Digital Financial Services in Nigeria: State of the Market Report 2017

21 Dec 2017

The notion supporting digital financial services (DFS), mainly through ubiquitous mobile devices as a magic bullet for enhancing access and utility of financial services is still in its nascent stages. Through research engagements, the various dimensions of Nigeria’s financial inclusion conundrum are the primary focus of the Sustainable and Inclusive Digital Financial Services (SIDFS) Initiative hosted at the Lagos Business School. By generating an evidence base, we aim to provide thought leadership and insights to address the financial inclusion phenomenon across all dimensions of the ecosystem. In 2016, the Initiative published the first DFS State of the Market Report which focused on two pivotal pillars of financial inclusion development and growth – the demand and supply perspectives. By profiling under-banked and unbanked consumers, we identified characteristics of the underserved from the community, through household and individual lenses. The customer segments were profiled using demographic parameters as well as assets (identity, phone ownership/access) and capabilities (language, digital). These profiles are intended to enhance supplier know-how and aid product development capabilities. The in-depth analysis of the supply-side identified three (3) business models for delivering sustainable DFS, namely: focused, specialist or a hybrid. The study went further to describe the portfolio of organisational assets, resources and capabilities to efficiently deliver DFS to under-banked and unbanked consumers. The themes presented in this edition expand the discussion beyond the core ecosystem and provides insights into the institutional frameworks necessary for financial inclusion.

The report addresses the third ecosystem pillar – the institutional/regulatory component, with specific focus on the legislation, policies and regulations. The policy analysis unearthed critical policy constraints and guided by the doctrinal interpretations of existing laws, market-enabling policy solutions evolved. Our presentation focuses on material financial inclusion issues, the guiding laws and solution proposals. This report does not contain legislative bills but forms a premise for the drafting of new laws, policies and regulations. Finally, these market-enabling policies or solutions for creating an ecosystem for delivering DFS to the unbanked require the cooperation and collaboration of public institutions, the private sector and civil society. Financial inclusion for all is a reality when it is a national priority.

Agent Network Accelerator Research: Nigeria Country Report

21 Dec 2017

With the financial support of the Bill & Melinda Gates Foundation, the United Nations Capital Development Fund (UNCDF) and other regional stakeholders, MicroSave is conducting a four-year research project in eleven focus countries as part of the Agent Network Accelerator (ANA) Project.

The Helix Institute of Digital Finance, which manages the ANA project, provides financial sector stakeholders with capacity building trainings to develop sustainable digital finance programmes and operations, through market analytics, operational training and advisory services. This report focuses on the findings from the second wave of ANA research conducted in Nigeria in 2016. The first wave of the study was previously completed in 2014.

Building a Secure and Inclusive Global Financial Ecosystem

08 Sep 2017

The 2017 Brookings Financial and Digital Inclusion Project (FDIP) report evaluates access to and usage of affordable financial services by underserved people across 26 geographically, politically, and economically diverse countries. The report assesses these countries’ financial inclusion ecosystems based on four dimensions of financial inclusion: country commitment, mobile capacity, regulatory environment, and adoption of selected traditional and digital financial services.  The report further examines key developments in the global financial inclusion landscape, highlights selected financial inclusion initiatives within the 26 FDIP countries over the previous year, and provides targeted recommendations aimed at advancing financial inclusion.

Advancing Financial Inclusion in Nigeria

Sabahat Iqbal
21 Dec 2017
By Sabahat Iqbal

Nigeria is one of 25 priority countries for the World Bank Group’s Universal Financial Access Goals to reach 1 billion adults worldwide by 2020, women and men alike –enabling access to a transaction account or an electronic instrument to store money, send payments and receive deposits as a basic building block to manage their financial lives. According to the latest Global Findex report available, 44.2% of adults in Nigeria have an account at a financial institution. As of August 2017, IFC had US$19.1 million committed to Nigerian MFIs constituting 1.6% of the US$832 million total IFC commitment to Nigerian financial institutions. IFC is also keen to leverage technology to reduce costs and help clients to diversify their product offerings. Globally, as of June 2017, IFC had invested nearly US $500 million into 40 companies and has 50 active projects offering advisory services in companies adapting to or expanding digital services.

