National Financial Inclusion

Strategy

Financial Inclusion in Nigeria

Contents

Acknowledgments v

Executive Summary vi

1.0 Introduction 1

1.1 Definition of Financial Inclusion 1

1.2 Strategic Objectives 1

1.3 How the National Financial Inclusion Strategy Supports CBN Objectives 1

2.0 Strategy Stakeholders and Their Interests 3

3.0 The Current State of Financial Inclusion in Nigeria 6

3.1 Geographical Differences in Financial Inclusion 7

3.2 Characteristics of the Financially Excluded 8

3.3 Financial Sector Infrastructure 9

3.4 Regulation and Policy 9

4.0 International Benchmarks for Financial Inclusion 12

4.1 Products 12

4.2 Channels 16

4.3 Financial Inclusion Enablers 17

5.0 Major Challenges to Financial Inclusion in Nigeria: Issues and Evidence 20

5.1 Accessibility 20

5.2 Eligibility and Know Your Customer (KYC) Regulations 21

5.3 Financial Literacy 21

6.0 Key Financial Inclusion Targets 23

6.1 Product Targets 24

6.2 Channel Targets 26

6.3 Enabler Targets 27

6.4 Key Performance Indicators (KPIs) 28

7.0 Strategies for Achieving Financial Inclusion Targets 29

8.0 Proposed Roles and Responsibilities for Key Stakeholders 32

I
9.0 Possible Risks and Mitigation Strategies 36

10.0 Implementation Plan 37

11.0 Monitoring and Evaluation 38

12.0 Tracking Methodology 41

12.1 Management Summary 41

12.2 Status Update 42

12.3 Trend Analysis 43

12.4. Priority Checklist 44

12.3 Next Steps 44

13.0. Conclusion 45

II
Table of Figures
Figure 1: How financial inclusion supports CBN objectives 2
Figure 2: Financial inclusion stakeholders in Nigeria 3
Figure 3: The state of financial inclusion in Nigeria 6
Figure 4: Financial products and services usage by category 6
Figure 5: Financial inclusion in Nigeria by region 7
Figure 6: Geographical distribution of the financially excluded 7
Figure 7: Levels of financial exclusion in Nigeria 8
Figure 8: Characteristics of the financially excluded 8
Figure 9: Banking customers and branch infrastructure in Nigeria 9
Figure 10: Regulations and policy impacting financial inclusion in Nigeria 11
Figure 11: Financial inclusion in sub-Saharan Africa by country 12
Figure 12: Access to transaction services in selected countries 13
Figure 13: M-payments users as a percentage of the adult population 13
Figure 14: Access to savings in selected countries 13
Figure 15: Savings accounts with commercial banks in 2010 per 1,000 adults 14
Figure 16: Access to loan products in selected countries 14
Figure 17: Loan accounts with commercial banks per 1,000 adults 14
Figure 18: Access to insurance services in selected countries 15
Figure 19: Estimated percentage of the adult population using insurance in 2010 15
Figure 20: Estimated percentage of the adult population contributing to pensions in 2009 15
Figure 21: Commercial bank branches per 100,000 adults 16
Figure 22: ATMs per 100,000 adults 16
Figure 23: POS devices per 100,000 adults 17
Figure 24: Agents per 100,000 adults 17
Figure 25: Benchmarking KYC requirements 18
Figure 26: Key elements of consumer protection 18
Figure 27: Key elements of financial literacy 19
Figure 28: Reason for not having an account (% unbanked) 20

Figure 29: Average distance to a bank branch in Nigeria 20

Figure 30: Access to identification documents 21

Figure 31: Awareness and understanding of financial terms 21

Figure 32: Sources of financial information 22

Figure 33: The financial inclusion picture by target 23

III
Figure 34: Payment targets 24

Figure 35: Saving targets 24

Figure 36: Credit targets 25

Figure 37: Insurance targets 25

Figure 38: Pension targets 25

Figure 39: DMB branch targets 26

Figure 40: MFB branch targets 26

Figure 41: ATM targets 26

Figure 42: POS device targets 27

Figure 43: Agent banking targets 27

Figure 44: KPIs for monitoring progess 28

Figure 45: Illustrative management summary 41

Figure 46: Illustrative status report summary 1 42

Figure 47: Illustrative status report (KPIs) summary 2 42

Figure 48: Illustrative status report (other indicators) summary 3 43

Figure 49: Illustrative trend analysis 43

Figure 50: Illustrative priority checklist 44

Figure 51: Illustrative next steps 44

iv
Acknowledgments

The Central Bank of Nigeria would like to acknowledge the contributions of all stakeholders
who provided data, participated in interviews, reviewed and provided comments as this
National Financial Inclusion Strategy was drafted and finalised.

In particular, the Bank appreciates the support of the Alliance for Financial Inclusion (AFI),
Enhancing Financial Innovation & Access (EFInA) and Messrs Roland Berger, Strategy
Consultants, Germany, for assisting in the development of the National Financial Inclusion
Strategy.

v
Executive Summary

1. Preamble
The Central Bank of Nigeria (CBN) and other stakeholders intend to implement a National Financial
Inclusion Strategy that will reduce the percentage of adult Nigerians that are excluded from financial
1
services from 46.3% in 2010 to 20% by 2020 . The number of Nigerians included in the formal sector
will increase from 36.3% in 2010 to 70% by 2020. This goal will be pursued through a broad range of
coordinated interventions, with high priority on the following:

Transformation of existing Know Your Customer (KYC) regulations into a simplified risk-
based tiered framework that allows individuals who do not currently meet formal
identification requirements to enter the banking system.
Development and implementation of a Regulatory Framework for Agent Banking to
enable financial institutions to bring banking services to the unbanked in all parts of the
country.
Development and implementation of a National Financial Literacy Framework to increase
awareness and understanding of financial products and services, with the ultimate goal of
increasing sustainable usage.
Implementation of a comprehensive Consumer Protection Framework to safeguard the
interest of clients and sustain confidence in the financial sector.
Continued pursuance of Mobile Payment System and other Cash-less Policies to reduce
the cost and increase the ease of financial services and transactions.
Implementation of Credit Enhancement Schemes/Programmes to empower micro, small,
and medium enterprises (MSMEs):
o Micro, Small and Medium Enterprises Development Fund (MSMEDF), 60% of which will
support loans from microfinance banks and institutions to women and women-owned
enterprises
o The Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL)
o Entrepreneurship Development Centres (EDCs)
o Restructuring and Refinancing Facilities for SMEs
o SME Credit Guarantee Scheme

The process for developing this strategy was as follows:

i. Status quo analysis, including desk research on best practice financial regulation and policy in
selected countries and identification of gaps in CBN regulation and policy.
ii. Assessment of peer countries for international benchmarking purposes, including Malaysia,
Mexico, Brazil, South Africa, India, Indonesia, the Philippines, Kenya, Ghana, Pakistan, and
Uganda.
iii. Stakeholder interviews with the following organisations: Securities and Exchange Commission,
National Pension Commission, Nigerian Communications Commission, National Insurance

1 This target is part of the CBN's commitment under the Maya Declaration, the first set of global and measurable commitments to
financial inclusion. The Maya Declaration was endorsed by a group of developing nation regulatory institutions during the 2011
Alliance for Financial Inclusion (AFI) Global Policy Forum held in Mexico. Nigeria is a signatory to the Maya Declaration.

vi
 Commission, GTBank, Stanbic Bank, United Bank for Africa, Unity Bank, AB Microfinance Bank,
Fortis Microfinance Bank, LAPO Microfinance Bank, Cornerstone Insurance, GT Assur, Royal
Exchange, ARM Pensions Managers, Airtel Nigeria, MTN Nigeria, Interswitch, Paga, Bureau of
Public Enterprises, National Identity Management Commission (NIMC), NEPAD Business
Group, Nigeria Postal Service, Rural Finance Institution Building Programme, Small and
Medium Enterprises Development Agency of Nigeria (SMEDAN), African Development Bank
(AfDB), Alithea Capital, Consultative Group to Assist the Poor (CGAP), Department for
International Development (DFID), and the German Agency for International Cooperation (GIZ).
iv. Release of the National Financial Inclusion Strategy to stakeholders for comments and input.
v. Summit held to review stakeholder comments/input and finalise the Strategy. Stakeholders
present at the summit included financial services regulators, Federal Government Ministries,
Departments and Agencies (MDAs), Deposit Money Banks (DMBs), microfinance banks and
institutions, development finance institutions, development partners, and others.

The Nigeria's National Financial Inclusion Strategy was drafted using an evidence-based and
analytical approach that considered global best practices.

2. Definition of financial inclusion

For the purpose of the Strategy, “financial inclusion is achieved when adult Nigerians have
easy access to a broad range of formal financial services that meet their needs at an
affordable cost.” The services include, but are not limited to, payments, savings, loans, insurance,
and pension products.

3. Strategy stakeholders and their interests

Various stakeholders participate in the National Financial Inclusion Strategy for a variety of reasons.
The respective rationale for their participation are:

Ÿ Providers: These include institutions that provide financial products and services, as well as their
partner infrastructure and technology. The attraction for providers is the untapped business
potential in serving the majority of Nigerians who are not currently using the identified financial
products and services.

Ÿ Enablers: These are regulators and public institutions responsible for setting regulations and
policies on financial inclusion. Their interest is triggered by the Federal Government's
commitment to make Nigeria one of the top 20 economies by the year 2020.

Ÿ Supporting institutions: These are institutions that enhance and support the CBN's efforts to
achieve the national financial inclusion goals. They include development partners and experts
committed to supporting the Nigerian people and government through technical assistance/aid
and similar programmes.

vii
4. The status of financial inclusion in Nigeria2
A total of 39.2 million adult Nigerians (46.3% of the 84.7 million adult population) were financially
excluded in 2010. Further analysis has revealed that 54.4% of the excluded population were
women, 73.8% were younger than 45 years, 34.0% had no formal education, and 80.4% resided in
rural areas.

5. International benchmarks for financial inclusion

An analysis of global best practices revealed that explosive growth in financial inclusion is possible
through a variety of approaches. The most significant include:

Ÿ A strong uptake of payment services in Kenya, led by mobile network operators and based on
agent networks.

Ÿ Increased payments and savings services in Brazil, driven by agent banking, shared
infrastructure, partnerships between commercial banks and the national postal network, and
government policy that channelled welfare payments through this network.

Ÿ The high impact of tiered KYC regulation and basic savings / transaction accounts such as in
Mexico.

This benchmarking exercise views financial inclusion in Nigeria through a global lens and gives
legitimacy to the proposed strategies for addressing specific financial inclusion gaps.

6. Barriers to financial inclusion

The EFInA Access to Financial Services in Nigeria 2010 Survey categorise barriers to financial
inclusion as follows:

Demand-side barriers that arise for various reasons, such as irregular income, lack of employment,
and low literacy levels.

Supply-side barriers brought about by long distance to financial access points, the prohibitive cost
of financial services, and inappropriate financial products
Regulatory barriers such as cumbersome KYC requirements, lack of trust in financial services
providers, and high rates of corruption.

2 EFInA Access to Financial Services in Nigeria 2010 Survey

viii
7. National Financial Inclusion Strategy targets
The major targets of the Strategy are:

TARGETS
2010 2015 2020
Payments 21.6% 53% 70%
% of total Savings 24% 42% 60%
adult Credit 2% 26% 40%
Pop. Insurance 1% 21% 40%
Pensions 5% 22% 40%
Bank branches 6.8 7.5 7.6
Units per MFB branches 2.9 4.5 5.0
100,000 ATMs 11.8 88.5 203.6
adults POS 13.3 442.6 850.0
Mobile Agents 0 31 62
% of Pop. KYC ID 18% 59% 100%

8. Strategies for achieving the financial inclusion targets

In pursuing the stated targets, efforts will be concentrated in the following areas:
Ÿ Agent banking – Agent banking is the delivery of banking services outside traditional bank
branches through touchpoints such as existing retail stores and petrol stations or via
technology such as 'Point of Sale' (POS) devices and mobile phones.
Ÿ Mobile banking / mobile payments – Access to financial services through mobile phones
that are either directly linked to a bank account or the use of mobile wallets as intermediary
virtual money accounts.
Ÿ Linkage models – Enhancement of financial and business cooperation between traditional
financial institutions (Deposit Money Banks or Development Finance Institutions),
government and microfinance banks/institutions for providing wholesale funding for on-
lending transactions.
Ÿ Client empowerment – More people are brought into the formal financial system through
coordinated national financial literacy initiatives complemented by consumer protection
programmes and policies

9. Implications for regulation and policy in Nigeria

To implement the strategies and achieve the defined targets, priorities have been set to implement
guidelines and frameworks for:
Ÿ tiered KYC regulations
Ÿ agent banking regulation
Ÿ national financial literacy strategy
Ÿ consumer protection
The mobile payment system and other cash-less efforts will also be vigorously pursued, and
providers will be supported and guided in pilot testing relevant business models, buoyed by the

ix
implementation of global peer learning programmes.

