Nigeria’s Steep Deadline in the Race towards Financial Inclusion

How can we achieve so much in so little time?

By 2020, Nigeria hopes to migrate about 18 million people into the formal financial services sector, driving up Nigeria’s financial inclusion estimate from 58.4% (as at 2016) to 80% of the adult population.

The success of m-Pesa in Kenya has given so much hope and eagerness to stakeholders in Nigeria, from international development organisations and donors seeking to reduce poverty in the region, to governments who want to move more of their people above the poverty line, and the central bank which craves a more robust financial ecosystem.

But as we have come to learn, part of the problem of driving financial inclusion in Nigeria comes from trying to “replicate” the success of mobile money in Kenya. It will not work.

On paper it should.

The penetration of mobile phones and the internet seems to have positioned the country as the ‘perfect backdrop’ for experimentation with technology solutions to solve a widespread, real-world problem.

But the real problem is this – Kenya is not Nigeria. There are on ground realities that ensure the success of m-Pesa will most likely not be replicated here.

So far, Kenya is the one country where m-Pesa has achieved the most success. Why? And under what conditions was this success achieved?

At least three unique factors existed in Kenya:

  1. Safaricom, the operator of m-Pesa controls more than 70 percent of the mobile money market. This made it such that interoperability was not an issue as “everyone” was on the same network.
  2. Agent networks are widespread in urban and rural locations. According to CGAP, in 2014 m-Pesa already had 81,000 agent outlets.
  3. Kenyan regulators had little to no inhibitors to the usage of m-Pesa as a payment option.

These three factors created a favourable environment where network effects were able to kick in which led to m-Pesa’s eventual ability to reach critical mass.

These three factors are also hard, if not impossible, to replicate in Nigeria.

Firstly, Nigeria currently has a regulatory model that excludes the direct participation of telecoms operators as mobile money operators. Instead, banks and non-bank financial institutions are licensed to provide mobile money services. In all, over twenty mobile money licenses have been awarded. Telcos on the other hand have created an airtime distribution network (agency) that banks or other independent financial institutions may not be able to replicate (without significant financial investments)

Secondly, our operators are struggling to build out the country’s agent network. It is no surprise really; according to CGAP, the largest expense digital financial service providers worldwide incur is building out and maintaining an agent network. At the moment, the business of rural financial services has been difficult to justify given the high cost of building out bank branches in those regions as well as low business volumes.

Third, financial and telecoms regulators have stringent rules in place which, although were probably created in order to protect customers and promote fair practice, have limited the activities and innovativeness of operators.

Thus, as a result of the licensing model and the industry fragmentation, agents are also fragmented, owned and managed by individual operators. In all, about 30,000+ agents are serving over 95 million adults.

Access tops the list of inhibitors to financial inclusion in Nigeria. In order for us to produce similar network effects, stakeholders in Nigeria’s financial services ecosystem have to come together to brainstorm and create new innovative and adaptive ways specifically for Nigeria, innovations which will accommodate the country’s peculiarities. This much is also clear.

Part of the responsibilities of the Sustainable and Inclusive Digital Financial Services initiative has been to engage all stakeholders in the digital financial services sector in Nigeria in order to produce sustainable frameworks that will support achievement of the goal of 80% inclusion by 2020. With learnings from regulators, donor agencies, the private sector and government agencies, over two years the initiative has been engaged in research within the financial services ecosystem, identifying the inhibitors to financial inclusion, while recommending solutions, and advocating for a collaborative front towards cracking the financial inclusion puzzle.

With an eye on the clock, these conversations are ongoing.

For now, at least we know that the things limiting the ubiquity of mobile money in the country. The Kenya m-Pesa phenomenon has provided us with a case study which offers a lot of learnings. Using this information, we hope to create and deploy innovative frameworks, some of them experimental, adaptable to the Nigerian situation, which will benefit all stakeholders while bringing financially services to the poor and the unbanked.


Author Bio: Olayinka David-West & Ibukun Taiwo are members of the Sustainable and Inclusive Digital Financial Services initiative at the Lagos Business School