Responsible Finance and Enhanced Risk Management

 IFC’s mission is to support effective, responsible, inclusive financial intermediaries and leverage them to meet development impact and financial sustainability goals. IFC, in collaboration with the implementing partners of the Gates Foundation –The Lagos Business School, Business Day, and Microsave—jointly delivered the Financial Inclusion Conference on December 5th 2017 in Lagos, Nigeria. The event brought together over 300 digital financial services experts, industry researchers, donor agencies, legal practitioners, private sector players, entrepreneurs and members of the national assembly. IFC clients such as Grooming Centre and Interswitch, presented their operational experiences in responsible microfinance and digital financial services –as a long-term strategic approach for Nigeria’s path for resilient and sustainable growth. A central theme was the need for enhanced risk management approaches, one that involves operationalizing consumer protection and financial education based on the G20 High Level Principles for Digital Financial Inclusion and the Smart Campaign’s Client Protection Principles. In 2016, Grooming Centre was the first microfinance institution in the Africa Region to achieve Certification by the Smart Campaign.

Eme Essien Lore, the IFC Country Manager, kicked off the event by remarking on the need for deeper collaboration.

Today, the role  of banks and microfinance institutions remain essential, if not more so. To effectively guide their institutions, many will need to deepen their core traditional tools and introduce new ones to achieve sustainable growth.” She challenged the audience to think beyond the constraints of limited connectivity, regulatory hurdles, and vested interests in order to serve the needs of all Nigerians.

New Insights for Nigeria’s Path for Financial Inclusion

The Lagos Business School launched the latest iteration of their annual Digital Financial Services State of the Market Report which laid out the latest insights on the financial inclusion space in Nigeria and examined some of the key policies and regulations that will affect the further promotion of financial inclusion. The report cites that the while active mobile money usage went up by a factor of 10, the percentage of banked adults went down by 6 percentage points in 2016 to 41.1% from the previous year. As the author, Olayinka David-West, cited in a statement to the trade journal, Financial Technology, “…the levers of [financial inclusion] fall across three pivotal nodes…the consumer (demand), provider (supply) and government (institutions)…” and all three have to be engaged with before we can see a revitalization of these statistics. In addition, Microsave launched the latest Agent Network Accelerator report for Nigeria which identified the opportunities for scaling up digital financial services and any progress on the recommendations from previous report. The report looks very closely at the emergence of agent banking services from traditional banks and the key strategic shifts, including in organizational structure, that will have to be made in order to fully embrace the benefits of this alternative banking channel.

Driving Inclusion with Digital Financial Services

There were several important take-aways from the conference including an agreement that addressing the risks that impact both DFS consumers and providers are critical for the success of Nigeria’s broader financial inclusion efforts. The level of awareness for digital financial services is low in Nigeria given that current efforts of digitalization are reaching only the existing customer base. Compelling use-cases are important to driving up awareness and usage as many existing mobile wallets accounts are unused causing people to quickly switch back to cash. The right product design is also important to reach the excluded and should account for their lifestyles. The panelists reaffirmed the great potential of the role of microfinance and digital finance in Nigeria to achieving broader financial inclusion. Agent banking was recognized as a critical channel for driving financial inclusion into the foreseeable future however given current constraints, this will require a new mindset and greater public-private sector collaboration for interoperability. Key will be delivering on core aspects of consumer protection and customer trust. These include: transparency in pricing through financial awareness, data privacy and security, better customer services to handle recourse and for tailoring products and services.

About IFC
IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in emerging markets. Working with more than 2,000 businesses worldwide, we use our capital, expertise, and influence to create markets and opportunities in the toughest areas of the world. In FY16, we delivered a record $19 billion in long-term financing for developing countries, leveraging the power of the private sector to help end poverty and boost shared prosperity. For more information, visit www.ifc.org