10. Monitoring and evaluation

To ensure impact and proper strategic direction, the Financial Inclusion Secretariat will conduct
ongoing monitoring and evaluation. The process will follow these steps:
Ÿ Biannual collection of comprehensive data from industry stakeholders
Ÿ Distillation of key performance indicators from industry data
Ÿ Comparison of results with defined indicator targets
Ÿ Analysis of gaps and trends
3
Ÿ Annual reporting to the Financial Services Regulation Coordinating Committee
(FRSCC) and the National Economic Council4
Ÿ Suggestions to increase target achievement rates, such as necessary measures to be taken,
changes in priorities, or a partial review of the strategic direction

11. Organisational framework for institutionalising the National Financial Inclusion

Strategy
A Financial Inclusion Secretariat will be set up within the CBN to take responsibility for day-to-day
reporting, coordination, and implementation work. Its activities will be supervised by the Financial
Services Regulation Coordinating Committee (FSRCC), which will in turn, provide updates to the
National Economic Council (NEC).

3 FSRCC members include: Central Bank of Nigeria, Federal Ministry of Finance, Nigeria Deposit Insurance
Corporation, Securities and Exchange Commission, National Pension Commission, Commissioner for Insurance,
Corporate Affairs Commission, Abuja Securities and Commodities Exchange, Nigerian Stock Exchange, and Federal
Inland Revenue Service.
4 National Economic Council members include: Vice President, Federal Ministry of Finance, Central Bank of Nigeria,
and State Governors

x
1.0 INTRODUCTION
The purpose of Nigeria's National Financial Inclusion Strategy (FIS) is to set a clear agenda
for significantly increasing access to and usage of financial services by 2020.

1.1 Definition of Financial Inclusion

Financial inclusion is achieved when adults1 have easy access to a broad range of formal
financial services that meet their needs and are provided at an affordable cost.

The definition of financial inclusion used in the FIS includes the following elements:
i. Ease of access to financial products and services
Financial products must be within easy reach of all segments of the
population and should not have onerous requirements.2
ii. Use of a broad range of financial products and services
Financial inclusion implies not only access but usage of a full spectrum of
financial services including, but not limited to payments, savings, credit,
insurance, and pension products.
iii. Financial products designed according to need
Financial products must be designed to meet the needs of clients and
should consider income levels, as well as access to distribution channels.
iv. Affordable
Financial services should be affordable even for low-income groups.

1.2 Strategic Objectives

To set a clear agenda to significantly increase access to and use of financial
services by 2020;
To ensure that the concerns and inputs of all stakeholders are considered and
that roles and responsibilities are defined before financial inclusion regulations
and policies are established; and
To outline a framework for increasing the formal use of financial services from
36.3%3 of the adult population in 2010 to 70% by 2020.

1.3 How the National Financial Inclusion Strategy Supports CBN Objectives
Increasing financial inclusion will support the CBN in achieving its core mandates in the
following ways:

1
Adults refer to persons 18 years of age and older. Persons under the age of 18 (minors) require an adult to ratify legal contracts and cannot
hold a bank account independently. Bringing minors into the financial system will require amendments to Nigeria's existing laws.
2
Ease of access refers to challenges such as KYC (Know Your Customer) procedures and physical distance.
3
EFInA Access to Financial Services in Nigeria 2010 Survey

1
 HOW FINANCIAL INCLUSION ADDRESSES THE CBN
OBJECTIVES OF THE CBN
OBJECTIVES

§ The CBN will be better able to influence savings, investment and

§ Ensure monetary and price consumption behavior through interest and exchange rate
stability changes, a direct result of the increased participation of
Nigerians in the formal financial sector

§ Issue legal tender currency in § Increased penetration of e-payments use and cashless efforts will
reduce the cost of cash management and thereby reduce the
Nigeria cost of issuing legal tender

§ Maintain external reserves to § Increased access to finance for MSMEs as a result of financial
inclusion (credit made on the back of mobilized savings) will lead
safeguard the international to greater productivity, increased non-oil exports/foreign
value of the Naira exchange earnings and this will stabilize the value of the Naira

§ Promote a sound financial § Financial inclusion will lead to the development of a stable
financial system funded by non-volatile savings that are robust
system in Nigeria and provide cushion against external shocks

§ Provide economic and financial § The CBN will be better able to advise the government as
advice to the Federal increased participation in formal finance will produce a more
Government complete picture of the country’s economic performance.

The mandate of the Central Bank of Nigeria (CBN) is derived from the 1958 Act of Parliament, as amended in 1991, 1993, 1997, 1998, 1999 and 2007
Source:Central Bank of Nigeria

Figure 1: How financial inclusion supports CBN objectives

2
2.0 STRATEGY STAKEHOLDERS AND THEIR INTERESTS
The stakeholders involved in enhancing financial inclusion, as defined by FSS 2020, are: banks,
other financial institutions, the insurance industry, financial regulators, technology/
telecommunications firms, public institutions, and development partners/experts (see Figure 2):

BANKING
§ Deposit Money Banks
§ Primary mortgage institutions
§ Microfinance banks
OTHER FINANCIAL INSTITUTIONS INSURANCE
§ Discount houses § Insurance companies
§ Pension Fund Administrators § Loss adjusters
§ Development finance institutions § Insurance agents
§ (BOA, BOI, NEXIM, FMBN) REGULATORS
CBN, NDIC, NAICOM,
PenCom, NIMC, NCC,
TECHNOLOGY/
Self Regulatory
TELECOMMUNICATIONS FIRMS DEVELOPMENT PARTNERS
Organizations
§ Settlement providers & EXPERTS
§ ATM service providers § International finance agencies
§ Mobile service providers § Donor institutions
§ E-payment/e-channel operators § Consulting companies, advisors
PUBLIC INSTITUTIONS
§ Federal ministries
§ Government agencies and
programmes
§ Nigerian Postal Services

Figure 2: Financial inclusion stakeholders in Nigeria

Some of the major Financial Inclusion Strategy stakeholders and their interests include:

Ø Deposit Money Banks (DMBs)

Currently, 21 Deposit Money Banks are serving about 20 million clients through a network of
about 6,000 branches and 10,000 ATMs4. With an adult population of over 84.7 million, this
shows that a large part of the banking market in Nigeria is still untapped. This has the
potential to become a major funding base through the mobilisation of savings, and a source
of profit for commercial banks and other financial services institutions.

Ø Microfinance Banks (MFBs)

As of July 2011, Nigeria had 866 microfinance banks (MFBs)5 and the MFB network served
6
only 3.8% of the adult population (3.2 million clients). Of these 3.2 million clients, 65% used
savings products, 14% used credit products, and 4% used ATM cards.

The vast majority of MFBs can increase their scale and operating capacity by taking
advantage of the opportunities provided by the Financial Inclusion Strategy.

4
Central Bank of Nigeria
5
Central Bank of Nigeria
6
EFInA Access to Financial Services in Nigeria 2010 Survey

3
Ø Development Finance Institutions (DFIs)
There are five Development Finance Institutions (DFIs) in Nigeria that channel financial
resources to critical sectors of the economy that would otherwise not be served by the
banking sector. The Financial Inclusion Strategy can help DFIs harmonise multiple
interventions and increase their impact on the economy.

Ø Microfinance Institutions (MFIs)

Non-bank microfinance institutions (MFIs), which include financial NGOs, financial
cooperatives, self-help groups, trade associations, and credit unions, are not regulated by
the Central Bank of Nigeria. Over 600 MFIs are currently being monitored by CBN. MFIs may
benefit from the Financial Inclusion Strategy through increased technical assistance and
funding for more effective and efficient member outreach.

Ø Insurance
Nigeria's recapitalisation exercise of 2007 consolidated the insurance industry into 49
7
companies . However, as of December 2010, these companies served only 1% of the
population.8 With 99% of the population still unserved, there is a large untapped market and
enormous business potential for the insurance companies.

Ø Pensions
The 2004 Pension Reform Act established the Compulsory Pensions Scheme (CPS), which
has largely been adopted by the Federal Government and the private sector. Annual
pension contributions grew from NGN 60 billion in 2006 to NGN 290 billion in 2010.9
However, only 17 of the 36 State Governments and the Federal Capital Territory have passed
bills to adopt and implement the CPS.

The current pension system makes allowances for voluntary contributions, which can be
tapped by both the formal and informal sectors in Nigeria. Pension Fund Administrators and
Custodians can expand their outreach to this untapped market with appropriately targeted
products.

Ø Technology and Telecommunication Companies

There are nine mobile network operators (MNOs) in Nigeria. MTN, Globacom, and Airtel are
the market leaders, with a combined market share of approximately 85%. Payment
processing is handled by four companies: Interswitch, Valuecard, Cams, and eTranzact.
10
Between 2006 and 2010, the sector experienced 38% CAGR in the total number of
11
subscribers and 27% CAGR in tele-density.

MNOs could benefit from the Financial Inclusion Strategy through increased fee revenues
that would be generated as a result of offering payments services.

7
National Insurance Commission (NAICOM)
8
EFInA Access to Financial Services in Nigeria 2010 Survey
9
National Pension Commission (PenCom)
10
Nigerian Communication Commission (NCC)
11
Nigerian Communication Commission (NCC)

4
In addition, there would be an increase in client acquisition and retention through more
attractive product offerings.

Ø Public Institutions
Participation in the Financial Inclusion Strategy would help relevant public institutions
achieve their mandates. These institutions include the Small and Medium Enterprise
Development Agency of Nigeria (SMEDAN), the National Identity Management Commission
(NIMC), and the Nigeria Postal Service (NIPOST).

Ø Development Partners
Various development partners support financial inclusion initiatives and the Strategy
provides a blue print for their interventions thereby assisting them in achieving their
objectives.

5
3.0 THE CURRENT STATE OF FINANCIAL INCLUSION IN NIGERIA
In the provision of financial services, Nigeria lags behind some of its peer countries in Africa.
In 2010, for instance, only 36.3% of the country's adult population12, (30.7 million) out of 84.7
million (Figure 3 and 4)— were served by formal financial services compared to 68% in
South Africa and 41% in Kenya.13

53.7% Financially Served 46.3% Financially Excluded

36.3% Formally included

Banked Formal Other Informal only Excluded

30.0% 6.3% 17.4% 46.3%

25.4m 5.3m 14.8m 39.2m

Formal Other Informal Only

Formally Banked
Adults who have access to or use Adults who have access to or use Completely excluded
Adults who have access to or use
formal financial services and any unregulated financial institution Adults without formal or informal
financial services supplied by
financial products not supplied by or informal service such as financial products
Deposit Money Banks
Deposit Money Banks cooperatives or moneylenders

Figure 3 : The state of financial inclusion in Nigeria 14

Banked 25.4m

30.0%
Formally
included
30.7m
36.3% 6.3%
Financially
Served Formal Other
45.5m 5.3m
17.4%
53.7%
Informal Only
Adult 14.8m
Population
84.7m
46.3%
Financially
Excluded
39.2m

Figure 4 : Financial products and services usage by category15

Between 2008 and 2010, the percentage of “completely excluded” fell from 53% to 46.3%,
while those served by the “informal sector” fell from 24% to 17.4%.16 At the same time, “formal
17
other” doubled from 3% to 6.3%.
12
EFInA Access to Financial Services in Nigeria 2010 Survey
13
EFInA Access to Financial Services in Nigeria 2010 Survey
14
EFInA Access to Financial Services in Nigeria 2010 Survey
15
EFInA Access to Financial Services in Nigeria 2010 Survey
16
EFInA Access to Financial Services in Nigeria 2008, 2010 Surveys
17
EFInA Access to Financial Services in Nigeria 2008, 2010 Surveys

6
3.1 Geographical Differences in Financial Inclusion
The population of Nigeria is distributed unevenly, with an average population density of 150
per square kilometres. Densely populated states include Lagos, Anambra and Akwa Ibom.
The urbanisation rate was estimated at 49% in 2009 and is expected to rise to 75% by 2050.
By this time, Nigeria is expected to be among the 20 most urbanised countries in the world.

