Financial Inclusivity For All Nigerians: But at What Cost?

In discussions surrounding economic advancement in Nigeria, it’s important to approach the topic of financial inclusivity with optimism and a recognition of its multifaceted nature. To gain a deeper insight into this issue, it’s essential to acknowledge that we are addressing a situation where there’s an opportunity to improve the financial access of two out of every three Nigerians.

Financial exclusion in developing economies is indeed a multifaceted challenge, but one common thread across all aspects is that not all forms of financial exclusion have received the same level of attention. Even after the push for financial inclusion gained momentum in 2012, Nigeria has only achieved a modest reduction of 10.4%, according to the World Bank Group. To shed light on this issue and its potential resolution, let’s address key questions in the following order: Why has progress in curbing financial exclusion in Nigeria been relatively slow? What are the often-overlooked aspects of financial inclusion? How feasible are alternative approaches, and at what costs can they be achieved?

Why has the existing effort to curb financial exclusivity in Nigeria been so slow?

Recent surveys, conducted at the beginning of the second quarter of this year, indicate that the National Financial Inclusion Strategy (NIFS) may still be far from achieving its inclusion goals by 2030. This raises questions about whether the over 40% of underbanked Nigerians sinking deeper into poverty can afford such gradual progress in financial inclusivity.

The gradual progress in addressing financial exclusion in Nigeria can be attributed to various complex challenges that hinder rapid advancement, despite the country’s current economic growth. In remote areas with inadequate financial infrastructure, establishing physical branches becomes a daunting task, leaving communities without easy access to banking services. This challenge is exacerbated by the digital divide, where limited technology and smartphone access hinder the adoption of digital banking solutions, impeding financial service expansion. In rural areas with unstable internet connectivity, individuals may struggle to access mobile banking platforms, perpetuating financial exclusion.

Furthermore, navigating complex regulatory frameworks and compliance procedures can slow down initiatives aimed at expanding financial inclusivity. Bureaucratic red tape and evolving regulatory guidelines can be time-consuming and resource-intensive, hampering progress. Additionally, limited financial literacy among underserved populations hinders their understanding of financial products and services, making them cautious about engaging with formal financial institutions. When individuals lack knowledge about interest rates, loan terms, and savings mechanisms, they may be reluctant to participate in financial activities, perpetuating financial exclusion.

Addressing these multifaceted challenges requires a comprehensive approach that includes infrastructural development, tailored financial education, improved technology access, and regulatory reform. All of these factors are critical for accelerating progress toward greater financial inclusivity in Nigeria, despite the country’s current economic growth trajectory.

What is/are the least considered form of inclusion?

Despite the rise of fintech companies, it is estimated that 50% of Nigerians are excluded from credit opportunities. This highlights a crucial aspect of financial inclusion that deserves more attention: access to credit. However, not just access to credit but fair and transparent credit transactions are essential.

While many fintech companies provide loans to individuals and small businesses, there remains a persistence of creditworthy individuals who lack access to loans. More concerning is the significant numerical disparity between lenders and borrowers.

A healthy credit dynamic would involve both lenders and borrowers providing and accessing fair credit, respectively, with zero risk, ease, and the potential for a sustainable client relationship. While the issue of willing borrowers outnumbering available lenders is evident, there is a more substantial concern — do both parties operate on a fair and balanced credit market? Is the credit experience mutually beneficial at the end of each transaction?

How feasible is this model, and at what cost(s) is this achievable?

In recent times, there have been discussions around credit decisions in Nigeria and scoring models. However, it’s evident that an infrastructure that incorporates alternative data sources from financial ecosystems could significantly improve the demand and supply dynamic while reducing risk for lenders.

The feasibility of implementing a lending model that provides credit to millions of Nigerians would require a well-structured plan. Firstly, establishing the creditworthiness of Nigerians seeking loans requires a credible data source that verifies the borrower’s creditworthiness. These data sources need to be authentic and reliable. Additionally, more stringent vetting may be necessary to reduce potential default risks associated with lending transactions.

The feasibility of such a model balances on creating more access to credit and simultaneously making people creditworthy. Removing barriers such as age, education, gender, irregular income, regulations, and geographical locations is essential for achieving optimal financial inclusion. Empowering about 68% of Nigerians living below the poverty line requires a collective effort.

In conclusion

Financial inclusion and, by extension, financial exclusion have multiple dimensions. One significant aspect is access to credit, which often receives less attention. There’s a need for a radical transformation of the existing credit model.

“Just like what is obtainable in the UK and Brazil, Nigeria’s credit landscape demands a review that harmonises access, fairness, and innovation — stitching together a better finance framework, accessible to everyone,” comments Kunmilade Sanda, Business development manager, VeendHQ.

VeendHQ is at the forefront of this revolution, providing a lending infrastructure that offers cost-effective and risk-free lending operations, connecting capital providers with creditworthy borrowers. This platform contributes to a wider reach for underserved individuals and represents a positive step towards improving financial inclusivity in Nigeria. Find out more from bit.ly/lendflex