Opinion: Bringing back growth to the Nigerian economy (2)

by Tunji Andrews

Through increased access to savings accounts and other financial services, the poor can build financial security, manage risks against adverse shocks such as illness or natural disaster, and even invest in new business opportunities.

We continue my guilt exorcism series cum 6 point agenda to bring back growth to Nigeria’s economy. My last article – Bringing Back Growth to the Nigerian Economy (I) looked at trade avenues for Nigeria, where I proposed a consumer-led growth in manufacturing/production, where states can structure their markets in such a way that it becomes the market of first resort to a partnering selling state. I explained that the whole idea really boiled down to structure; where the food demand of a market like Lagos state (with huge population and little farm space), can in partnership, be the market of first resort to an Ekiti State (with low income and massive farm space) for instance. You can click [HERE] to read the complete article.

Now, remember I put out my views in the first article, stating that should Nigeria fix these 6 issues, she would be able to consistently pull a 15% GDP growth (minimum) every year for the next 10 years. I call them my 6-point growth agenda:


  1. Trade – Both foreign and domestic

  2. Financial inclusion

  3. Infrastructure

  4. Cheap and accessible Capital

  5. Security

  6. Education

Having looked at TRADE, I believe we can tackle FINANCIAL INCLUSION and CHEAP and ACCESIBLE CAPITAL as one, in this article.

The issue of FINANCIAL INCLUSION is one that the CBN has been trying to battle with for about a decade now with little real result, with most of the rural areas largely financially excluded. I was a major proponent for the CBN’s cashless policy in 2012, running a 6 month series (pro bono publico) on Business In A Box, an award winning business solutions program I produce and anchor, which airs on Smooth 98.1fm, Nigeria Info 99.3fm and City 105.1fm. I sat with the men and women at the helm of the CBN, several Nigerian banks, switch operator companies and even mobile money operators in this period; trying to answer every question on the hearts of Nigerians on the policy. Many questioned my passion and dedication to the cashless policy, which had me defending the CBN and its policy for several hours a day on social media, trying to explain why this policy was one of the best things to happen to Nigeria in a long while. The very elementary questions I often had to answer and that I even repeatedly helped the CBN Cashless twitter handle (obviously managed by a PR agency) explain the policy, pointed out to me the depth of financial illiteracy prevalent within the Nigerian society.

The CBN claims that only 47% of Nigerians are financially excluded, and even though I think the figure is closer to 77% (my opinion), this is still way too high. In addition, there is a difference between a person having a bank account he keeps for status purposes, and when he actively passes all his financial activity via this account (which is what the Nigerian economy needs). Recently, a Nigerian bank launched a debit card it claimed was customisable and fashionable, and aimed at selling it to university undergraduates and youths all over the country. I sat with the country manager (West Africa) of the card company that issues these cards for the bank, a week after the card launch, and I pointed out reasons why the new cards, though a fantastic innovation, would only drive issuance (people owning the cards) but will do very little to push actual usage/card purchases (PoS, Online, Petrol station, etc). Markets like Alaba, Apongbon, Mile12, etc, are filled with traders who do very large cash transactions but are not interested in banking these funds, and even when they do, it’s on a deposit and withdrawal bases alone; with zero interbank/cashless transactions. This situation is not exclusive to Nigeria alone, in fact most poor/financially illiterate people in the world still lack access to sustainable financial services. The greatest challenge apex banks around the world like the CBN face, is the inability to address the constraints that exclude people from full participation in the financial sector. To be fair, the CBN has been emphasizing the need to build a more inclusive financial system as an essential part of Nigeria’s development agenda.

Now, financial inclusion is a measure that aims to provide timely delivery of various financial services at an affordable price to those financially excluded households and micro, small and medium-sized entrepreneurs. Through increased access to savings accounts and other financial services, the poor can build financial security, manage risks against adverse shocks such as illness or natural disaster, and even invest in new business opportunities. More importantly, recent research shows that improving access to finance plays a crucial role in promoting economic growth and reducing poverty.

