Factors behind Nigeria’s failed war against financial exclusion

Nigeria is doing a futile battle against financial exclusion. Millions have refused to own bank accounts even as the World Bank and the Central Bank of Nigeria (CBN) have established an indubitable link between poverty and financial exclusion.

It has been confirmed that people who have no access to financial services are prone to abject poverty. They cannot raise something as low as N5, 000 to start a micro business.

CBN’s financial inclusion campaign was grounded on the perception that poverty can be reduced when people have access to financial services. The apex bank set the deadline of 2020 for the ambitious task of getting 80 per cent of Nigerian adults to operate bank accounts.

Three years after the deadline, Nigeria is still light years behind the target. CBN recently acknowledged that only 57 million Nigerian adults were captured in its BVN.

Nigeria’s population of adults that are not captured in the banking network is unacceptably high. The National Financial Literacy Baseline Survey conducted by the CBN and weighted to the 2006 census projection for 2012 puts Nigeria’s adult population at 98, 533, 553. With the population now at 216 million, adult figure would be in the range of 120 million by now.

That suggests that close to 70 per cent of the country’s adult population have no access to financial services.
Two major factors are responsible for Nigeria’s failed war against financial exclusion. The first is the selfish attitude of Nigerian banks to the opening of bank branches.

Nigeria has 33 commercial banks which can effectively cover the country. Ironically, though Nigeria is adequately banked, it is grossly under-branched. Nigeria has a total of 4, 437 bank branches concentrated mostly in high brow urban areas.

That amounts to 4.28 branches per 100, 000 adults. Ghana, an economy that is less than 10 per cent of Nigeria’s has 11.5 bank branches per 100, 000 adults.
In some rural communities, Nigerians travel for 100 kilometers to the nearest bank branch. With the removal of petrol subsidy, the transport fare for such journey should be in the range of N3,000.

Depositors cannot spend N3,000 to withdraw the sum of N5, 000.

That probably explains why Nigerians mostly in the rural communities shun banking. Many of the 774 local government headquarters do not have even a cash office.

Banks complain that the cost of maintaining even a cash office in rural Nigeria is atrociously high as security challenges compel them to evacuate cash to the urban areas at the end of each day’s transactions.

That argument stands logic on its head given the fact that the GSM network operators have built thousands of cell sites in rural Nigeria and secure them at very high cost.

There is GSM network in all the 774 local government headquarters in Nigeria. Unfortunately, less than 40 per cent of them have bank branches. The CBN must address that issue in the fight against financial exclusion and the attendant poverty.

There are 45, 000 cell sites built by the five GSM network operators in Nigeria. Each of the cell sites cost an average of N40 million to build. In other words, the GSM network operators have spent about N2 trillion on cell sites development across the country.

The operators spend billions of naira establishing cell sites in rural communities where returns from call charges are abysmally low.

The banks have selfishly ignored the rural communities. Even in Lagos which has become one huge chunk of cosmopolitan community, there are communities where depositors travel for 10 kilometers to the nearest bank branch. The banks would effectively cover Nigeria and boost financial inclusion if they have up to 10, 000 branches evenly spread across the country.

Besides, bank account ownership by every adult would enhance tax collection in Nigeria’s unwieldy informal sector.

Establishment of enough bank branches would combat Nigeria’s embarrassing financial exclusion which has been confirmed to be one of the major factors behind the country’s inglorious toga as the world headquarters of poverty.

It is not clear who is really responsible for Nigeria’s abysmally low banks branch network which enhances financial exclusion. When a depositor confronted a manager of First Bank on why the bank has no branch in Alakuko, a community in Lagos state that now plays host to the biggest branches of Justrite and Jendol Super stores, the manager said the community should petition CBN. His argument was that CBN would not approve the bank’s proposal for a branch in Alakuko. CBN could inadvertently deter financial inclusion.

The next factor behind Nigeria’s failed war on financial inclusion is the outrageous bank charges that discourage people from operating accounts.

In the first nine months of this year, less that 13 banks have raked in N740 billion from extortionist charges on depositors accounts. At that rate the figure could hit the N1 trillion mark by the end of 2023.

Last week alone UBA deducted the sum of N50 three times from my account in what it tagged FGN stamp duty. No one knows where such amount is remitted to.
About three years ago, CBN restrained banks from charging depositors what it tagged ATM maintenance levy. UBA is still deducting it. With such exploitation, few would be surprised at Nigeria’s failed war against financial exclusion.

The CBN defines financial inclusion as “universal access at reasonable cost, to a wide range of financial services to everyone needing them, provided by a diversity of sound and sustainable institutions.”

One factor stands out prominently in the CBN definition if financial inclusion is not to be inhibited.
It is the fact that the cost of the financial services must be “reasonable”.

Banking services are unacceptably expensive in Nigeria. That explains the jumbo profit declared by banks. Nine of them declared profit before tax (PBT) of N2.2 trillion in the third quarter of 2023. That level of profiteering repulses depositors.

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