For our first post of Financial Inclusion month at Stellar.org, we are honored to feature Academic Director at both the Lagos Business School and Pan-Atlantic University, Dr. Olayinka David-West. She has over two decades’ experience in the ICT sector and unparalleled understanding and insights of the Nigerian landscape and climate surrounding financial inclusion in the area.
Can you provide us with a brief overview of your background and work at the Lagos Business School?
My journey into the world of computing commenced with a degree in computer science and graduate studies in business systems analysis and design. As a technology worker, I was particularly interested in the design of systems for business rather than just the information and communications technology (ICT). I always believed that the ICTs were not the end in itself. My professional career commenced as a Xenix/Unix systems administrator and gradually became an applications systems tester before moving into research and development (R&D). In my R&D capacity, I explored and experimented possibilities of new technologies and systems and their adoption in the Nigerian business environment. I witnessed the banking technology revolution and rollout of networks and centralized systems to enhance banking operations and service delivery. I witnessed the birth of the internet and internet-based applications and the deployment of end-user computing applications that inspired my interests in financial systems and the adoption and application of ICTs. I joined Lagos Business School (LBS) faculty to demystify complex ICTs and enhance the understanding of systems amongst business leaders and managers as well as explore applications and adoption of ICT in business and society.
What does financial inclusion mean to you? Why is it essential to the next digital financial infrastructure?
Financial inclusion is climax of end-user computing in Nigeria’s financial services industry. Contextually, financial inclusion is achieved when anyone can buy goods and services from market stalls or street hawkers and rural dwellers are financially served in their communities.
You are currently doing a research project at Lagos Business School in conjunction with the Bill and Melinda Gates Foundation. Can you tell us a little about the project and some of the most recent findings or learnings?
Indeed, we are conducting a research project supported by the Bill & Melinda Gates Foundation (BMGF). The 2-year project titled “sustainable business models for delivering digital financial services (DFS) to the unbanked poor in Nigeria” focuses on the supply side of DFS. Last year (year one), we focused on the mobile money operators (MMOs), identifying sustainable business models and other market interventions for enhancing financial inclusion. This year, we are focusing on market-enabling policies to understand legislative and regulatory processes and their impact on DFS.
In 2016, we published the first State of the Market Report providing an overview of the current state of financial inclusion in Nigeria and DFS adoption. The report further provides evidence-based insights to solving the mobile money conundrum in Nigeria.
It shows that Nigeria’s underbanked and unbanked citizens are predominantly 35 years of age or younger, with education up to high school level and are either unemployed or low-income earners. The report revealed that inhibitors to DFS adoption include low economic activity amongst the underbanked and unbanked, lack of awareness, product-needs gaps, product complexity, utility cost and usage difficulty.
Using evidence-based analytical approaches to explore consumer data and supplier capabilities in the DFS ecosystem, the report concludes that opportunities for DFS take off where industry players:
- Build network effects
- Adopt new business models
- Alter financial models
- Develop competencies and capabilities
- Redefine industry structures
Nigeria initiated a financial inclusion strategy in 2011 aimed at getting 80% of unbanked Nigerians banked. What were some of the shortcomings of the initial approach to accomplish this and how has it changed in the last six years?
Nigeria’s willingness to address financial inclusion dates back over 5 decades though various initiatives ranging from the People’s Bank to microfinance banking. The NFIS strategy and targets are the first commitment to the Maya Declaration. Targets aim at getting 80% of adult Nigerians formally served either by banks, microfinance or other financial institutions and other informal providers. Some shortcomings of the initial approach and changes are tabulated by actor:
What other efforts are currently being put in place by Government and others in Nigeria to drive Financial Inclusion?
In addition to the various regulatory policy frameworks implemented by the CBN, additional efforts by the government to enhance financial inclusion are being made through patronage and increasing the number of financial access points. The Federal Republic of Nigeria is providing access to finance through a social safety net program that provides a monthly stipend to unemployed youths through a conditional cash transfer (CCT) scheme. The adopted store of value of the CCT scheme is bank accounts for individuals on social registers that are also verified using the bank certification numbering (BVN) scheme. The use of bank accounts for which BVN is requisite supports unique identity verification.