Financial inclusion is most advanced in Nigeria's urban areas, especially in the Southern
parts of the country. Northern Nigeria is particularly disadvantaged, with 68% of adults
excluded in both the North-East and North-West regions.

Formal inclusion rates range from 49% in the South-West Region to only 19% in the North-
West Region. The “informally included” primarily live in the North-Central region, where 23%
of adults have access to only informal services.

Sokoto
North West North East
Formally banked: 13% Katsina Formally banked: 15%
Formal other: 6% Zamfara Jigawa Yobe
Kebbi
Borno Formal other: 6%
Informally served: 13% Kano
Informally served: 11%
Financially excluded: 68% Financially excluded: 68%
Bauchi
Gombe
Kaduna
North Central Niger South East
Formally banked: 27%
Plateau Formally banked: 41%
Formal other: 6% Adamawa
Kwara FCT Formal other: 6%
Informally served: 23% Nasarawa Informally served: 21%
Financially excluded: 44%
Oyo Taraba Financially excluded: 32%
Ekiti Kogi
Osun
Benue
South West Ogun
Formally banked: 42% Ondo South South
Enu-
Formal other: 7%
Lagos Edo
Ana-gu Formally banked: 39%
Informally served: 18%
mbra Ebonyi Formal other: 6%
Cross
Financially excluded: 33% Delta Imo Abia River
Informally served: 19%
Financially excluded: 36%
Akwa
Baye- Ibom
lsa Rivers

The financial exclusion rate is worse in the Northern part

of the country, where 68% of the population is excluded
from financial services in both the North East and North Source: EFInA 2010 Access to Finance Survey
West Regions. This is more than double the percentage
of people excluded in the South West (33%) and the
South East (32%)

Figure 5: Financial inclusion in Nigeria by region18

The vast majority (80.4%) of those who are fully excluded

19,6% from formal and informal financial services live in rural
areas. There are three possible explanations for this.
First, the physical distance to bank branches in most rural
areas makes it difficult and expensive to access financial
services. Second, lower levels of economic activity in rural
80,4% areas limit the profit potential of financial institutions.
Third, education levels and financial literacy are typically
lower in rural areas, making it less likely that clients will
make use of financial products and services.
Rural Urban
19
Figure 6: Geographical distribution of the financially excluded

18
EFInA Access to Financial Services in Nigeria 2010 Survey
19
EFInA Access to Financial Services in Nigeria 2010 Survey

7
 20
3.2 Characteristics of the Financially Excluded
A major feature of the access to financial services in 2010 was that 30% of adult Nigerians
had banking services while 2.8% that previously had access to banking services had
dropped out.

30.0%

Currently
Banked

Never Previously
Banked Banked
2.8%

67.2%

Figure 7: Levels of financial exclusion in Nigeria

A total of 39.2 million adults (46.3% of the adult population) were excluded from financial
services in Nigeria as at 2010. Out of this, women account for 54.4%, younger adults (those
under 45 years), 73.8% and the uneducated (have no formal education), 34%.

GENDER LEVEL OF EDUCATION AGE

No Formal 18-24
34,0% 32,6%
education Years

25-34
up to 25,1%
23,4% Years
primary
education
23,4%
45,6% 35-44
Years
16.1%
up to
54,4% secondary 37,6%
education 45-54
Years 12,7%
up to
tertiary 3,1% 55-64
education Years 7,8%
Female Male
65 years
Others 1,8% and 5,7%
above

Figure 8 : Characteristics of the financially excluded

There are two key demographic trends that have implications for financial inclusion:
A relatively young population that is rapidly urbanising.
Nigeria is the world's tenth most populous country. According to the National
Population Commission, Nigeria's population grew from 140.4 million in 2006 to
167.9 million by the end of October 2011. Of this number, 82.1 million were females
and 85.8 million were males. At an annual growth rate of 3.2% (the rate used by the
Commission in 1991 and 2006), Nigeria's population is expected to reach 221.4
million by 2020.

20
EFInA Access to Financial Services in Nigeria 2010 Survey

8
 Fertility in Nigeria remains high and unchanged over almost two decades: 5.9 births
per woman in 1991 and 5.7 births in 2008. On the average, rural women have two
more children than urban women (6.3 versus 4.7).

3.3 Financial Sector Infrastructure

The existing banking infrastructure has the capacity to expand financial inclusion throughout
the country. As of December 2010, Nigeria had a combined total of 5,797 bank branches,
9,958 ATMs, and 11,223 POS terminals.21 Although the banked population has grown faster
than the bank branch network, the infrastructure is operating below its potential and has the
capacity to serve more clients. The average number of clients per branch was 3,882
compared to 3,922 in Kenya and 8,595 in Tanzania. To reach best-in-class levels, the
average branch should serve more than double the number of clients it does today.

GROWTH OF BANKING CUSTOMERS [IN MN]

84.7
+24% CAGR 25.4
18.0 18.0
8.0 9.0 11.0
7.0

2004 2005 2006 2007 2008 2009 2010 Potential:

Total adult
population
Banked population

GROWTH OF BANKING BRANCHES

+10% CAGR 5.500 5.797
3.367 3.535 4.348 4.591
3.247

2004 2005 2006 2007 2008 2009 2010

Bank branches

Source: CBN, Bank Annual Reports, EFinA Access so Financial Servcies inNigeria 2010

Figure 9: Banking customers and branch infrastructure in Nigeria

3.4 Regulation and Policy

Currently, there are no specific regulations and policies on financial inclusion in place.
Although many regulations and policies have an impact on financial inclusion, particularly
those that focus on distribution channels such as ATMs or POS devices. However, there are
no policies and regulations specific to retail agent banking. A review of initiatives that came
into effect due to regulation and policy on increasing access to finance have revealed that
monitoring and impact assessments were inadequate.

Globally, one of the catalysts for financial inclusion has been savings mobilisation policies
and programmes. However, in Nigeria, most intervention programmes are geared towards
credit enhancement. Despite focused investment in credit schemes and policies, the impact

21
Central Bank of Nigeria

9
of these schemes appears to be limited considering the scale of financial exclusion in
Nigeria.

The impact of these regulations and policies has been analysed in relation to the following
factors (see Figure 10):
distribution channels
financial services and products
financial literacy and consumer protection

10
 Insurance / Financial Consumer Sector
Branches ATMs POS Agents Savings Credit Payments Pension Literacy Protection Robustness
Microfinance Policy Framework 2005
Rev. Microfinance Policy Framework 2011
ACGSF 1990
CACS 2009
NIRSAL 2011
SMECGS

DFD
Intervention Fund 2011
RUFIN 2010
EDC 2008
Microfinance Development Fund 2008
Infrastructure Fund
Mobile Payment 2009
ATM Deployment 2009
ATM Operations 2011
Guidelines on Transct. Switch. Serv. 2009
POS Acceptance Card Serv. 2011

BPS
Nigerian Central Switch
Electronic Banking
e-Payments

11
Cashless Banking Policy
Banking Supervision Framework 2008
Review of Universal Banking Model 2010
Know Your Customer
Advance Fee, Fraud & oth. rel. Offenses

BSD
Rev. Anti -Money Laundry Act 2009
Dud Cheque Act 2009
NIFI
OFISD Supervision of MFB
Credit Bureaus
STGY Global Shared Services
NIMC National Identity Management Com. Act
CPC Consumer Protection Council Act
NDIC NDIC Act
NCOM NAICOM
PENCOM Pension Reform Act
SEC SEC
NIPOST NIPOST Reform Bill
SMEDAN SMEDAN Act
NAPEP National Poverty Eradication Programme

Figure 10: Regulation and policy impacting financial inclusion in Nigeria

4.0 INTERNATIONAL BENCHMARKS FOR FINANCIAL INCLUSION
Globally, financial inclusion has moved into the mainstream. Many countries have taken
action to increase access to and use of financial services. FinScope data on financial
inclusion in sub-Saharan Africa provides an initial basis for comparison (Figure 11).

South Africa 09 63% 5% 9% 24%

Uganda 09 21% 7% 42% 30%

Botswana 09 41% 18% 8% 33%

Kenya 09 23% 18% 26% 33%

Ghana 10 34% 7% 15% 44%

Nigeria 10 30% 7% 17% 46%

Namibia 07 45% 2% 52%

Rwanda 08 14% 7% 27% 52%

Malawi 08 19% 7% 19% 55%

Tanzania 09 12% 4% 28% 56%

Zambia 09 14% 9% 14% 63%

Mozambique 09 12% 9% 78%

Banked; served by deposit money banks Formal other; served by formal institutions
other than deposit money banks
Informal only; served by informal providers Financially excluded; unserved by formal
or informal providers

Source: Finscope Studies, EFInA Access to Financial Services in Nigeria 2010

Figure 11: Financial inclusion in sub-Saharan Africa by country22

The existing assessment identifies any person who uses at least one formal financial product
as financially included. Differences in quantity and quality of inclusion can only be identified
when country data is stratified.

Some countries, such as Malaysia and Brazil, have made significant progress in financial
inclusion (see Figure 13). Since there are no global benchmarks for financial inclusion, it is
analysed by products, channels, and client-focused regulations and policies.23

4.1 Products
Payments – 21.6% of Nigeria's adults currently utilise formal payments,24 lagging behind
South Africa and Kenya, which have both reached 46% penetration. Despite the high
penetration of mobile phones in Nigeria, mobile banking has not gained equivalent
momentum. Mobile payments are still a relatively new service in Nigeria and have not yet
significantly impacted on the mainstream financial system.

22
EFInA Access to Financial Services in Nigeria 2010 Survey, Finscope data used for other countries
23
To select the benchmark countries, two best-in-class countries for each product were identified from among emerging markets. In
addition, where data was available, three anchor countries were included: Indonesia (as a top 20 world economy), Kenya, and South
Africa (both peers for financial development in sub-Saharan Africa). The analysis is based on available data from FinScope surveys in
African countries, as well as IFC Access to Finance 2010 for comparison and the GSMA database for supply side data.
24
EFInA Access to Financial Services in Nigeria 2010 Survey

12
 Formal Informal Unserved

South Africa 09 59% 2% 39%

Kenya 09 35% 65%

Nigeria 10 22% 78%

Uganda 10 33% 67%

Ghana 10 28% 72%

Tanzania 09 9% 13% 78%

Rwanda 08 12% 88%

Zambia 09 6% 93%
1%

Figure 12 : Access to transaction services in selected countries25

Malaysia 60
Kenya 46
South Africa 46
Brazil 43
Indoniesia 40
Mexico 25
Nigeria 0

Figure 13 : M-payments users as a percentage of the adult population

Savings – Nigeria is an average performer in Africa in terms of access to formal savings

products. Furthermore, when compared to Malaysia – the best in class – Nigeria still has a
long way to go. Malaysia has 2,063 savings accounts per 1,000 people compared with 461
per 1,000 people in Nigeria (Figure 15).

