Fintech firms that are targeting Nigeria’s unbanked rural communities are struggling to deliver financial inclusion as governance poses barriers to market development.
Some 80 million Nigerians – around 43 percent of the national population – do not have access to a bank account yet almost 70 percent own a mobile device, creating an opportunity for fintechs to fill the banking gap.
But Bunmi Lawson, CEO of Accion Microfinance Bank, told Development Finance at this year’s European Microfinance Week that while Accion is planning to expand by investing in digital finance companies, political instability threatens innovation within the private sector as well as consumer confidence.
“The government tends to come up with policies that are populist, but which don’t help with financial inclusion,” she said. “In the past, they have come up with ‘cashless’ policies that say you can’t withdraw more than a certain amount. We’ve seen them go back and forth on that. People also use elections as an opportunity to create civil unrest, so there is a flight to safety that often affects the economy.”
GSMA, the mobile network operator association, reported earlier this year that while revenues from mobile services in West Africa grew by 2.8 percent to US$15.6 billion in 2016, growth in Nigeria fell by 5.5 percent. Reasons for the decline centered on a rise in inflation to 16 percent and a subsequent fall in consumer spending, both of which have persisted throughout 2017.
Lawson said she expects 2018 will introduce a period of recovery to the economy, allowing fintech the opportunity to harness Nigeria’s phone penetration to boost inclusion. “Fintech in Nigeria has really grown. We have over fifty-six different companies offering various forms of financial services,” she said.
Accion Microfinance Bank plans to partner with Flutterwave and Paylater, firms which seek to increase the economic inclusion of groups that typically do not have access to financial services. Flutterwave is a pan-African online payments platform that registers users using their bank details to allow for bank transfers via SMS. Similar products have already proven successful, such as Paga, a Nigerian digital payments start-up, and Kenyan mobile platform MPESA. Paylater meanwhile provides short-term loans to customers in need of last-minute cover for expenses.
“With a combination of our own experience, having lent to the microfinance sector for over ten years, and fintechs’ expertise, this will enable us to provide services in rural areas,” Lawson said. She added that with an election year in Nigeria set for 2019, uncertainties over government policy towards financial services already foreshadow the fintech market. The bank will spend 2018 focusing on how to change the behaviour of remote communities in the north of Nigeria that have yet to fully embrace digital finance.
“A major challenge we face now is how to get those in rural areas to believe that you can do banking on a phone,” added Lawson.