An additional intervention recently announced to increase the number of FSPs involves the award of super-agent licenses to subsidiaries of mobile network operator (MNO) companies, subject to no objection by the telecommunications regulator, Nigerian Communications Commission (NCC). As super-agents, existing MNO retail outlets would be able to provide financial services.
With women being one of the largest groups of adults excluded, what initiatives or approaches have you been part of or seen that have helped bring them into the formal financial sector.
The Diamond Bank BETA savings account, launched in partnership with World Women’s Banking (WWB), is targeted at self-employed women (often market traders) who save frequently. In addition to accessing Diamond Bank branches, alternative channels available to BETA account holders are field service agents (BETA friends) who provide periodic convenient financial services at customer business locations (markets) and ATMs.
In your opinion, what are the key variables that still need to be put in place to solve Financial Inclusion in Nigeria?
In addition to the recommendations from our State of Market Report, regulatory and policy consistency is another critical factor that needs to be addressed to solve financial inclusion in Nigeria. For example, the Central Bank initiated the nationwide rollout of the cashless policy on April 1, 2017, that was subsequently reverted in 30 states by April 21, 2017. Other than the operational and technology costs incurred, the optics of this reversal do not connote trust and credibility. What solutions will you proffer for addressing financial inclusion across Africa and in other parts of the world? What challenges (technical, regulatory, acceptance/adoption etc) still need to be solved in order to provide access to the digital economy for these communities?
With over 2 billion people without access to financial services (financially excluded), unfortunately there is no magic bullet solution. However, with relatively high mobile penetration rates, digital financial services (DFS) offer a viable channel to address financial inclusion in markets with low banking penetration rates. For example, M-Pesa was shut down in South Africa after failing to reach critical mass. The under-listed are a few enablers of financial inclusion drawn from different markets:
- Federal Government support and political will
- Human centered design (HCD) techniques drawing customer knowledge acquired from market research and customer segmentation studies in the development of appropriate products
- Contextual and cultural understanding of the customers and their financial services products. In Lesotho for example, financial inclusion is driven by access to insurance as opposed to the traditional bank account or wallet
- Last mile access through extensive agent networks
- Flexible/evolutionary regulation that support learning and business development activities
On the issue of challenges, more work needs to be done in the following areas:
- Technical: I strongly believe the infrastructure needs to more robust, resilient and accessible. For example, some rural areas lack requisite telecommunications infrastructure that inhibits access to DFS. Another technical issue that impacts adoption is related to the deployment of the Unstructured Supplementary Service Data (USSD) communication channel. USSD nuances such as session timeouts and the lack of standardized service codes for financial transactions are prevalent.
- Regulatory: While the financial systems regulator usually leads regulatory practices, regulation of communications tariffs (USSD sessions), especially for financial services may be required to manage service costs that are ultimately passed onto consumers. This will require cooperation and collaboration amongst participants – regulators and operators. In addition, tariff regulation will dissuade anti-competitive practices in environments where MNOs provide mobile money services.
- Acceptance/adoption: With a high number of MMO providers, the lack of standards in the deployment of USSD service codes could be perceived as a learning barrier for consumers.
What role should regulatory bodies play (if any) in bringing new digital technologies (i.e. blockchain etc) into mainstream financial services?
In their management of financial systems, regulatory bodies cannot ignore the impact of technology on the businesses within their domains. In financial services, we are gradually seeing the evolution of various Financial technology providers otherwise known as FinTechs! Regulatory bodies have a significant role to play in ensuring consumers are protected; however, with the various unknowns of these new technologies, there needs to be some flexibility in the regulatory approaches – rather than guidelines to regulate immediately, a test and learn approach may be more appropriate. This approach will help regulators better understand the products, services and market impact. In Kenya for example, M-Pesa was unregulated by allowed to operate without any formal regulation. In this period, the regulators and operators were better able to understand the market adoption and build sufficient policies to safeguard the financial system.