FINANCIAL INCLUSION IN NIGERIA: THE MICROFINANCE BANKS’ SCORECARD

Introduction Financial exclusion Financial dualism Implications of dualism Government response Rural banking scheme Peoples Bank Microfinance banking

Objectives To examine the state of financial inclusion in Nigeria To assess the contributions of microfinance banks to financial inclusion

National Financial Inclusion Targets Table I: Nigeria’s National Financial Inclusion Targets Source: Central Bank of Nigeria (2012)   2010 Baseline 2015 2020 % of total adult population Payments 22% 53% 70% Savings 24% 42% 60% Credit 2% 26% 40% Insurance 1% 21% Pensions 5% Units per 100,000 adults Bank Branches 6.8 7.5 7.6 MFB Branches 2.9 4.5 5.0 ATMs 11.8 42.8 59.6 POS 13.3 442.6 850.0 Mobile Agents 0.0 31.0 62.0 % of population KYC ID 18% 59% 100%

State of Financial Inclusion Table 2: Change in Access Strand 2008 – 2016 (%) Year Banked Formal Other Informal only Formally served Financially included Not served 2008 21.1 2.5 23.9 52.5 47.5 23.6 76.4 2010 30.0 6.3 17.4 46.3 53.7 36.3 63.7 2012 32.5 10.5 17.3 39.7 60.3 43.0 57.0 2014 12.3 11.9 39.5 60.5 48.6 51.4 2016 38.3 10.3 9.8 41.6 60.4 Source: EFInA Access to Financial Services Survey, 2008, 2010, 2014, 2016.

State of Financial Inclusion Table 3: Financial Access by Urban/Rural Setting   Banked Formal other Informal Excluded Population Urban 60.9% 10.4% 43% 24.4% 36.7m Rural 10.3% 13.1% 52.2% 59.7m Total 38.3% 9.8% 41.6% 96.4m Source: EFInA Access to Financial Services in Nigeria Survey, 2016. p.20

State of Financial Inclusion Table 4: Nigeria’s performance vis-à-vis a few select countries. Country Adult populati on (million) GDP ($Billion) Mobile subscription (%) Fin. a/c ownership adults (%) Fin. a/c ownership women (%) Overall score (%) Bangladesh 106 173 56 31 26 66 Brazil 144 2417 69 68 65 78 India 860 2049 48 53 43 71 Kenya 25 61 57 75 84 Nigeria 97 569 47 44 34 72 South Africa 36 350 67 70 Uganda 19 27 46 37 Source: The 2016 Brookings Financial & Digital Inclusion Project

State of Financial Inclusion Table 5: Financial Access Comparison among Sub-Saharan African Countries   Banked Formal other Informal only Excluded South Africa (2015) 77% 6.0% 3.0% 13.0% Kenya (2016) 42.3 33.0 7.2 17.4 Nigeria (2016) 38.3 10.3 9.8 41.6 Ghana (2015) 36.0 22.0 17.0 25.0 Rwanda (2016) 26.0 42.0 21.0 11.0 Zambia (2015) 21.4 16.8 21.1 40.7 Togo (2016) 18.0 27.0 15.0 40.0 Madagascar (2016) 12.0 30.0 41.0 Source: FinScope; FinAccess National Survey, Kenya; Central Bank of Kenya; EFInA Access to Financial Services in Nigeria 2016 Survey.

Trends in MFB Financial Inclusion Indicators Annual percentage change in MFB deposit (% MFBD), MFB credit (%MFBC) and no. of MFBs (% NMFB)

Trends in MFB Financial Inclusion Indicators Graphical Trends in financial Inclusion Indicators RDGDP & RCGDP

Model Specification COB = f(NUMBF, MFBDEP, MFBCR, INTD, INTL, RDGDP, RCGDP) COB = Currency outside banks NUMBF = Number of microfinance banks MFBDEP = Microfinance bank deposit MFBCR = Microfinance bank credit INTD = Interest on deposit INTL = Interest on loan RDGDP = Ratio of MFB deposit to GDP RCGDP = Ratio of MFB credit to GDP

Diagnostic Test Source: Computed Eviews 9 Results RESULT OF UNIT ROOT TEST BASED ON PHILLIPS-PERRON (PP)   Variable PP CRITICAL VALUE @ Order of Integrati on P-value 1% 5% 10% COB -3.878839 -4.440739 -3.632896 -3.254671 I(1) 0.0311 NUMFB -8.854479 0.0000 MFBDEP -10.94414 MFBCR -8.034872 INTD -6.500561 0.0001 INTL -6.020529 -4.416345 -3.622033 -3.248592 I(0) 0.0003 RDGDP -13.90704 RCGDP -4.707726 0.0054 Source: Computed Eviews 9 Results

OLS REGRESSION RESULTS Dependent Variable: COB   Variable Coefficient Std. Error t-Statistic Prob.   C 687813.4 334044.5 2.059047 0.0562 NUMFB -157.6456 161.2893 -0.977409 0.3429 MFBDEP 26.26541 8.022847 3.273826 0.0048 MFBCR -12.97546 6.331126 -2.049471 0.0572 INTD -22901.20 9988.938 -2.292656 0.0358 INTL -7172.868 13074.28 -0.548624 0.5908 RDGDP -4802007. 2667271. -1.800345 0.0907 RCGDP 462420.9 1202846. 0.384439 0.7057 R-squared 0.956700     Mean dependent var 603879.2 Adjusted R-squared 0.937756     S.D. dependent var 498600.9 S.E. of regression 124395.0     Akaike info criterion 26.56151 Sum squared resid 2.48E+11     Schwarz criterion 26.95420 Log likelihood -310.7382     Hannan-Quinn criter. 26.66569 F-statistic 50.50169     Durbin-Watson stat 1.436109 Prob(F-statistic) 0.000000

Findings Most of MFBs financial inclusion indicators are positively trending There are 1.02 MFBs per 100000 people against the projected 4.5 in 2015 Increasing MFB influence indicated by increasing ratios of MFB deposit and credit to GDP and MFB deposit and credit to rural commercial banks branches deposit and credit. Increases in the number of MFBs and their credit, interest on deposit are inversely related to currency outside banks. MFB deposit related positively while interest on loan had inverse relationship with COB contrary to expectations.

Conclusion The study thereof concludes that MFBs in Nigeria are enhancing financial inclusion and that with the large population of financially excluded adults that enormous potential exist for MFBs to do more.

Recommendations MFBs should pay competitive interest on deposit CBN should encourage and license more MFBs. Provision of low cost funds to MFBs for on-lending.

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