• Thu. Feb 22nd, 2024

How tech is driving financial inclusion for MSMEs

The prospect of Africa’s biggest economy going cashless has led to the revolution in its digital payment landscape and the move to deepen its financial inclusion penetration.

The Central Bank of Nigeria (CBN) with support from major financial players, has been working to deepen financial inclusion in the country. Through its National Financial Inclusion Strategy (NFIS) of 2012, the apex bank set a target to ensure 80 percent of Nigeria’s adult population has access to financial services by the end of 2020.

But the March 2023 data from the Nigeria Inter-Bank Settlement System Plc (NIBSS) shows that Africa’s most populous nation had 57.96 million Bank Verification Numbers (BVN)-an 11-digit number that acts as universal ID for bank holders in Nigeria, this means that more than half of the country’s adult citizens are still without bank accounts.

The NIBSS data also shows that Nigeria failed to meet its 80 percent financial inclusion target of 2020.

In a bid to grow the number of financially included people, the CBN in 2018 when it realised the country wouldn’t meet its inclusion targets released an exposure draft in which it proposed Payment Service Banks (PSB) aimed at deepening financial inclusion in Nigeria.
Several years after the Central Bank of Nigeria gave an official nod to non-financial companies to apply for mobile banking licences to assist in deepening access to financial services, so much is now changing in the country’s financial service landscape.

In July 2019, the apex bank set a new financial inclusion target geared at giving access to 95 percent of Nigeria’s adult population by 2024. This further drove interest from telecom operators and fintechs to operate in the country’s financial markets and drive inclusion.

Also, in December 2022, the CBN launched the naira redesigned policy and cash withdrawal limit to tackle inflation and mop up excess liquidity outside the banking system. This further accelerated the adoption of digital payments by several informal small businesses.

The policy made a vast majority of Nigeria’s 39.6 million micro, small and medium-sized enterprises, which contribute 48 percent to GDP and account for 96 percent of businesses and 84 percent of employment that are heavily cash reliant and informal to adopt digital payment channels.

Data from the Nigeria Inter-Bank Settlement System (NIBBS) shows that the volume of mobile transactions increased by 505.2 percent to 672 million from 111 million in the first quarter of 2023.

In terms of value, N9.1 trillion was reported from January to March this year, compared to N3.5 trillion in 2022.


financial inclusion


The PoS data reported a 37.5 percent rise to 387 million in the first three months of the year, from 281 million in the corresponding period.

In terms of value, transactions performed using the PoS channel increased to N2.8 trillion from N1.8 trillion, accounting for a 52.2 percent increase in the period under review.

The data is an indication that Nigeria’s vibrant markets which were filled with people buying and selling goods and services with worn-out old naira banknotes are likely to use their smartphones or debit cards to do transactions today with just a few screen taps.

Advances in digital finance mean that Nigeria’s 200 million people, mainly in the vast informal economy, can accept payments and transfer funds anywhere across the country.

The role of tech

Decades ago, Nigerians and businesses were heavily dependent on the traditional banking model for financial services and transactions.

Today, the financial service industry has witnessed a meteoric expansion with the evolving nature of modern banking in the last decade owing to the rapid technological advancement.

The rapid penetration of Nigeria’s financial services over the years has been noteworthy, and the increasing ownership of smartphones, especially among the low-income groups, has been instrumental in reforming the financial services landscape.

According to data by the Nigerian Communications Commission, Nigeria has about 323.62 million active mobile SIM cards as of February 2023 and from the figure, 156.9 million mobile phone subscribers were connected to the internet in the same period.

Mobile money providers, digital wallets, digital banks, and online payment platforms providers have emerged as key players in expanding financial inclusion in Nigeria.

These technologies overcome geographical barriers and reduce transaction costs, enabling underserved individuals and businesses to enter and navigate the world of financial services.

Technological advancements also create opportunities for savings, credit, insurance and empowering previously excluded populations to participate in the formal financial system.

“The fintech eruption in Africa is seeding an ecosystem that could bring several social benefits as well by, for example, improving access to healthcare and insurance at scale and increasing access to lending in key sectors such as agriculture,” according to a 2022 McKinsey report.

“The newcomers are also proving instrumental in driving financial inclusion, particularly among women,” the report added.

Nigeria’s fintech industry has grown phenomenally over the last few years. The country has one of the largest fintech ecosystems on the continent.

Today, fintech startups are known for offering innovative solutions to onboard the financially excluded into the formal financial sector.

Opay, Palmpay, Moniepoint and MoMo among others are leading fintech companies driving remote banking for rural unbanked individuals and businesses.

Nigeria’s banked population increased from 39.67 percent in 2017 to 45.3 percent in 2021, according to the most recent World Bank’s global findex report.

According to the 2023 State of the Industry Report on Mobile Money by the GSM Association, the total number of banking and mobile money agents is estimated at over 2 million with the majority operating in rural communities.

Several fintechs are creating micro loan products for small businesses to easily access credits unlike the traditional banks that require collateral and banking history, which informal businesses often do not have.

“The financial landscape of Nigeria has evolved considerably with the entrance of nimble, efficient financial technology firms,” a PWC report on Changing the Competitive Landscape: Fintechs and the Banking Sector in Nigeria stated.

“Fintechs hold much promise for Nigeria, especially in ensuring inclusivity in financial products and service offerings in credit disbursement to the real sector,” the report said.

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According to the report, there are presently over 100 fintech companies in Nigeria engaged in a broad range of product offerings spanning payment solutions, investments, online banking among others.

This has created employment for several millions of Nigerians who are engaged as PoS and mobile money operators.

BusinessDay checks show that most Fintech Companies are beginning to attract petty traders with credit loans.

This is because the excluded small and medium-sized businesses which are mostly in the informal sector are more than those in the formal sector and market experts say there are lots of opportunities to be tapped from that segment.

Yetunde Akindele, a petty trader in Oyingbo market explained to BusinessDay how the Fintech product which she was introduced to by her fellow trader is helping to finance her business.

“I only had to open an account and operate it for six months and then I had enough financial history to access a loan.”

Akindele added that through the credit she got from the Fintech Company which didn’t ask her for collateral or a guarantor has “helped in growing my business and now I have moved from a canopy space to zinc roofed shop.”

Fintechs are now characterized by an obsession with innovation and a determination to get more MSMEs to explore potential opportunities, using innovative technologies, which now position Nigeria to lead the revolution in the digital payment landscape and in the latest regional wave towards deepening financial inclusion penetration.



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