Formal Formal other Informal Unbanked

Kenya 09 36% 12% 40% 12%

8% 21% 47%
Ghana 10 25%

Rwanda 08 26% 5% 13% 56%

Nigeria 10 24% 19% 58%

Uganda 10 17% 4% 31% 48%

South Africa 09 20% 10% 70%

24% 59%
Zambia 09 10% 7%

10% 83%
Tanzania 09 7%

Source: World Bank/CGAP, FinScope, EFinA Access to Finance in Nigeria 2010 Survey

Figure 14 : Access to savings in selected countries

25
Remittances used as a proxy for transactional services in the strand. Access strand figures from FinScope, M-payments figures from
Financial Access Survey 2010, World Bank/ CGAP

13
 Malaysia 2,063
Mexico 1,096
South Africa 839
Indonesia 505
Nigeria 461
Kenya 381
Source: WorldBank/CGAP, FinScope, EFinA Access to Finance in Nigeria 2010 Survey

Figure 15 : Savings accounts with commercial banks in 2010 per 1,000 adults26
27
Credit – Nigeria has very low credit penetration, with only 2% access to formal products.
This is compared to 16% in Tanzania and 32% in South Africa. With 15 loan accounts at
commercial banks per 1,000 adults, Nigeria's rate is much lower than Malaysia, which has
963 loan accounts per 1,000 adults (See Figure 16).

Formal Formal other Informal Unbanked

Uganda 09 5% 32% 7% 56%

South Africa 09 32% 26% 42%

Tanzania 09 16% 2% 82%

Kenya 09 3% 5% 24% 28% 68% 63%

Zambia 09 2% 6% 10% 82%

Ghana 10 4% 3% 6% 87%

Rwanda 08 3% 1% 8% 88%

Nigeria 10 2%2% 96%

Figure 16 : Access to loan products in selected countries

Malaysia 963
Brazil 533
Mexico 344
Indonesia 196
Kenya 75
Nigeria 15
Figure 17 : Loan accounts with commercial banks per 1,000 adults28

Insurance – With the exception of South Africa, where insurance penetration (Figure 19) is
30%, insurance penetration across Africa is relatively low. Nigeria's insurance sector has
only 1% penetration, which compares poorly to other peer countries. Low insurance literacy,
low client trust in the insurance industry, and lack of suitable insurance products are
considered the major reasons why insurance use in Nigeria remains low.
26
Access strand figures from FinScope, M-payments figures from Financial Access Survey 2010 from World Bank/ CGAP
27
Central Bank of Nigeria and FSS 2020 Blueprint for Nigeria's financial system
28
Access strand figures from FinScope, the loan accounts figures from Financial Access Survey 2010 from World Bank/ CGAP and Central
Bank of Nigeria

14
 Formal Formal Other Informal Uninsured

South Africa 09 36% 8% 56%

Kenya 09 7% 93%

Tanzania 09 6% 1% 93%

Ghana 10 4% 1% 95%

Zambia 09 4% 96%

Uganda 09 3% 22% 75%

Nigeria 10 1% 99%

1% 82% 17%
Rwanda 08
Source: Swiss Reinsurance Company Ltd., EFinA Access to Finance in Nigeria 2010 Survey
Figure 18 : Access to insurance services in selected countries

South Africa 30
Brazil 24
Malaysia 21
Mexico 14
Kenya 2
Nigeria 1
Source: Swiss Reinsurance Company Ltd., EFinA Access to Finance in Nigeria 2010 Survey
Figure 19 : Estimated percentage of the adult population using insurance in 201029

Pensions – The Nigerian Pension Scheme, which is based on the Chilean pension system,
is in early stages of development, with approximately 5% penetration. Chile's pension
assets, 27 years after the pensions system was implemented, account for 44% of GDP
compared to 4% in Nigeria after five years. However, the Nigerian pension system has not
yet implemented a social pension fund, which is a vital component of the Chilean model.
Given the potential of the Nigerian pension system and the experience of Chile, it is expected
that Nigeria will move quickly and attain higher coverage over the next few years.

Chile 39%
South Africa 37%
Argentina 35%
Mexico 24%
China 15%

Brazil 6%
Nigeria 5%

Figure 20: Estimated percentage of the adult population contributing to pensions in 200930
29
Access strand figures from FinScope. Share of population using insurance figures from SwissRe 2011 and EFinA 2010.
30
PenCom Annual Report 2009 figures for Nigeria, BGL Pension Report 2010 figures used for other countries. Pension coverage does
not change for Nigeria in 2010.

15
4.2 Channels
Branches – Growth in Mexico, South Africa, and Kenya has been driven by competition in
the banking sector rather than by regulation or policy. The belief that branches are key to
maintaining brand market share and customer relationships has sustained branch
expansion, even in markets with strong branchless banking networks such as Brazil and
Kenya. Branches in Nigeria are predominantly upscale and expensive, and the mini-
branch31 concept is not yet widespread which has limited branch growth. With only 6.8
branches per 100,000 adults in 2010, compared with 15.2 in Mexico, 13.8 in Brazil, and 12.4
in Indonesia, there is a lot of room for Nigeria to expand its branch network.

Mexico Brazil Nigeria Indonesia South Africa Kenya

+6% +1%
15.2 +12%
14.5 13.3 13.5 13.9 13.8
12.8 13.8 12.4 +19%
+5% 10.9
8.9 9.7 9.4 10.1 +10%
7.9
6.7 6.8
5.8 6.5 6.1
4.9 5.1
3.9 4.5

07 08 09 10 07 08 09 10 07 08 09 10 07 08 09 10 07 08 09 10 07 08 09 10

Source: world bank Central Bank of Kenya, Central Bank of Nigeria

Figure21 : Commercial bank branches per 100,000 adults

ATMs – ATM penetration in Nigeria is still very low compared with the benchmarked
countries. While Brazil had 120.6 ATMs per 100,000 adults, Thailand 77.7, and South Africa
59.6, Nigeria had only 11.8 (Figure 22). The introduction of Visa cards in Thailand drove ATM
penetration while growth in South Africa and Kenya was driven by demand and sector
competition. In South Africa, the spread of ATMs has been enhanced by regulations that
specify a target number of ATMs per 100,000 people and per 1,000 sq km.

Brazil Thailand Nigeria Indonesia South Africa Kenya

+3%

112.1
110.0 115.4 120.6 +18%
+25%
74.4 77.7
66.2 59.6
47.8 +33% +5% 44.1 52.6 +22%
30.8
12.3 11.8 11.6 13.3 14.3 13.4
5.1 9.5 5.3 6.8 8.5 9.6

07 08 09 10 07 08 09 10 07 08 09 10 07 08 09 10 07 08 09 10 07 08 09 10

Source: Banco Central do Brazil, Bank of Thailand, Central Bank of Kenya, World Bank

Figure 22 : ATMs per 100,000 adults

31
While there are various “mini branch” concepts in place around the world, we understand them as brick and mortar banking
infrastructure that offers a limited set of financial products and services and does not exceed five staff, not including agents that may
be linked to the branch.

16
POS – Regulation allowing retail agents to offer banking services facilitated the growth of
POS terminal penetration in Brazil, which reached 2,193 per 100,000 adults in 2010. POS
penetration in Mexico was driven by sharp increases in card use, supported by tax incentives
for branchless banking initiatives. A concerted effort is required to raise POS penetration in
Nigeria from 13 per 100,000 adults (2010 figures). It is expected that initiatives to increase
POS penetration, the cash-less policy in particular will bridge the gap between Nigeria and its
peers.
Brazil Malaysia Nigeria Mexico South Africa Kenya

+11%
2,193
2,085
1,982
1,582 +11% +14%
+5% 850
790
720 716 744
670 +11%
+12% 615 643 631 651
580 569
9 63 71 79 88
15 14 13

07 08 09 10 07 08 09 10 07 08 09 10 07 08 09 10 07 08 09 10 07 08 09 10

Source: Central Bank of Kenya, Banco Central do Brazil, Central Bank of Malaysia

Figure 23: POS devices per 100,000 adults

Agents – There are currently no regulations for agent banking in Nigeria, but the CBN is
working on guidelines for implementing an agent banking framework. This has great
potential to enhance access to and increase in the use of financial services across the
country.

Kenya ‘10 154

Brazil ‘10 122
South Africa ‘08 16
Philippines ‘08 12

Source: Central Bank of Kenya, Banco Central do Brazil CGAPBill and Melinda Gates Foundation
Figure 24: Agents per 100,000 adults32

4.3 Financial Inclusion Enablers

Know Your Customers (KYC) – The banking industry in Nigeria relies on uniform KYC
requirements, which do not take transaction type and risk into account. Most countries that
have made progress in financial inclusion have adopted risk-based approaches to KYC. This
has not only maintained the integrity of financial systems, but opened up eligibility
requirements to bring more people into the banking system. For example, Mexico, Brazil,
and Pakistan KYC requirements are based on the value of transactions (Figure 25).

32
Central Bank of Kenya, Banco do Brasil, CGAP, Bill and Melinda Gates Foundation

17
 UNIFORM APPROACH
Level Restrictions KYC Requirement

All Banking All Banking Certainly of identity, mandate to inquire about nature of business ,
NIGERIA Services expected transactions and sources of income, identification based on
Services
official documents and physical evidence like address visits

RISK-BASED/TIERED APPROACH
Level 1 account USD 315 total No compulsory/KYC requirements
Level 2 account USD 470 p.m Name, date of birth, address - 24 months validation time
MEXICO
Level 3 account USD 950 p.m
Name, date of birth, address - validate by official ID system
Level 4 account USD 3,150 p.m Full KYC - maybe contracted by agents within, no copies necessary

Simplified Account USD 500 max balance Only governmental Id must be presented within six months time, can
be performed by agents
BRAZIL
Regular Account All banking services Full KYC

USD 750 max. balance

Level 1 account USD 75(d)/150(m) trans Copy of computerised ID Card plus photo finger print by agent
PAKISTAN Level 2 account All Basic services Full KYC - financial institution sets limits for ‘customer profiles’
Level 3 account All business services Full KYC - additional KYC and limits by financial institution

Figure 25: Benchmarking KYC requirements

Consumer protection – Consumer protection is considered an integral component for

enhancing financial inclusion and, as countries such as Albania and India have discovered, a
lack of consumer protection can undermine financial inclusion objectives (see Figure 26).
Currently, there is no central consumer protection council in Nigeria that focuses specifically
on the financial services industry. Instead, regulators serve their respective sectors, such as
the Consumer Protection Department within the CBN.

Selected topics Key issues Examples KEY INSIGHTS

Product transparency Monitoring methods
§ Language
I Albania § Over-indebtedness
§ Rights and processes § Require FIs to report to § Collapse of and loss of savings
the CBN consumer unregulated pyramid are primary risks of
Savings and loans protection ombudsman savings schemes led using financial
§ Interest calculations to national unrest services
§ Fees and penalties § Operate call center
§ Monitor advertisements 360 killed and 3500
§ Quick wins in
Periodic disclosure § On site inspections injured in 1997
Financial Inclusion
§ Product conditions § Mystery shopper
§ Fee / penalty income can be marred if
§ Consumer interviews consumers are not
Unfair treatment educated on products
§ Advertising Action for enforcement II India and protected
§ Collection practices § Andhra Pradesh accordingly
§ Issue warning to FI
Complaint resolution § Refund of charges provides an example
of microfinance § Therefore, giving
§ Procedures / processes § Withdrawal of offerings
§ Timeliness of response failure clients access to
§ Impose fines / penalties formal consumer
Third party recourse § Public notice of violation § Variety of reasons protection serves to
§ Ombudsman § Withdraw license were adduced for protect them from
§ Mediation services collapse of the sector over-indebtedness
– including lack of and loss of savings
consumer protection

Figure 26 : Key elements of consumer protection

18
Financial literacy – Financial literacy is another central pillar of financial inclusion,
particularly when it is coupled with consumer protection. National financial literacy levels
have not been measured in Nigeria. A variety of financial literacy initiatives have been
launched, but the full impact of these initiatives is yet to be determined. The importance of
financial literacy to financial inclusion, and the key elements of financial literacy are detailed
in Figure 27.