The Microfinance initiative was an initial effort to reduce poverty by improving access to finance for the poor. About three decades ago, Muhammad Yunus, the 2006 Nobel Laureate, established the Grameen Bank in Bangladesh. Microfinance institutions (“MFIs”) like the Grameen Bank make small loans to the poor who have no collateral or credit history and cannot borrow from mainstream financial institutions. MFIs’ unique group lending schemes incentivize borrowers to repay, and the global average repayment rates have been unexpectedly high (96 percent). However, microfinance alone cannot expand financial access for the poor and is a near failed portion of the banking industry in Nigeria. MFIs should have been the main driver of financial inclusion as by nature they are more localised and closer to the rural areas. The issue MFIs have had in Nigeria has been that of liquidity, being benefactors of credit from commercial banks themselves, the conditions make it extremely difficult to remain liquid at the lending rate banks offer.

A well-functioning financial system is a crucial part of development, promoting economic growth and reducing poverty. Financial institutions and markets mobilize savings, provide payment services, allocate resources and transform risk by pooling and repackaging it. When a financial market functions well, funds will likely be allocated to the most productive users, which will contribute to economic growth and poverty reduction. However, when the market does not function properly, it loses growth opportunities. A financial system becomes more efficient and functions better when it is more inclusive. As a financial system becomes more inclusive, it provides more growth opportunities to more individuals and entrepreneurs, and is a key tool for achieving the Millennium Development Goals (MDGs).

 The problem however, is identifying barriers that limit access to financial services as an important part of measuring access to finical services. Major barriers include limited financial knowledge by the population, poor geographical access to the nearest bank, lack of appropriate documents (e.g., drivers licenses), and account fees or minimum balance requirements. In the case of geographical access barriers, for example, access can be measured by knowing how far clients are located from the nearest bank branch or an ATM (or measuring the “density of branches per square kilometres or per capita”). When the density of branches is high, more individuals are likely to have a bank account (all things being equal and banks provide fit-for-purpose products to the citizens around them).

By having access to financial services, poor households obtain reliable tools for managing their money. Since the incomes of these households are unstable, their needs for reliable financial services are greater than those of richer households. By borrowing and saving, poor households can meet basic consumption needs such as having food on the table every day. Furthermore, they can save money for education and business opportunities or emergencies. Moreover, poor households also benefit from higher incomes and more, and better employment opportunities as financial development reduces poverty through economic growth. In order to foster financial development, it is important to promote more efficient capital allocation. Since 50 to 80 percent of the population of Nigerians lack access to finance, it makes it  hard to achieve efficient allocation of capital without improving access to those large parts of the population. In this regard, the World Bank’s report, “Finance for All,” emphasizes the need to broaden the focus of financial inclusion from poor households to all excluded households and firms, including non-poor micro and small- and medium-sized entrepreneurs. Nigeria is however yet to catch on to this. In simple English, with more people banked and banking, the financial system would be more robust and can grow to effectively reduce lending rates and boost access to credit.

Financial Inclusion, which grows the capacity to the economy to avail cheap and more accessible capital, is key to achieving inter-state trade and growing a culture of domestic consumption.  I raised questions to representatives of a few financial institutions at the recent Social Media Week in Lagos, asking who’s responsibility it is to create greater financial inclusion (CBN or the banks); and as usual, I got no concrete answer. The reason for this is that growing Financial Inclusion takes a great level of rural and (I dare say) urban education, but nobody is prepared to take on the financial burden;  as the people need to better understand and trust what it is that they are about to put their money in. I have suggested several initiatives to the financial bodies, even the CBN on cheap and cost effective ways to achieve this, but, I suspect that since I have no political god-father, my ideas may not be given much thought.



Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.


One comment

  1. Tunji, I’ve been one of your foremost challengers on the issue of this imposed CBN cashless policy. Now, look at what the government of Cyprus is doing: confiscating 10% of all monies in citizen’s bank accounts. If they had kept their money under their pillows at home, will government also send soldiers to go confiscate their cash?

    Nigeria is a country where GodsWill Akpabio gives people N1 million of government money just to have lunch. Tomorrow, when the economy buckles, they’ll pounce on 100% of my money in the bank, but lucky me, I always keep the bulk of my finances in cash, at home.

    We’re not ready for all this, especially when we’re under the most clueless and reckless civilian dictatorship.

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