5 Top Reasons Why Financial Inclusion Matters
- FinancialNews & Updates
- May 26, 2023
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As of 2008, Nigeria had 53% of her adult population excluded from access to financial services. This rate reduced to 46.3% in 2010 as a result of various global growth and interventions.
Following the CBN financial inclusion policy, the included adult population grew to 64% in 2020, which was still far below the target of 80%.
Some of the critical factors responsible for this shortcoming include economic issues, security, level of literacy, and lack of trust for service providers.
Despite these efforts, EFINA, an independent think tank, established that up to 38.1 million adults in Nigeria remain financially excluded. In other words, this crop of the population has no access to ordinary financial services and offers.
Before we consider the top reasons for financial inclusion for the Nigerian population, first, what does financial inclusion mean?
What is Financial Inclusion?
The World bank describes Financial inclusion as the provision of access to financial products and services to individuals and businesses. These transactions may or may not involve cash.
Examples of cash transactions may include cash withdrawal, loans, savings, thrift collections and related services. On the other hand, cashless transactions may involve subscriptions, payments, bettings, and insurance.
Making these financial products and services available to otherwise excluded people is the first stage of financial inclusion. The processes are sustainable and affordable while operating through a digital wallet or bank account.
CBN’s Framework for Financial Inclusion
In 2012, the Central Bank of Nigeria (CBN) adopted a National Financial Inclusion Strategy to reduce financial exclusion rate to 20% by 2020. The set goal for various financial products and services are itemized below:
Financial services | Rate in 2010 (%) | Rate in 2020 (%) |
Payment services | 21.6 | 70.0 |
Access to savings | 24.0 | 60.0 |
Acess to credit | 2.0 | 40.0 |
Insurance | 1.0 | 40.0 |
Pensions | 5.0 | 40.0 |
Some of the adopted channels to achieve these goals include
- Deposit money bank branches
- Microfinance bank branches
- Autmated Teller Machines (ATMs)
- Mobile agents
The available framework and tools to achieve financial inclusion also includes
- Mobile Money Operation and Services
- Agent banking
- Linkage banking
- Financial literacy
- Consumer protection
- Tiered Know-Your-Customer (KYC) requirements
- MSME Development Fund Implementation
- Credite Enhancement Programmes
Why Financial Inclusion Matters in Nigeria
Prior to this time, the major financial service providers such as banks are concentrated in urban areas. However, this uneven distribution leads to limited access to money services for dwellers of rural and semi urban areas.
The goal therefore is to extend financial inclusion to this demography. Moreover, this financial inclusion goal is not only peculiar to Nigeria but also to the rest of the world with similar characteristics.
Meanwhile, Nigeria has her peculiar issues with provision of financial access to excluded groups. For example,
- Only 45% of women use a formal financial service as against 56% of men. As a result, the CBN launched a new framework for the financial inclusion of Women in 2020.
- The level of literacy via-a-vis financial literacy is partially responsible for financial exclusion. And one can hardly solve one without solving the other.
- Adults in Southern Nigeria are more financially included than those in Northern Nigeria.
- Young adults within the age range of 18 and 25 have a significantly higher tendency to be financially excluded than older adults.
- Generally, a higher percentage of financially excluded population are the rural dwellers
- Up to 81% of Nigerians now own a mobile phone, and this can be a huge advantage in driving faster results through digital services.
Now, let us unwrap some of the essential purposes of embarking on the financial inclusion journey in Nigeria.
GDP or Income growth
Financial inclusion is of immense advantage to Individuals, families and businesses because of its positive impact on income. A proper financial management improves the lives of individuals and organizations.
Financial inclusion often comes with financial literacy that enables better financial planning. The process may also involve savings, loans, managing cash flows and reduce the risk of selling assets to raise funds.
Building Assets
Another worthy benefit of financial inclusion is the ability to build valuable assets. With better financial management, people not only have better savings, they can also acquire assets to build more values.
For instance, otherwise poor families can accomplish capital projects such as building a home or developing other assets. On the other hand, they can start a business or expand on existing ones while securing the future.
Increased financial security
Financial inclusion is a huge way to ensure financial security since it is now easier to manage one’s finances. By saving money in a trusted financial institution, the investor can gradually grow, store and maximize their values.
Otherwise, financially excluded population rather keep money in unwholesome places where it can be stolen. Others invest in volatile valuables such as jewelry or livestock to save or accrue savings.
Reduced Unemployment in the community
As the financial inclusion grows in rural undeserved communities, provision of these services create more jobs. For instance, the CBN financial inclusion policy that empowered mobile money agents has led to more POS terminus.
It has also led to creation of fintech companies, making many people entrepreneurs. More jobs are created as other organizations release aids, grants, and other funding to people’s dreams and business ideas.
Community Development
A wider financial inclusion also implies that individuals and families can better meet their own needs. As a result, there is lesser tendency for illegal or illicit activities within that community. Families have better financial health.
On the other hand, as parents can now take care of their children, there is less tendency for misbehaviors. Meanwhile, a financially healthy community can also achieve corporate projects and conduct a healthy social interaction.
On a final note, financial inclusion is massively beneficial in that it allows both individuals and corporate bodies to build sustainable financial models and culture. They can also establish an ecosystem where their microeconomy can work seamlessly for growth. More so, the growth of technology has been of immense importance to the financial inclusion of remote and underserved communities.
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