Targets Players Tools KEY INSIGHTS

Product understanding Government Face-to-face § Financial literacy is

§ Awareness of product § Literacy training in schools § Classroom training
a key element of
existence and purpose and public institutions § Individual training
§ Product expenses § Media campaigns financial sector
§ Provide neutral information stability
Information access
§ Know where to look for Regulators Public media § The major
relevant information § Enforce transparency § Radio campaigns challenge lies in
§ Supervise disclosure of § Newspaper adds monitoring the
financial institution § Road shows impact of financial
Business planning information
§ Business cash-flows literacy initiatives
§ Household expenses Retail institutions Multimedia § Consensus will
§ Provide product information § DVD training
need to be reached
Informed decisions
§ Literacy training for clients § Social networks 19 on the costs and
§ SMS
§ Awareness of different benefits of
financial options measuring financial
Social partners / NGOs Material literacy
§ Offer neutral information § Dummy ATMs
See consequences § Watch abusive practices § Brochures
§ Understand relevance of bad § Posters
financial decisions

Figure 27 : Key elements of financial literacy

19
5.0 MAJOR CHALLENGES TO FINANCIAL INCLUSION IN NIGERIA: ISSUES AND
EVIDENCE
The EFInA Access to Financial Services in Nigeria 2010 Survey identified five major barriers
to financial inclusion: low and irregular income, physical access, financial literacy,
affordability, and eligibility (Figure 28). Of these, the three most significant are accessibility,
eligibility and financial literacy.

HURDLES TO INCREASING
FINANCIAL INCLUSION
48%
§ Income
– 23.6% of the adult population earn
less than USD 2 per day
34%
– 10.9% of adults have no income
27% § Physical access
– Low banking density - the average
distance to a branch is >10 km
13% 14% – 79% of rural dwellers are unbanked
8%
10% § Financial literacy
6% – Lack of clear understanding of
financial institutions and products
– Lack of trust
Irregular No job Too far Transport Illiterate Lack of Expensive Document-
income costs trust to ation § Affordability
have – Fees for ATM cards/transactions
– Minimum balances required
Income Physical Financial Afford- Eligibility
§ Eligibility
access literacy/ ability
– Cumbersome documentation
Consumer
protection requirements
– Rigorous identification requirements

Figure 28: Reasons for not Having an Account

5.1 Accessibility

Sokoto The average distance to DMB

Katsina branches varies widely within
Jigawa Yobe
Kebbi Zamfara Kano
Nigeria, from almost 60 km in Kebbi
Borno
56.4 6.4 State to less than 1 km in Lagos
State. When branch proximity is
Gombe
Kaduna
Bauchi compared to rates of service usage,
9.0
Niger it is apparent that physical access
Adamawa
Plateau
to a financial institution is a major
Kwara FCT contributing factor to financial
Nasarawa Taraba
Oyo 2.9 inclusion and might even be the
Kogi
Osun
Ekiti 21.7 most important factor.
Benue
Ogun
Ondo Enugu Average distance to
Lagos Edo
0.9 Anambra Ebonyi
next branch in km
Cross 5 or less
Delta Imo Abia 5 to 10
River
10 to 15
Rivers Akwa
Bayelsa 3.7 Ibom 15 to 20
20 or more

Figure 29 : Average distance to a bank branch in Nigeria

20
5.2 Eligibility and Know Your Customer (KYC) Regulations
Comprehensive client due diligence is based on Nigeria's existing Anti-Money Laundering
(AML) regulation and defined set of KYC requirements.33 These requirements help financial
institutions avoid fraudulent activities by clearly identifying the individuals they are serving,
but the regulation also creates a hurdle for people who want to enter the banking system but
do not have the required identification.
Banked Unbanked
Documentary Evidence of address
Bank Statement 50% 0%
Utility Bill 32% 10%

Land Ownership Documents 21% 10%

Home Ownership Documents 15% 7%
Local Government Rates &
12% 3%
Taxes Invoices
Tenancy Agreement 6% 1%
Identification
84% 47%
documents marked in
Birth Certificate
green are currently
Personal Identity Documents 74% 40%
accepted as formal
Employment ID Card 25% 2%
identification by the
Driver’s License 18% 3%
CBN.
International Passport 10% 1%

Tax Return 7% 2%

Figure 30 : Access to identification documents34

5.3 Financial Literacy

Awareness and understanding of financial terms vary depending on the complexity of a
product and its features, as well as how commonly the product is used within the general
population (Figure 31). However, friends, family members, and trusted community leaders
have the greatest influence on an individual's financial literacy. Awareness raising through
electronic and print media has yet to gain ground. (See Figure 32)
Has Heard and knows Has heard but doesn’t Has never Heard
what it means know what it means

Bank 84.6% 7.5% 7.9%

Interest 71.5% 10.5% 18.0%

Loans 69.9% 13.1% 17.0%

Savings Account 59.5% 12.9% 27.6%

Pension 55.1% 17.8% 27.1%

Cheque 54.5 15.7% 29.8%

ATM Card 45.7% 16.2% 38.1%

Current Account 44.1% 18.5% 37.4%

Insurance 35.9% 21.3% 42.8%

Microfinance 35.5% 19.8% 44.7%

Shares 27.5% 18.0% 54.5%

Mortages 17.6% 17.1% 65.3%

Credit Card 15.6% 15.8% 68.6%

Non-interest (Islamic) Banking 6.4% 9.8% 83.8%

35
Figure 31 : Awareness and understanding of financial terms
33
Central Bank of Nigeria: Know Your Customer Manual for Banks and other Financial Institutions in Nigeria (2003)
34
EFInA Access to Financial Services in Nigeria 2010 Survey
35
EFInA Access to Financial Services in Nigeria 2010 Survey

21
 Family/Friends 82.0%
Someone trusted in the
Community/Religious Leader 20.2%

Bank 13.2%

Employer/Work Colleagues 9.8%

Radio Programme 8.3%

Figure 32 : Sources of financial information36

36
EFInA Access to Financial Services in Nigeria 2010 Survey

22
6.0 KEY FINANCIAL INCLUSION TARGETS
The overall target of Nigeria's National Financial Inclusion Strategy is to reduce the
percentage of adults excluded from financial services from 46.3% in 2010 to 20% in 2020. It
is proposed that 70% will be served by formal financial institutions while 10% will be served
by informal service providers.

The Financial Inclusion picture in 2010

0% 100%
Payments 22% 78%
Savings 24% 76%
Pensions 5% 95%
Credit 2% 98%
Insurance 1% 99%

2010 36% 17% 57%

Financial Inclusion Financial exclusion
2020 70% 10% 20%

Insurance 40%
Credit 40%
Pensions 40%
Savings 60%
Payments 70%
0% 100%

The Financial Inclusion Picture in 2020

Formally served Formally excluded
Informally served Financially excluded

Note: For measurement purposes, usage is taken as a proxy for access, projections based on National Bureau of Statistics data
Source: EFInA 2010; National Bureau of Statistics; Roland Berger Analysis

Figure 33: The financial inclusion picture by target

However, there have been no defined targets for financial inclusion in Nigeria. In this
strategy, to ensure that Nigeria sets targets that will put it ahead of its peers, each financial
product and channel has been benchmarked against a best-in-class country and growth
factors have been used to define targets for Nigeria for both 2015 and 2020. These
benchmark countries include two sub-Saharan Africa peers (South Africa and Kenya), one
top 20 world economy (Indonesia or Mexico was used where data were available), and two
best-in-class developing countries that offered the product or channel under consideration
(e.g. Mexico for branch penetration).

The targets relate to product use, channel penetration, gender and youth, and enablers for
financial inclusion. They take current levels in Nigeria into account and forecast levels that
are believed to be achievable within a given time period.

23
6.1 Product Targets
Product targets have been set based on current levels in benchmark countries. In some
cases, 10% has been added to the best-in-class level as a result of strategies defined in this
document.

Payments – There are currently no targets for payments penetration in Nigeria. The target
37
adopted here is based on South Africa's current payments level of 59% . However, the
emergence of mobile payments in Nigeria is expected to drive payments beyond levels seen
in South Africa today. The target requires a 17% CAGR between 2011 and 2020. The 16
million users of payment products in 2010 must increase to 49 million by 2015 and 73 million
by 2020.

Status as of 2010 Current FSS 2020 Proposed target for Rationale

target 2020
Based on
21.6% None Specified 70% improvement of best
in class - South
Africa at 59%

Figure 34: Payments targets

Savings – FSS 2020 and CBN currently have no targets for savings levels in Nigeria. The
38
target adopted here is based on Kenya's current savings level of 48% plus 10% due to
improvement initiatives in Nigeria. Kenya was selected since it was the best-in-class peer
country in the benchmarking analysis. The target requires 11% CAGR between 2011 and
2020. The target is for 21 million users of savings products in 2010 to grow to 39 million by
2015 and 63 million by 2020.

Status as of 2010 Current FSS 2020 Proposed target for Rationale

target 2020
Based on
24.2% None Specified 60% improvement of best
in class - Kenya at
48%

Figure 35: Savings targets

Credit – FSS 2020 set a 70% target for credit penetration coupled with a single digit interest
cap by 2020. Given Nigeria's current credit levels, a target of 70% by 2020 is ambitious even
with a well-developed and highly competitive banking sector. The target has therefore been
revised downwards to 40% based on the credit penetration levels of South Africa (32%) and
39
Uganda (37%). The target requires 40% CAGR between 2011 and 2020. The target is to
grow the 1.5 million borrowers in 2010 to 19 million by 2015 and 42 million by 2020.

37
World Bank/CGAP
38
World Bank/CGAP
39
World Bank/CGAP

24
 Status as of 2010 Current FSS 2020 Proposed target for Rationale
target 2020
Based on
1.8% 70% 40% improvement of best
in class - South
Africa at 32%

Figure 36 : Credit targets

Insurance – FSS 2020 set a 70% target for insurance penetration in Nigeria by 2020. Given
the current level of insurance penetration in Nigeria (1%), this target seems unrealistic and
has thus been reduced to 40% based on South Africa's current penetration level of 36%. This
target requires 48% CAGR between 2011 and 2020 and to grow the approximately 800,000
Nigerians insured in 2010 to 19 million by 2015 and 42 million by 2020.

Status as of 2010 Current FSS 2020 Proposed target for Rationale

target 2020
Based on
1.0% 70% 40% improvement of best
in class - South
Africa at 36%

Figure 37 : Insurance targets

Pensions – The National Pension Commission has yet to set targets for pension
41
penetration. The target adopted here is based on Chile's current pension level of 39%,
which also includes the informal sector. Nigeria's pension scheme is based on the Chilean
model and can therefore benefit from Chile's experience. The target requires 25% CAGR
between 2011 and 2020 and the 4.1 million pension contributors in 2010 to increase to 20.6
million by 2015 and 41.9 million by 2020.

Status as of 2010 Current FSS 2020 Proposed target for Rationale

target 2020
Based on best
5% 70% 40% in class - Chile at 39%

Figure 38 : Pension targets

40
40% of all Nigerians including children and youth
41
World Bank/CGAP

25
6.2 Channel targets

Deposit Money Bank branches (DMBs) – There are currently no targets for DMB branch
penetration in Nigeria. The target for 2020 is 7.6 branches per 100,000 people (currently 6.8
per 100,000 people). The proposed target requires 3.3% CAGR between 2011 and 2020,
which is lower than the 5% CAGR from 2007 to 2010. This slowdown will be the result of less
focus on branch growth due to increased use of non-branch channels.

Status as of 2011 Current CBN target Proposed target for Rationale

2020
Growth slowdown to
6.8 per 100,000 None Specified 7.6 per 100,000 3.3% p.a from 5%
adults adults p. a due to use of
non-branch channels

Figure 39: DMB branch targets

Microfinance Bank Branches (MFBs) – There are currently no targets for MFB branch
penetration in Nigeria. In the microfinace banking subsector, 8% CAGR bank branch
expansion is expected representing an increase of 2.9 to 5.0 branches per 100,000 adults
(benchmarked against Bolivia).

