Challenges Facing Financial Inclusion in Nigeria

Financial inclusion is a term used to describe a population’s reasonable access to affordable financial services. Financial services in this context include a range of services that are required to meet the overall financial needs of a person or business, like services that allow for transactions, payments, savings, credit, and insurance.

Nigeria is a country that is facing a unique struggle with financial inclusion, which is one of the main reasons that the topic has been—and still is—so widely discussed. Despite efforts to increase financial inclusion, Nigeria hasn’t experienced much of an improvement in financial inclusion since 2012. Between then and now, only 2.9% of Nigerians that were previously financially excluded have gained access to the financial services they need.

Although there are many complex factors that have stunted the efforts for increasing financial inclusion in Nigeria, there are key challenges to consider when first learning about what is occurring in Nigeria’s financial sector right now. In this post, we will discuss some of these challenges.

Lack of Required Documentation

Opening any sort of financial account requires legal identification, something that many Nigerians are lacking. A study from InterMedia and the Bill & Melinda Gates Foundation reports that only 79 percent of Nigerian adults possess the documents needed to register for mobile money or a bank account, making the lack of required documentation arguably one of the biggest challenges facing financial inclusion in Nigeria.

Low Levels of Financial Literacy

Nigerians who have access to financial services are reported as having a lack of basic resources and the financial knowledge necessary to carry out transactions: Only 16% of Nigerian adults report having the financial literacy it takes to carry out commonplace financial tasks such as registering for an account, and the lack of education around financial services has likely contributed to low financial inclusion.

Lack of Close-Proximity Service Points

One of the biggest challenges facing financial inclusion in Nigeria is that more than half of Nigerian adults don’t have close proximity access to financial services such as ATMs, banks, or service kiosks. In fact, most Nigerians were reported as not knowing of any within a single bus ride of their home. This has been the case for Nigeria for years, as the rate of access to formal financial services remained constant in 2016 at 42%. Even mobile money has been slow to be integrated into Nigeria. Despite mobile money awareness seeing an increase from 12 percent in 2015 to 20 percent in 2016, a majority of Nigerian adults report still not knowing of a mobile money service point within close proximity. This makes limited access to service points a key hindrance to financial inclusion.

Decrease in Bank Account Ownership

One rather puzzling challenge facing financial inclusion in Nigeria is the drop in bank account ownership that occurred in 2016. Experts believe this drop is attributed to a few factors:

• The government requiring bank account holders to have biometric bank verification numbers (BVNs), which caused difficulties and non-compliance.
• Transaction cost increase.
• The 2016 Nigerian recession that caused an 18.5% inflation.

High Service Fees

Nigerian adults prefer to use cash, and most of the population works in the informal sector. Naturally, this has made the use of financial services rather stagnant. One of the biggest reasons why cash is still the go-to payment method is because most non-users of formal financial services reported not being able to cover the service fees associated with transactions. Additionally, the regulatory changes that allow Nigerians to transfer cash more freely definitely helped. Prior to 2017, regulations stated that Nigerians couldn’t transfer amounts over $10 without first submitting paperwork.

Opposition from Banks

Not only is the opposition from banks an obstacle in Nigeria’s financial inclusion, it’s also the reason most Nigerians prefer to pay in cash. Experts believe that Nigeria’s cash dependency and the reason for its slow adoption of formal financial services is that financial institutions and providers fear technology start-ups will move into the market, causing industry leaders to have to make room for better formal financial service offerings.

Moving Forward

Fortunately, there are efforts underway to bring more financial inclusion to Nigeria. The federal government of Nigeria is working toward a goal set back in 2012 that targets financial inclusion for 80% of its population by the year 2020. In January of 2019, The Central Bank of Nigeria publicly spoke optimistically about reaching the 2020 goal—at a time when recent studies had shown about 36% of Nigerian adults were still lacking access to sufficient financial services.

As 2020 nears, only time will tell if Nigeria will achieve its goal of 80% financial inclusion by 2020. In the meantime, GeoPoll’s Financial Services Report will be available for free download in late October. The 30-page report presents findings from a research study conducted on use and access to financial services in Nigeria, Kenya, Uganda, Ghana, and Cote d’Ivoire. Topics covered in the report include income, spending, payment types, savings culture, and investment activity, which all lend context to financial inclusion in Nigeria.

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