Many people in Nigeria do not have access to formal financial services due to factors such as illiteracy, social class, location, employment type, etc. However, the Nigerian FinTech sector has promised to pull down these barriers and give the unbanked and underbanked exclusive access to financial services regardless. Continue reading this article to learn about the progress, challenges, and prospects of Nigerian FinTech in fostering financial inclusion in Nigeria.
What is Financial Inclusion?
Financial Inclusion is the process of providing financial services to every individual in society without any form of discrimination. It involves eliminating barriers and making all financial services available to the deprived section of society.
In Nigeria, people in rural areas, women, and unemployed youths suffer financial exclusion the most. According to the Central Bank of Nigeria, 39.2 million adult Nigerians (46.3% of the adult population) were financially excluded in 2010.
A further study revealed that 54.4% of the excluded population were women, 73.8% were people younger than 45, 34.0% had no formal education, and 80.4% resided in rural areas. Also, financial exclusion is huge in northern Nigeria compared to other regions of the country.
According to the survey conducted by EFInA, exclusion continues to be most severe in Northern Nigeria, at 38% in the Northeast and 47% in the Northwest compared to only 5% in the Southwest and 10% in the South-South.
There are many factors that cause financial exclusion in Nigeria, including lack of regular or considerable income, which renders many people ineligible to apply for bank loans; lack of access to financial advice; lack of formal banks in the rural areas; illiteracy; and lack of interest of the locals in formal financial services.
Also, the need for collateral in banks discourages poor individuals from applying for loans in banks.
Financial inclusion is very important to the growth of the people and that of the nation. When people have access to loans and other financial services, they will be able to set up new businesses, expand old ones, grow in all ramifications, and contribute to the nation’s economy.
The Progress of Nigerian FinTech in Fostering Financial Inclusion
Over the years, Nigerian FinTech has made a great effort to foster financial inclusion through a technology-driven approach. The Fintech industry has put different strategies in place to tackle everything that has prevented some members of society from accessing financial services.
FinTech companies are making financial services easier to access for people of all jobs of life.
They have thoroughly simplified the whole process to ensure that the unbanked and underbanked population has access to several financial products and services, including investment opportunities, savings, credit options, insurance, and retirement plans.
To offer unperturbed access to all these financial products and services, FinTech companies render these services through various channels, including mobile phones, point-of-sale devices, and networks of agents.
Now, even if there are no banks in rural areas, agents from different FinTech companies offer financial services to the masses.
Nigerian FinTech has made access to financial services more convenient and hassle-free. People do not need to visit their banks regularly anymore. From the comfort of their homes with their mobile phones, they can send money to their loved ones, apply for loans, pay their bills, register for any insurance policy, book flight tickets and taxi rides, request medical services, and many others.
Nigerian FinTech has had considerable success in fostering financial inclusion. According to the EFInA Access to Finance Survey report, formal financial inclusion in Nigeria has grown remarkably from 56% in 2020 to 64% in 2023. The report acknowledges that the tremendous growth is due to an increase in the use of non-banking channels.
The survey also shows that access to financial services has reduced the financial exclusion rate from 32% in 2020 to 26% in 2023, barely above the 25% target the Central Bank of Nigeria expects to achieve in 2024.
The Challenges of Nigerian FinTech in Fostering Financial Inclusion
Although Nigerian FinTech has had considerable success in furthering financial inclusion, there are also challenges that are hindering a smooth process, such as illiteracy, poor infrastructural facilities, unsteady power supply, poor mobile receptions, low level of financial literacy, Lack of consumer trust, poverty, etc.
Illiteracy
Most people in rural areas are not educated, and this is a tough barrier preventing Nigerian FinTech from achieving its goal of financial inclusion. Some of the digital financial services are designed for the educated and internet-connected members of society, so those who cannot read cannot take advantage of the financial services offered by the FinTech industry.
Poor Infrastructural Facilities
Poor infrastructural facilities are another challenge faced by Nigerian FinTech in fostering financial inclusion. The lack of good roads and the high cost of transportation make it difficult for FinTech agents to reach people in rural areas.
Low Level of Financial Literacy
The unbanked population generally believes that they do not require the financial products offered by banks and FinTech companies.
Instead of taking out a loan from a bank or a fintech company, this group of people would prefer to use unofficial lending from friends, family, and the local cooperative society.
Additionally, they will favor joining an unofficial savings group known as Osusu or putting their money in a savings box. Due to these obstacles, fintech companies that offer lending and savings services have found it challenging to attract these customers.
Insufficient Trust from Customers
Not many people trust FinTech companies and their services. Some people feel that they are out there to defraud people.
Also, the increase in cyberattacks is a serious threat and challenge to the FinTech industry, which may hinder people from trusting them. A cyberattack on fintech firms is dangerous and can be very expensive to recover from.
Unsteady Power Supply
Unsteady power supply and a lack of electricity in rural areas challenge FinTech, making it difficult for people to use digital financial services.
Poor Mobile Network Reception
Poor mobile reception, especially in rural areas, has made it difficult for people to access digital financial services.
The Future Prospects of Nigerian FinTech in Fostering Financial Inclusion
Fintech is reshaping the future of finance by transforming payments, lending, investment, insurance, and other financial products and services.
Nigerian FinTech is committed to combining new technologies with existing ones to tackle challenges that prevent some people from having access to financial products and services.
Easy access to basic financial services will foster financial inclusion and high productivity and growth for micro and small businesses in urban and rural areas.
The Bottom Line
Financial inclusion is important to a developing country like Nigeria. People and businesses who have access to financial products and services are bound to grow, which will also lead to the country’s economic progress.