Status as of 2011 Current CBN target Proposed target for Rationale

2020
Based on best in
2.9 per 100,000 None Specified 5.0 per 100,000 class - Bolivia at 5.0
adults adults per 100,000 adults

Figure 40 : MFB branch targets

ATMs – The CBN’s Cash-less Lagos initiative aims to add 75,000 ATMs (or 88.5 ATMs per
100,000 adults) by 2015. The proposed target is aligned with that defined for Cash-less
Nigeria in 2015. The target proposed here requires 40% CAGR between 2011 and 2020,
slightly above the current four year CAGR in ATM growth (2007–2011) in Nigeria: 33%

Status as of 2011 Current CBN target Proposed target for Rationale

2020
Based on recent
11.8 per 100,000 88.5 per 100,000 203.6 per 100,000 growth rate in
adults adults in 2015 adults Nigeria at 33% p. a.
(2007- 2011)

Figure 41 : ATM targets

26
POS – The Cash-less Nigeria initiative aims to add 75,000 POS devices by the end of 2012
and 375,000 nationally by 2015. This target is aligned with Cash-less Nigeria for 2015 and is
based on current penetration in South Africa (850 per 100,000 adults) for 2020. To achieve
this target, an additional 364,000 POS devices will be needed in Nigeria by 2015 and a total
of 890,000 must be in place by 2020 — the equivalent of 55% CAGR by 2020.

Proposed CBN target Proposed CBN target Proposed target for Rationale
for 2012 for 2015 2020
Based on best in
13.3 per 100,000 442.6 per 100,000 850.0 per 100,000 class - South Africa
adults adults in 2015 adults at 850 per 100,000
adults

Figure 42 : POS device targets

Agents – There are currently no regulations for agent banking in Nigeria and therefore no
targets. The CBN is currently working on guidelines for agent banking. The targets adopted
in this National Financial Inclusion Strategy have been derived from penetration levels in
Brazil, which has 122 agents per 100,000 adults, and South Africa, which has 16 agents per
100,000 adults. To achieve these targets, a network of 32,500 agents needs to be
established by 2015 and 65,000 by 2020.

Status as of 2011 Current CBN target Proposed target for Rationale

2020
Based on Brazil (122
0 per 100,000 adults None Specified 62.0 per 100,000 per 100,000 capita)
adults and south Africa (16
per 100,000 capita)

Figure 43 : Agent banking targets

6.3 Enabler Targets

Enablers are elements that lower barriers to access to financial services. The targets for key
enablers are as follows:
Ø KYC – This strategy recommends that tiered KYC requirements need to be in place
by 2012 to lower barriers of access to low-transaction clients opening bank accounts.
In addition, the NIMC must meet its target of rolling out a unique national ID for all
Nigerians by 2015, which will be an acceptable identity document for accessing
financial services.

Ø Consumer protection – Consumer protection is critical to ensuring transparency in

product pricing, preventing exploitation by service providers, monitoring levels of
consumer confidence, and ensuring the soundness of the financial sector. The target
is to develop a centralised and well-defined consumer protection framework by 2012.
This framework is aimed specifically at financial services and will define precise
methods for consumer protection and conflict resolution.

27
Ø Financial literacy – Government institutions and development partners have made
some efforts to address the low levels of financial literacy in Nigeria. However, these
steps have not yet been assessed and the success rate for increasing financial
literacy and/or the use of financial services and products have yet to be quantified.
The target is to include financial literacy in school curricula. The curricula will
incoporate financial products, services, and markets in 20% of primary schools, 50%
of secondary schools, and 100% of tertiary institutions by 2020. Another target is to
reach 50% awareness of financial products, services, and markets among adults by
2015.

6.4 Key Performance Indicators (KPIs)

To achieve defined targets for financial inclusion, Nigeria needs key performance indicators
(KPIs) to monitor the impact of initiatives and the progress of the Financial Inclusion
Strategy. The KPIs were defined based on the various dimensions of financial inclusion,
including access, usage, affordability, appropriateness, financial literacy and consumer
protection (as defined by the Alliance for Financial Inclusion Data Working Group).

Key performance indictors

Access to Financial Number of branches per 100,000 adults / per 1,000 sq km

Services Number of ATMs per 100,000 adults / per 1,000 sq km
Number of POS devices per 100,000 adults / per 1,000 sq km
Number of mobile agents per 100,000 adults / per 1,00 sq km

Usage of Financial Number of adults using a payments product and frequency of use
Services Number of women using a payments product and frequency of use
Number of men using a payments product and frequency of use
Number of adults using a savings product and frequency of use
Number of women using a savings product and frequency of use
Number of men using a savings product and frequency of use
Number of adults using a credit product and frequency of use
Number of women using a credit product and frequency of use
Number of men using a credit product and frequency of use
Number of adults using a insurance product and frequency of use
Number of women using a insurance product and frequency of use
Number of men using a insurance product and frequency of use
Number of adults using a pension product and frequency of use
Number of women using a pension product and frequency of use
Number of men using a pension product and frequency of use

Affordability Cost of using channels for delivering financial services e.g cost of ATM transactions
Cost of entry level credit product / insurance product/transactional services
Interest rate spread between savings and credit for low value accounts

Appropriateness Reason for not having a payment / savings / credit / insurance / pension product

Financial Literacy Product understanding - product features / product benefits

Business planning - knowledge of business cash-flows and household expenses
Informed decisions - Awareness of different financial services offerings / options
See consequences - understand relevance of bad financial decisions

Consumer Protection Percentage of over-indebted clients

Transparency of pricing Monitoring and action in place
Existence of complaints resolution mechanism / number of resolved complaints
Number of complaints on collection practices / bank staff misbehaviour
Privacy of client data

Figure 44 : KPIs for monitoring progress

28
7.0 STRATEGIES FOR ACHIEVING FINANCIAL INCLUSION TARGETS
For each target, strategies have been defined to ensure the target is achieved. They are
outlined in the table below.

PRODUCTS
ITEM TARGET STRATEGY
FOR 2020
• Implement agent banking regulations
• Promote linkages between MFBs and DMBs to obtain wholesale funds
for onlending
• Develop guidelines for operating mini-branches
Payments 70%
• Roll out the Cash-less Nigeria project in all states of the Federation
• The NIMC Shall issue a unique national ID to all Nigerians by 2015
• Implement the Micro, Small and Medium Enterprises Development
Fund (MSMEDF)
• Implement a national savings mobilisation programme
• Introduce and promote a basic “no frills” savings account
• Implement tiered KYC requirements
Savings 60%
• Implement a financial literacy framework
• Implement a consumer protection framework
• Policies to support linkages to informal savings groups
• Remove the minimum reporting balance for credit bureaux
• Initiate a new land reform act
• Develop a collateral registry for movable assets that will serve all
levels of credit
• Implement tiered KYC requirements
Credit 40%
• Implement entrepreneurship training
• Run credit awareness and training programmes to prevent consumer
over indebtedness
• Implement the MSMEDF and NIRSAL programmes
• The NIMC will issue a national ID to all Nigerians by 2015
• Regulatory enforcement of compulsory insurance products
• Use banking agents as distribution channels for insurance products
• Diversify insurance products to serve low income clients:
Insurance 40% microinsurance, Takaful insurance, index based insurance , and others
• Implement the insurance component of the NIRSAL programme
• Introduce insurance literacy programmes
• Develop a consumer protection framework for the insurance sector
• Implement the Pension Reform Act
• Compulsory inclusion of all states in the Contributory Pension Scheme
• Amend regulations to allow the inclusion of smaller firms and
Pensions 40%
cooperatives and associations in the current pension scheme
• Introduce pension awareness and literacy programmes
• Develop a consumer protection framework for the pensions sectors

29
CHANNELS
Type of TARGET
Channel STRATEGY
FOR 2020
DMB 7.6 per • Develop guidelines for mini-branches
branches 100,000
adults
Microfinance 5.0 per • Implement the revised microfinance policy
branches 100,000 • Implement the MSMEDF
adults • Create incentives for rural branch expansion
• Increase the promotion of shared services initiatives
• Hold investor fora at state levels to encourage high-net-worth
individuals to float MFBs
ATMs 203.6 per • Implement the financial literacy framework
100,000 • Deploy multifunctional ATMs
adults • Revise the offline ATM policy
• Roll out the Cash-less Nigeria project in all states of the
Federation
• Deployment of low-cost ATMs in rural areas
POS 850.0 per • Implementation of the financial literacy framework
100,000 • Require mobile network operators to give priority to
adults transaction data through their platform to ensure instant
transaction credits and debits
• Develop a framework for agent banking
• Roll out the Cash-less Nigeria projec t in all states of the
Federation
• Expand the Evidence Act so that e -payments are accepted
as evidence in court
• Increase public awareness for mobile payments
Agent 62.0 per • Implement agent banking regulations
banking 100,000 • Implement the financial literacy framework
adults • Implement tiered KYC requirements

30
FINANCIAL INCLUSION ENABLERS
Category
TARGET FOR 2020 STRATEGY
of Enabler
KYC Implementation of a • Implement a tiered KYC framework
tiered KYC framework • The NIMC shall issue a national ID to all Nigerians
by 2012 and national by 2015
ID/unique number for • Awareness campaign for tiered KYC requirements
100% of Nigerians
Financial Financial literacy • Implement the financial literacy framework
literacy curriculum in 20% of • Collaborate with Federal and State Ministries of
primary schools, 50% Education to implement financial literacy curricula in
of secondary schools, schools
and 100% of tertiary • Collaborate with the CBN and financial services
institutions by 2020 providers to implement financial literacy campaigns
Consumer Defined consumer • Implement a consumer protection framework for
protection protection framework financial services
implemented by 2012
• 60% of MSMEDF financial services shall be targeted
Support the
Initiatives at women
elimination of
for Women gender disparity by • Require a minimum level of 30% female staff in
ensuring that MFBs
women's access to • Encourage women who have appropriate
financial services
increase by 15 per businesses to become agents
cent annually, as • Offer entrepreneurship development and financial
espoused in the linkage programmes tailored specifically to women
Revised
Microfinance Policy, • Introduce a specialized financial lit eracy framework
Regulatory and for addressing cultural issues that contribute to the
Supervisory financial exclusion of women
Framework for
Nigeria. • Implement interest drawback schemes targeted at
women
Children Ensure that 50% of the • Develop and implement a framework for child and
and Youth 4 million new adults youth finance
initiatives every year are • Implement children and youth financial literacy
financially included initiatives in Nigerian educational institutions

31
8.0 PROPOSED ROLES AND RESPONSIBILITIES FOR KEY STAKEHOLDERS

Ø Federal government
Invest in infrastructure, such as a fibre optic network for the telecommunications
sector and solar panels to generate cheap electricity for rural areas
Contribute to the MSMEDF
Maintain adequate security in the country, and for bank branches and agents
Undertake necessary reforms (e.g. collateral reforms, consumer protection act)
Set aside part of the national budget for social pensions and a minimum
guaranteed pension
Institutionalise a data protection act and a new land reform act

Ø Central Bank of Nigeria (CBN)

Implement an agent banking framework
Define and implement a tiered KYC framework
Commission pilots to demonstrate the business case for financial inclusion
initiatives, for example, tiered KYC, no-frills accounts, agent banking, and mini-
branches
Educate stakeholders on regulatory changes
Promote shared services initiatives to reduce channel costs
Incentivise providers to deploy ATMs and POS in rural communities
Create incentives for MFBs to focus on serving rural communities
Increase funding available to MSME businesses through the MFB sector
Expand financial literacy programmes and activities (including in local
languages) that raise awareness about the availability and benefits of products
Establish automated financial reporting for MFBs
Promote the child and youth finance framework
Enforce the deadline for terminal interoperability
Propose expansion of the Evidence Act to make e-payments acceptable as
evidence in court
Review the framework for off-site ATMs to better align with Financial Inclusion
initiatives.

