…after more than a century-and-a-quarter of banking in the country, and the failure of banks to reach the poor and vulnerable, it might help to interrogate these relationships differently.


Two initiatives of the Central Bank of Nigeria (CBN), last month, underlined the fundamental difficulties confronting financial services institutions in the country today. The decision to raise the minimum capital required to run micro-finance banks largely acknowledged how poorly this sub-sector of the industry has worked to “increase financial inclusion rate in the country; improve access to financial services for the active rural poor; and pursue poverty eradication”. The CBN, and critics of domestic micro-finance institutions, may justifiably argue that “inadequate capital base, weak corporate governance, ineffective risk management practices, dearth of requisite capacity and mission drift” have been the bane of the sub-sector.

But after more than a century-and-a-quarter of banking in the country, and the failure of banks to reach the poor and vulnerable, it might help to interrogate these relationships differently. There was much fuss when implementation of the bank verification number (BVN) showed up a little over 30 million unique bank accounts in the country. With about 190 million people, a significant number of who are above 18, most commentators concluded that this number was inadequate.

Illiteracy was implicated as a problem. As banks struggled to remain on the right side of anti-money laundering legislation and combating the financing of terrorism rules, the documentation required to open accounts had grown in both the number of pages, and the density of information needed. Opening a savings account increasingly required more competence than could be mustered by citizens of an economy with only 59.6 per cent of its population aged 15 years and above able to read and write.

As was the retail nature of transactions at the bottom of the pyramid. One, probably apocryphal, complaint has your typical walk-in retail customer upbraiding the teller for the ease with which her account opening deposit was accepted vis-à-vis the infernally long time it takes to process withdrawals. Bank queues, to withdraw money and to access credit, was, thus complicit in the market woman’s preference for keeping her funds beneath her pillow, or in sundry contributory lending schemes. The liquidity that these schemes provided was just about right for the uncertainties associated with doing business at that level.

It might take a while, but the challenges of banking most Nigerians would inevitably involve rethinking banking from first principles.


To the banks’ credit, they have, at least, tried to meet the matter of customers’ turnaround time at their service points by deploying an array of electronic banking platforms. The gripe around the cost of these to the customer is, unfortunately, no less strident than was the original complaint about the quality of the banks’ brick-and mortar operations. On the matter of costs, arguably a big let to the poor and vulnerable using banking services is the sense that for a while now, monetary policy has taxed retail savings. Savings account holders nearly always have less in real terms (adjusted for inflation and the rate of return on such accounts) at the end of any period for which funds are left with banks. A slightly more positive take on domestic banking is the fact that at the upper end of the market, banks’ patrons know to invest their monies in treasury bills and like instruments that return a positive yield over inflation.

But all of this is to quibble. With more than 90 per cent of our compatriots earning less than N2,000 daily, no bank (deposit money, or micro-finance) was ever going to profitably provide financial services at the retail end of the market. The costs of doing this (large diesel-powered generating sets; a battery of inverters, an array of solar panels, and the battery of batteries that go with these; costs of securing business locations, etc.) are simply too burdensome to allocate efficiently across innumerable low-balance accounts.

Cads have argued that the failure to open the domestic banking space to non-bank players and financial technology-types owes to the central bank’s misreading of its regulatory role solely in terms of ensuring the health of banks.


This is where the CBN’s second initiative matters. The licensing of payment service banks (PSBs) seeks to get around these other impediments to banking more Nigerians. Ideally, it would appear, a new definition of the financial inclusion challenge is to radically lower the cost-to-serve ratio. Within this re-definition, this new category of financial services institutions, restricted to rural areas and unbanked locations, would leverage technology to provide most financial services (except giving loans, advances and guarantees – directly or indirectly, accepting foreign currency deposits, dealing in the foreign exchange market and undertaking insurance underwriting). In East Africa, a variant of this model has led to the design of innovative solutions to the myriad restrictions that poverty has placed on entrepreneurship across the continent.

foraminifera

Cads have argued that the failure to open the domestic banking space to non-bank players and financial technology-types owes to the central bank’s misreading of its regulatory role solely in terms of ensuring the health of banks. Indeed, a couple of months back, the governor of the central bank spoke of the possibilities presented by fintech businesses as would a besieged community intent on surviving the onslaught of the barbarian horde battering away at its perimeter defences. Those who worry about the CBN’s supposedly “narrow” definition of its regulatory goal, again point to the many restrictions on the PSB concept as evidence that it is dead on arrival.

It might take a while, but the challenges of banking most Nigerians would inevitably involve rethinking banking from first principles.

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.