of its strides towards a prosperous economy.

And, with the capability of financial inclusion to broaden and diversify the financial sector, which is prone to systemic risks, the sector can be well positioned to significantly reduce its vulnerabilities.

Unfortunately, Nigeria still grapples with significant financial exclusion, with millions of its citizens lacking access to basic financial services. Indeed, as of 2020, a KPMG research revealed that a staggering 21.3 million adult women in Nigeria, making up 20% of the adult population, remained outside the financial fold, outnumbering the 17 million men in similar circumstances. Among the estimated 69.7 million adult Nigerians residing in rural areas at the time, a significant 44% were excluded from formal financial services, resorting instead to informal channels, which only 16% manage to access.

Despite efforts, not many ground-breaking financial inclusion statistics have been recorded to indicate much has changed in the four years that have passed. This is worrisome.

What needs to be done

While the rewards of financial inclusion are clear, Nigeria faces several challenges on the path to inclusive growth. Some of the hurdles include inadequate infrastructure, regulatory barriers, low financial literacy, and social norms that hinder women’s access to finance. However, these challenges also present opportunities for policymakers, financial institutions, and civil society to collaborate and develop innovative solutions.

In its desire to improve on its financial inclusion efforts, Nigeria finds itself needing to expeditiously enact policies and regulations that create an enabling environment for inclusive finance. Economic experts have identified an urgent need to foster competition among financial service providers, ensuring consumer protection, and promoting responsible lending practices.

Nigeria’s banking sector must expand its reach to underserved areas through branch networks, agent banking, and mobile banking solutions. Initiatives such as the Central Bank of Nigeria’s National Financial Inclusion Strategy and the Bank Verification Number (BVN) system have made significant strides in expanding access to banking services, but more efforts are needed to reach the last mile.

Financial literacy remains another crucial aspect in the country’s giant steps, as the citizenry needs to be equipped with the knowledge and skills needed to manage their finances effectively and make informed financial decisions.

And, more importantly, there is no better time in Nigeria’s growing technology landscape to further adopt digital innovation as the key to unlocking financial inclusion in the country. There are opportunities for financial service providers to leverage mobile technology, biometric identification, and data analytics to reach remote populations cost-effectively and tailor products to their needs. Although policymakers must also address concerns related to data privacy, cybersecurity, and digital infrastructure to ensure the integrity and security of digital financial services.

Fortunately, there are comforting indicators that institutional commitment to financial inclusion efforts have not waned.

FCMB as a torch bearer

By design, financial institutions are expected to be at the forefront of any significant financial inclusion results that can be achieved. And, in a shifting digital landscape, it has been interesting to witness Nigeria’s financial powerhouses push the envelope on what is possible in recent years. First City Monument Bank (FCMB) is one of those.

Last year, the bank took its commitment to the cause a notch higher with noteworthy initiatives and investments, laying the marker for what financial inclusion efforts should look like. In a sheer display of its dedication to the empowerment of small businesses and entrepreneurs in the country, the FCMB Group consolidated its micro-lending business through FCMB Microfinance Bank Limited and a robust Agent Banking network comprising 180,000 Fixed Agents, over 200 branches and 16 cash centres. The microlending lending business initiative spanning 30 states resulted in a transaction volume of at least N50 billion.

Another crucial move by the bank is the integration of 10 Agritech solutions into its Banking-as-a-Service platform, through which it onboarded almost 62,000 customers — a 17% growth on its previous efforts. By the end of 2023, the initiative resulted in a direct financial impact of N5.3 billion loan size while the business grew exponentially in loan disbursement at N14.4 billion.

Perhaps the most revealing aspect of the bank’s deliberate idea for the initiative is the gender and age composition of the beneficiaries. Women represented 85% of the clients onboarded, while 45% were youths. Along with rural dwellers, ethnic minorities, and people with disabilities, women represent some of the most marginalised people in society; these statistics from FCMB’s Agritech solutions integration certainly position more Nigerian women for entrepreneurial success.

In 2023, FCMB disbursed over N20 billion in loans to women-owned SMEs through its   SheVentures initiative – 4,200 women entrepreneurs were trained and received seed funds. An explanation of the rationale for initiating the SheVentures Export Readiness Programme (focused on supporting women-owned businesses in Nigeria looking to expand into global markets) by Yemisi Edun, the MD of the bank and its first female CEO may provide insights into FCMB’s focus: “We provide interest-free loans, training, and mentoring to help overcome common challenges such as lack of financial resources and knowledge gap. Our ultimate goal is to empower Nigerian SMEs to scale beyond their local markets by connecting them with other businesses globally and leveraging the vast opportunities of globalization.”

In the same year, through its vast agent network spread across urban and rural communities, FCMB successfully created financial and credit profiles for the unbanked and under-banked, opening accounts for over 350,000 individuals and ultimately crossing over 1.5 million accounts opened in total. Similarly, the bank’s 100% growth in agent network expansion in rural communities led to a 247% increase in customer acquisition.

The bank’s commitment to investment in financial inclusion for small business owners is as profound. In 2023, it extended over N1.343 trillion credit to over 98,000 SMEs across diverse sectors, providing them with the funding required to successfully scale.

FCMB in its journey, draws its purpose from its parent company, FCMB Group Plc, led by Ladi Balogun, its Group Chief Executive Officer. “At FCMB Group, we prioritise community building and empowerment. It’s a fundamental truth: Africa’s economic prosperity hinges on the collective strength of its communities. The innovation and opportunity we seek lie right within our people.  Neglecting to empower them condemns us all to stagnation. By investing strategically in community development, we unlock Africa’s true potential,” Balogun reiterated.

2024 and beyond

With the huge importance placed by the UN on its member nations in achieving its outlined SDGs by 2030, Nigeria will need more institutions to grab the bull by the horns in a similar manner as FCMB if it will meet the desired level of financial inclusion in a little over five years.

And, as if to demonstrate the country’s awareness of the ticking clock, CBN Governor, Yemi Cardoso, has recently drummed up the importance of the task, calling for concrete commitment across the board to achieve the 2022 National Financial Inclusion Strategy’s ambitious 95%-inclusion feat in 2024.

Certainly, through concerted efforts and more actionable plans by government, regulators, financial institutions, and civil society, Nigeria can certainly achieve the inclusion goal necessary for its economic recovery and growth. By that time, it would be ready to chart a path towards sustainable development and shared prosperity.