Ø Deposit Money Banks (DMBs)

Participate in shared service initiatives to reduce channel costs
Leverage (multifunctional) ATM and POS channels to expand reach and reduce
costs
Implement mini-branch models for low-cost service in rural areas
Establish linkages for wholesale lending to MFBs
Implement the agent banking model to extend outreach
Implement a no-frills (zero balance) account
Implement the tiered KYC framework
Leverage cash management initiatives e.g Cash-less Lagos to reduce
transaction costs
Revise channel delivery costs to incentivise correct merchant behaviour

Ø Development Finance Institutions (DFIs)

Provide wholesale funding for lending to low-income clients
Provide capacity building to MSMEs to improve their financial literacy and credit
worthiness
Implement targeted financial inclusion programmes, e.g. credit guarantees,
refinancing
32
Ø Bankers' Committee
Monitor the implementation of financial inclusion in relation to Deposit Money
Bank roles and responsibilities
Contribute to the review process of the Strategy document

Ø Microfinance Banks (MFBs)

Develop innovative products for serving low-income rural residents
Participate in shared service initiatives to reduce channel costs
Leverage (multifunctional) ATM and POS channels to expand reach and reduce
costs
Implement the agent banking model to extend outreach
Implement a no-frills (zero balance) account
Implement the tiered KYC framework
Take advantage of the social and commercial components of the MSMEDF
Focus on profitably delivering financial services to the poor and informal
segments, to prevent mission drift

Ø Committee of Microfinance Banks in Nigeria (COMBIN)

Monitor the implementation of financial inclusion in relation to microfinance
banks
Contribute to the review process of the Strategy document

Ø National Insurance Commission (NAICOM)

Define and implement insurance literacy programmes
Enforce quick settlement of claims and sanctions for infractions
Enforce compulsory insurance products
Incentivise insurance companies to develop microinsurance products, Islamic
insurance (Takaful), and index-based insurance products to serve low-
income/rural individuals
Leverage ongoing work by NIMC to identify individuals and strengthen the
integrity of insurance systems
Define initiatives for insurance agents to increase outreach in rural areas

Ø Insurance companies
Expand the current portfolio of insurance products to better address consumer
needs, for example, microinsurance, Islamic insurance (Takaful), and index-
based insurance
Increase the focus on outreach and specific sectors, e.g. lower-income
segments
Process and pay claims in a timely manner

Ø National Pension Commision (PenCom)

Expand and communicate consumer protection initiatives
Expand pension literacy programmes and activities to raise awareness of the
availability and benefits of pension products
Create a pension framework for the informal sector
Advocate for the compulsory inclusion of all states of the Federation in the
current pension scheme
Amend regulations to allow the inclusion of smaller firms (those with less than
five employees) and cooperatives/associations in the current pension scheme

33
Ø Pension Fund Administrators (PFAs)
Leverage technology and expand collection and disbursement methods, e.g. e-
channel payments
Engage cooperatives and associations in order to learn best methods for
serving low-income clients

Ø National Communication Commission (NCCs)

Define a plan for the Federal Government to invest in fibre optic cables for
mobile network operators
Mandate dedicated bandwidth for data services to give priority to payments and
other e-channels as a temporary measure to drive mobile payments
Institute and publish statistics on network downtime to incentivise operators to
keep the network active

Ø Mobile payments operators (MPOs)

Implement the mobile payments framework
Provide innovative mobile payments products to increase outreach
Increase investment in infrastructure for the telecommunications sector, e.g. a
dedicated percentage of earnings to go to infrastructure and investment in
42
USSD to facilitate the inclusion of low-income people

Ø Nigeria Postal Service (NIPOST)

Act as an agent for DMBs, MFBs, and/or mobile services providers
Act as distribution centres for financial literacy materials

Ø Ministry of Education
Institutionalise financial literacy programmes within educational institutions
through agencies such as the National Universities Commission and Universal
Basic Education Commission
Develop and implement curriculum for financial literacy in primary and
secondary schools as well as tertiary institutions

Ø National Bureau of Statistics

Conduct surveys and provide data on financial inclusion

Ø Development partners
Provide technical and financial assistance to the implementation of the Financial
Inclusion Strategy
Monitor the implementation of the Financial Inclusion Strategy
Facilitate peer learning on financial inclusion
Provide a knowledge base for financial inclusion

Ø Financial Services Regulation Coordination (FSRCC)

Coordinate initiatives across various regulatory bodies
Give strategic direction on the implementation of the Strategy
Secure buy-in from government at the highest levels
Approve the review of targets for reporting and monitoring
Take full responsibility for the implementation of the Strategy
Approve the publication of an annual report on financial inclusion

42
Unstructured Supplementary Service Data: Protocol that allows mobile payments though SMS

34
Ø Financial Inclusion Secretariat (Unit or Divisional level)
Coordinate stakeholder activities aimed at increasing financial inclusion
Review and revise the roles and responsibilities of stakeholders, as required
Ensure that annual reports on the progress on financial inclusion are published
Liaise with and ensure that all financial inclusion stakeholders perform their roles
and responsibilities
Ensure that appropriate arrangements are made for financial inclusion data
gathering and publication
Maintain a database of financial inclusion in Nigeria as well as global trends in
financial inclusion
Initiate necessary reviews on the Financial Inclusion Strategy and support
evidence-based policy making
Track and monitor progress on financial inclusion vis-à-vis the targets set for
measuring financial inclusion
Address capacity building initiatives on financial inclusion issues

35
9.0 POSSIBLE RISKS AND MITIGATION STRATEGIES

Mitigation
Risk
Lack of buy -in and compliance from key Conduct workshops with stake holder groups ,
stakeholders in the Strategy including FSRCC, B ankers’ Committee, and
the National Economic Council ( NEC), and
provide regular updates during the
implementation phase.

Failure of NIMC to fully implement a national Leverage tiered KYC requirements to reduce
ID scheme dependence on the national ID

Timing delays in passing required regulation Obtain support from the Governor’s office to
and legislation push important regulations and lobby for
legislative changes

Inability of the Federal Government to meet Use back-up power and batteries for ATMs ,
the country’s power needs POS, and other electronic devices

Client apathy in adopting financial inclusion Make a concerted effort to drive financial
initiatives literacy and consumer protection

Poor security for agents Use mobile wallets to reduce cash handling

Unanticipated regulatory gaps that threaten Address through circulars and reviews
implementation

36
10.0 IMPLEMENTATION PLAN

CBN
Year 2012 2013 2014
Action NDJFMANJJASONDJFMANJJASONDJFMANJ Responsibility
Conclude Strategy report and review outputs RB / CBN DFD
Present strategy to CBN Management CBN DFD / RB
Present strategy to Bankers’ Committee CBN DFD / RB
Establish Financial inclusion Secretariat CBN mgt
Administrative

Discuss strategy with other regulators CBN DFD

Establish Financial inclusion Committee CBN DFD
External stakeholder discussions / workshops CBN DFD
Awareness campaign for financial inclusion CBN DFD
peer learning: review country examples CBN DFD / AFI
Selection process for pilot CBN DFD & BPSD
Pilot schemes CBN DFD & BPSD
Review results from pilot scheme CBN / Tech. Partner
Ongoing

Clarify policy on off-site ATM deployments CBN BPSD

Commence shared cash management CBN SPD
Commence shared IT services CBN SPD
Establish Retail Agent Banking Framework CBN BPSD
Establish tiered KYC regulations CBN BSD
New initiatives

Mandate plan / local language requirement CBN BSD

mandate customer education and protection CBN BSD
Further incentivise POS deployment CBN BPSD
incentivise MFBs to focus on rural areas CBN DFD & OFISD
Institute Microfinance Development Fund CBN mgt
Establish interbank platform for MFBs CBN BPS & OFISD

Dots show date by which actions should be done 9.7.12

Other Regulators
Year 2012 2013 2014
Action M J J A S O N D J F M A M J J A S O N D J F M A M J
Promote insurance literacy programme and campaigns
Participate in peer learning on microinsurance
Selection process for pilot
Pilot scheme
NAICOM

Review results from pilot scheme

Enforce quick settlement of claims
Enforce compulsory insurance such as life insurance
Institute plain / local language requirement for providers
Implement microinsurance regulation and guidelines
create incentives for firms to provide microinsurance
Institute compulsory impact assessment for all schemes
Increase investment in infrastructure
NCC

Public statistics on network operator downtime

Mandate dedicated bandwidth for data services
Develop plan for FGN to invest in fibre optic cables
Expand and communicate consumer protection
Increase investment in pension literacy
Selection process for pilot
Pilot scheme
PenCom

Review results of pilot scheme and highlight regulatory changes

Advocate compulsory inclusion of all states in PRA2004
Amend regulation to allow inclusion of smaller firms / informal sector
Institute short-term voluntary informal pension savings
Institute plain / local language requirement for PFAs
Create pension framework for the informal sector

37
11.0 MONITORING AND EVALUATION
The Financial Inclusion Secretariat will bear primary responsibility for monitoring and
evaluation. Various stakeholders will take responsibility for specific information and will
provide data twice a year as follows:

Ø National Communications Commission (NCC)

Percentage of network downtime in the communications industry
Number of Mobile Network Operators (MNO)
Total active mobile subscribers for the industry as well as per MNO detailed by
gender and other key demographics.

Ø National Insurance Commission (NAICOM)

Number of insurance companies
Number of insurance agents
Total number of people per insurance product and by geographical location and
gender
Total number of products per person for the industry
Total premium per product for period under review for the industry
Total claims paid per product for period under review for the industry
Aggregated list of companies with specialised financial inclusion products, e.g.
microinsurance and Islamic insurance products

Ø National Pensions Commission (PenCom)

Total number of retirement savings accounts for all PFAs
Total number of funds/schemes that all PFAs offer
Total pension contribution for all PFAs for the period under review
Total pension disbursements for all PFAs for the period under review
Total pension assets for the industry at the end of review period
List of companies that are in breach of, or have defaulted on, their pension
contributions for staff

Ø National Bureau of Statistics (NBS)

Level of banked and financially included persons annually, by state, gender, and
age
Level of unbanked and financially excluded persons annually, by state, gender,
and age

Ø National Identity Management Commission (NIMC)

Number of ID cards provided in the period under review, by state, gender, and
age
Total number of Nigerians with national identity cards, by state, gender, and age
Number of Nigerians with eligible ID (within the tiered KYC regime)

Ø Development Finance Institutions (DFIs)

Number of branches, by state
Number of individual and SME accounts, by state
Number of accounts per product, by state
Total transaction volume per product for the period under review
Transaction volume per channel for the period under review

38
 Number of transactions per channel, by transaction type (e.g. withdrawal,
deposit, transfer)
Amounts outstanding on loans

Ø Nigerian Postal Service (NIPOST)

Complete list of NIPOST's financial services activities
Additional information regarding the size of financial service activities and
numbers of financial service beneficiaries/clients served by NIPOST
NIPOST's financial services partnerships

Ø National Planning Commission

List of all funds committed to developing the financial services sector within the
review period, including size of funds, amounts disbursed, and means of
disbursement
List of all capacity building initiatives embarked on, including number of
participants and the impact of each initiative

Ø CBN – Development Finance Department

Value and number of disbursement of each fund or scheme that is active at DFD,
by state, gender, and age
Value and number of disbursement of each fund or initiative of other government
institutions, by state, gender, and age
Development partner funding and grants for financial inclusion initiatives
Number of informal microfinance institutions and number of clients by state,
gender, and age

Ø CBN – Banking Supervision Department

Total number of branches, including full scale and mini-branches (i.e. fewer than
five staff members)
Number of branches, grouped by banking institution and broken down into
states, LGAs, etc.
Number of new licenses issued to Deposit Money Banks
Number of banking agents, by state
Number of clients using products (savings, credit, payments) by state, gender,
and age
Number of accounts for each product: savings, credit, payments
Available product types per bank and amounts committed for savings, credit,
payments
Loan exposure by size from credit bureaux

Ø CBN – Other Financial Institutions Supervision Department

DFIs' intervention funds and the number of beneficiaries of each
Number of MFB branches broken down by state, local government area, and
municipality
Total number of customers served by microfinance banks by state, gender, and
age
Total amount per product category at MFBs for savings, credit, and payments
Number of new licenses issued to MFBs

39
Ø CBN – Banking and Payments System Department
Total number of m-payments agents and broken down by state, local
government area, and municipality
Total number of ATMs and POS and broken down by state, local government
area, and municipality
Total value of m-payment transactions for the industry
Total volume of m-payment transactions for the industry
Number of m-payments operators licensed
List and size of financial services activities handled by NIPOST

Ø CBN – Consumer and Financial Protection Department

Level of financial literacy nationwide and by state, gender, and age
Number of complaints received and number resolved per financial services
provider

40
12.0 TRACKING METHODOLOGY
The tracking methodology provides guidelines to enable the CBN to create a mechanism for
monitoring the pace and progress of financial inclusion in Nigeria. A tracking mechanism
should be designed to identify deviations from the Financial Inclusion Strategy targets so that
action can be taken to ensure targets are achieved. Tracking financial inclusion is highly
dependent on input from various stakeholders. The Financial Inclusion Secretariat is not
expected to embark on primary data gathering and will instead rely on various regulators to
provide the data that are essential to monitoring the pace of work and progress towards
financial inclusion.

The tracking report will include the following elements:

12.1 Management Summary

The Management Summary provides an overview of the progress on financial inclusion in
Nigeria. It includes highlights and information about the status of actions approved by the
FSRCC in order to increase accountability. It also outlines the priorities to be addressed in
the next review period and provides an overview of the required steps to address these
priorities.

Current Status of Financial Inclusion in Nigeria

Status § Number of adults with a financial product:

overview - payment: 30.8 mn (98% of target)
- savings: 22.2 mn (98% of target)
- credit: 2.0 mn (17% of target)
- insurance: 847k (17% of target)
- pension: 4.5 mn (98% of target)
§ Payment product usage increased sharply – partly due to launch of m-payments products
§ Insurance products have not reached targets for two consecutive review periods
- review required

Completed § Financial Inclusion Secretariat has been set up and officers notified
§ Workshops for National Financial Inclusion Strategy carried out with all stakeholder
regulators

On track § Publicity of National Financial Inclusion Strategy in all six geopolitical regions
§ Regulation amendments – Retail agent framework finalized – pending approval
§ Roll out of mobile payments in all six geopolitical zones

At risk § Launch of NIMC ID program further delayed

§ Insurance KPIs below targets and at risk of not reaching targets in the next review period

Figure 45: Illustrative Management Summary

The Management Summary includes the following sections:

Status overview: indicates the number of financially included persons by product, the
degree to which the target has been achieved, the status of underperforming
indicators, initiatives since the previous review period, and challenges encountered
Completed: indicates successfully completed actions and initiatives based on
agreements reached at the FSRCC meeting
On track: indicates ongoing initiatives that are progressing towards timely and
successful completion
At risk: indicates KPIs or other indicators that are at risk of not being met, as well as any
other setbacks

41
12.2 Status Update
The Status Update shows the status of the key indicators, including use, infrastructure,
affordability, financial literacy, and consumer protection. A traffic light system can be used to
highlight areas that are on or off track: red indicates that the target has not been achieved;
amber indicates that the target is close to being achieved (i.e. within 10%); and green that the
target for the period has been fully achieved. Additional comments and decision
requirements are also provided in the status update.

Status Comment on Status Decision requirements

Overall
Status

Usage

Access

Affordability

Financial
Literacy

Consumer
Protection

Status: Target cannot be achieved within next Target not achieved but could be achieved Target achieved or exceeded
review period (actual <85% of target) within next review period pending (100% < actual)
intervention (85% <actual <100%)

Figure 46 : Illustrative status report summary 1

Status of product usage - Illustrative

Status of product usage:

Review Target cannot be

Period [Link].20XX achieved within
next review period

Key Performance indicator Target (2011) Actual (2011) % Achieved Status

Number of adults using a payment product, '000 31,369 30,838 98%

Number of adults using a savings product, '000 22,582 22,200 98%
Number of adults using a credit product, '000 1,984 1,950 98%
Number of adults using an insurance product, '000 5,063 847 17%
Usage of
Financial Number of adults using a pension product, '000 4,620 4,542 98%
Services
Share of adult population using a payment product 36.4% 36.4% 100%
Share of adult population using a savings product 26.2% 26.2% 100%
Share of adult population using a credit product 2.3% 2.3% 100%
Share of adult population using an insurance product 5.9% 1.0% 17%
Share of adult population using a pension product 5.4% 5.4% 100%

Status: Target cannot be achieved Target not achieved but could be achieved Target achieved or exceeded
within next review period within next review period, pending (100%
(actual < 85% of target) intervention (85%

Figure 47: Illustrative Status Report (KPIs) Summary 2

42
 Status of client eligibility
Key Performance indicator Previous Current % Change
Review Period Review Period

Awareness of feature of credit products (% of pop) xxx xxx xxx

Awareness of benefit of credit products (% of pop) xx xx xxx
Awareness of feature of insurance products (% of pop) xxx xxx xxx
Financial
Literacy Awareness of benefit of insurance products (% of pop) xxx xxx xxx
Awareness of feature of pensions products (% of pop) xxx xxx xxx
Awareness of benefit of pensions products (% of pop) xxx xxx xx

Number of banking customer complaints xxx xxx xxx

Percentage of banking complaints resolved xx xx xxx

Consumer Number of insurance customer complaints xxx xxx xxx

Protection Percentage of insurance complaints resolved xxx xxx xxx
Number of pensions customer complaints xxx xxx xxx
Percentage of pensions complaints resolved xxx xxx xx

Figure 48: Illustrative status report (other indicators) summary 3

12.3 Trend Analysis

The Trend Analysis shows the progress of KPIs and other indicators across all historical and
current review periods. This enables the reader to identify any underperforming or
overperforming indicators. The Trend Analysis will be compiled and tracked following each
review period and guides the FSRCC's decision-making process.

Key Performance Indicator Target (2011) Actual (2011) % Achieved Status

Key Performance Indicator Target (2011) Actual (2011) % Achieved Status
Key Performance Indicator Target (2011) Actual (2011) % Achieved Status

Number of adults using a payment product, ‘000 31,369 30,838 98%

Financial
Access Share of adult population using a payment product 36.4% 36.4% 100%
literarcy
Financial 22,200 98%
Number of adults using a savings product, ‘000 22,582
Service
Share of adult population using a savings product 26.2% 26.2% 100%
Usage of
Number of adults using a credit product, ‘000 1,984 1,950 98%
Financial
Services Share of adult population using a credit product 2.3% 2.3% 100%
Consumer Number of adults using an insurance product, ‘000 5,063 847 17%
Protection 1.0%
Share of adult population using an insurance product 5.9% 17%
Number of adults using a pension product, ‘000 4,620 4,542 98%
Share of adult population using a pension product 5.4% 5.4% 100%

Number of Agents
15,000 Number of POS devices
15,000
10,000 Number of ATMs, ‘000
60,00 Number of Branches
10,000
5,000 50,00 15,000 Target
40,00 Actual
5,000
0 30,00 10,000
20,00
0
10,00 5,000

0
‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 ‘20

Figure 49 : Illustrative trend analysis

43
12.4 Priority Checklist
The Priority Checklist outlines all financial inclusion stakeholder programmes and initiatives
for the next two years on a timeline. The status and progress of each programme and
initiative are highlighted using a traffic light system. Issues about the progress of actions and
the launch of impending programmes are described in the “Remarks” column.

Year 2012 2013

Action N D J F M A M J J A S O N D J F M A M J J A S O N D Remarks
Conclude strategy project and review

Establish financial inclusion Secretariat

Regulator workshop: to obtain buy-in

External stakeholder workshops

Awareness campaign for financial inclusion

Peer learning: 3 country exchanges

selection process for pilot

Pilot schemes

Review of results from pilot schemes

9.12.11 H1 H2

Figure 50 : Illustrative priority checklist

12.5 Next Steps

The Next Steps section of the tracking mechanism lists all programmes and initiatives that
are to be implemented in the next review period and the actions that will be required to launch
them successfully. It also provides a list of recommendations for improving underachieving
KPIs and other indicators plus an outline of stakeholder responsibilities for each action.

Next Steps Required Actions Stakeholder Responsibility

Increase awareness of Financial Awareness Awareness
Inclusion Strategy CBN buy in
Set up Financial Inclusion Secretariat External regular buy-in
Establish Financial Inclusion Federal Executive Committee buy in
Committee Public Awareness
Develop and run pilot schemes
Financial Inclusion Secretariat Financial Inclusion Secretariat
Deploy secretariat members
Develop templates for data
gathering
Contact data submitting institutions

Financial Inclusion Committee Financial inclusion committee

Establish Financial Inclusion
Committee - advise members
Convene inaugural meeting
Review baseline and H1 targets
Review approve next steps
Pilot Schemes
Pilot Schemes
Implement offer for tender process
Select pilot sponsors
Launch pilots

Figure 51: Illustrative next steps

44
13.0 CONCLUSION
Financial inclusion is critical to achieving the Central Bank of Nigeria's mandate and
Nigeria's overall economic development. As of 2010, 46.3% of adult Nigerians were
excluded from financial services. The key barriers to financial inclusion include long
distances to access points, cumbersome eligibility requirements, low levels of financial
literacy, and the high cost of financial services, among others. These barriers underscore the
need to develop a National Financial Inclusion Strategy, the primary aim of which is to reduce
the financial exclusion rate of adults to 20% by 2020. The key initiatives in the Strategy
include a tiered approach to KYC, agent banking, mobile payments, a cash-less policy, a
financial literacy framework, consumer protection, and the implementation of credit
enhancement schemes and programmes.

Specific targets have been set for payments, savings, credit, insurance, pensions, DMB and
MFB branches, ATMs, POS, banking agents, and youth and women. A variety of
stakeholders have been identified to support the implementation of the Strategy and their
roles and responsibilities have been defined.

Stakeholders will need to commit sufficiently to supporting the Strategy and the Central Bank
of Nigeria will need to take a lead role in coordinating and promoting the Strategy in order to
achieve its goals and objectives

45
Glossary
AfDB African Development Bank
AFI Alliance for Financial Inclusion
AMCON Asset Management Corporation of Nigeria
ARB Association of Rural Banks
ATM Automated Teller Machine
BOA Bank of Agriculture
BOI Bank of Industry
BPR Business Process Re-engineering
BPSD Banking and Payment Systems Department of the CBN
BSP Billing and Settlement Payment
BSD Banking Supervision Department of the CBN
CAGR Compound Asset Growth Rate
CBN Central Bank of Nigeria
CENFRI Centre for Financial Regulation and Inclusion
CPC Consumer Protection Council
CPS Compulsory Pension Scheme
CUA Credit Unions Association
CYFI Child and Youth Finance Initiative
DFD Development Finance Department of the CBN
DFI Development Finance Institutions
DFID Department for International Development
DG Deputy Governor / Director General
EFInA Enhancing Financial Innovation and Access
EoPSD Employment-oriented Private Sector Development
FCT Federal Capital Territory
FMBN Federal Mortgage Bank of Nigeria
FSD First Securities Discount House Nigeria
FSS Financial System Strategy
FPRD Financial Policy & Regulation Department of the CBN
G2P Government to People
GDP Gross Domestic Product
GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit
GSMA GSM Association
GT Guarantee Trust
IAD Independent ATM Deployer
ID Identity
IFC International Finance Corporation
ITU International Telecommunications Union
KPI Key Performance Indicator
KYC Know Your Customer
LAPO lifd Abono Poverty Organisation
MSMEDF Micro, Small and Medium Enterprises Development Fund
MDRI Market Development and Restructuring Initiative
MFB Microfinance Bank
MFI Microfinance Institution
MNO Mobile Network Operators
MPP Mobile Payment Providers
MSME Micro, Small and Medium Enterprise

46
NAICOM National Insurance Commission
NAPEP National Poverty Eradication Programme of Nigeria
NBS National Bureau of Statistics
NCC Nigerian Communications Commission
NDE National Directorate of Employment
NDIC Nigeria Deposit Insurance Corporation
NEPAD New Partnership for African Development
NEXIM Nigerian Export-Import Bank
NIFI Non-interest Financial Institutions
NGN Naira
NIMC National Identity Management Commission
NIPOST Nigerian Postal Service
NYSC National Youth Service Corps
OFISD Other Financial Institutions Supervision Department of the CBN
OTC Over the counter
POS Point of Sale
PenCom National Pension Commission
PIN Personal Identification Number
PRA Pension Reform Act
PFA Pension Fund Administrator
RUFIN Rural Finance Institutions Building Programme
SEC Securities and Exchange Commission
SME Small and Medium Enterprise
SMEDAN Small and Medium Enterprise Development Agency of Nigeria
SMS Short Message Service
SMD Strategy Management Department of the CBN
TB Treasury Bills
USD United States Dollar
USSD Unstructured Supplementary Service Data
VAT Value Added Tax

47