Nigeria: Engendering access to financial services in Nigeria

By Mathias Amuta, Business Day Online

Cultural practices have put the woman and girl-child at an economic disadvantage in many societies across the world. Their place is relegated to menial, low-paid and subsistence activities that are often uncounted in national statistics. Even in modern times, these trends have not changed and are now entrenched in the way resources are being allocated and opportunities presented in the society. As we celebrate this year’s International Day of Women, it has become pertinent to highlight the disadvantages faced by women in accessing financial services in Nigeria.

Women are often seen as the weaker sex, yet in many communities in Nigeria, they put in more hours of work than men. They are expected to perform both reproductive and productive functions within the family, and are often unpaid. Women living in poverty (and majority of Nigerian women belong to this category) are disproportionally affected by these responsibilities. In Nigeria, where successive governments have failed to provide basic amenities and public services are lacking in our local and peri-urban areas, women rely on their labour to provide the needed care and still earn income through subsistence farming, petty trading or hawking. They must achieve this and again still perform the reproductive and maternal functions within the household. According to a recent study conducted by ActionAid, poor women in rural and urban areas work longer hours than men, spend more time on unpaid care work and subsistence agriculture, and have less time to engage in paid work and social and cultural activities. This is a breach of their fundamental human rights. Despite this amount of time women put into work, they earn little, own no assets and have no forms of security to handle social shocks. This situation is both for rural and urban communities in Nigeria.

Access to financial service is one of the areas where women face the greatest discrimination as financial service providers have failed to understand the salient lifecycle needs of women in the design and delivery of their products and services. There is a generally accepted correlation between gender inequality and low economic indices, and for Nigeria to improve the livelihoods of its people, greater attention must be placed on gender relations. Access to finance enables women to invest and acquire assets for increased economic activity. As a result of this economic empowerment, women can increase household wellbeing, including men and children (through improved nutrition, health, literacy and happiness). Increase in economic activities and increased decision-making by women lead to a wider social and political empowerment. This can be seen in improved confidence, skills, network and mobility as well as power to challenge and change gender relations. All these improve women’s human rights, general poverty reduction and national economic growth.

At the micro level, because women are more averse to risks, have time constraints (due to other household responsibilities) and are often inexperienced with large-scale income generation, financial service providers should design their products by offering small loans so that women can invest in small assets or in income-generating activities that yield quick returns. Loans to women must be targeted at productive activities while collateral requirements must be relaxed to include social collateral and women’s property such as jewellery and utensils. To instil financial discipline, repayments must be more regular (daily or weekly) and be as soon as loan is disbursed. Savings programmes should also be designed to increase thrift and financial management, risk mitigation and assets building. All financial service should be group-based and made accessible to women and they should be located where women frequent. Group-based delivery reduces cost and increases social cohesion. Financial service providers should lace their product offering with insurance products that mitigate the risk that women face in their lifecycle, especially health and other risks associated with loans.

The British Council in a recent report on gender in Nigeria stated that despite its size, Nigeria has the lowest rate of female entrepreneurs in sub-Saharan Africa due mainly to inability to scale up from casual, low-skilled, low-paid informal businesses. Their inability to scale up is attributed to limited access to credit, and with only 7.2 percent of them owning land, this access is far from them as they are unable to meet collateral requirements. Yet the Strategic Objective 55 of the Beijing Platform of Action calls for an increase in the productive capacity of women by providing access to capital, resources, credit, etc so as to raise their income and general household wellbeing. Women run only 20 percent of enterprises in the formal sector of Nigeria and without collateral security, they struggle to obtain the needed finance for off-farm activities.

Nigerian financial institutions should, therefore, provide frameworks for the scaling up of women from micro levels to SMEs. This can be achieved though vocational and financial literacy training that must be handled as part of the general service offering to women in such a cost-effective manner to the providers for sustainability.

The Commonwealth Secretariat in London, as part of its Plan of Action for Gender Equality, recently invited leading gender-friendly savings and credit organisations (SACOs) from selected countries to a capacity-building workshop and tour of India, where gender mainstreaming in financial services access was highlighted, knowledge shared and best practices recommended for adoption in member countries. Nigerian financial service providers, regulators and government should learn from success stories in other climes without reinventing the wheel and fast-track this all-important aspect of its economic development.

While the government of Goodluck Jonathan has been praised for its strides in gender matters as depicted by the number and portfolio of women in government, it should introduce policies that make women have equal opportunity to access needed financial resources to increase their businesses. This can be achieved through the provision of incentives (to banks) for priority lending programmes in favour of women businesses, as well as introduction of trade policies and reforms that are not gender neutral. Efforts must be placed in areas where women have demonstrated higher potential for entrepreneurship (such as handcraft and fashion) and linking up women producers and exporters to global markets.

Nigeria: Taking Financial Inclusion Beyond Lip-Service in 2013

Obinna Chima highlights some of policies and activities that would shape the performance of the banking industry in 2013

Despite efforts by the Central Bank of Nigeria (CBN), access to financial services by a large number of the population is still low as a lot of people are still outside the banking system.

Indeed, financial inclusion has been identified as a plank to lift a large fraction of the unbanked population globally out of poverty and hunger and bring them into the financial system.

Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society.

It has also been described as the state of financial system where every member of society have access to appropriate financial products and services for effective and efficient management of their resources, get needed resources to finance their businesses and financial leverage to take up opportunities that will lead to increase in their incomes.

According to the United Nations (UN), the main goals of financial inclusion amongst others include access at a reasonable cost of all households and enterprises to the range of financial services, for which they are ‘bankable,’ sound institutions guided by appropriate internal management.

In Nigeria, a 2012 report by the Enhancing Financial Innovation & Access (EFInA) had shown that 39.7 percent or 34.9 million Nigerians are financially excluded.

The survey also revealed that 32.5 per cent or 28.6 million Nigerians bank formally. This included adults who have access to or use financial services supplied banks. Adults who have access to, or use formal financial services or products not supplied by banks constituted 10.5 per cent or 9.2 million.

Therefore, with the launch of the financial inclusion strategy by the banking sector regulator last year, it is expected that the move, aimed at encouraging a lot more Nigerians into the banking system would be pursued sincerely by the regulators, government and operators this year.

In fact, CBN Governor, Mallam Sanusi Lamido Sanusi, disclosed recently that in line with the strategy, the Bankers’ Committee would commence the pilot scheme of the programme in Borno State.

“Bornu State was selected to pilot the financial inclusion scheme due to its high rate of financial exclusion, significant number of rural women, security issues plaguing the state and having one of the highest levels of poverty in the country,” Sanusi said.

Therefore, commercial banks and other stakeholders in the system would have to further strengthen their collaboration this year especially on delivery model and technology. This is because attracting this huge number of the unbanked population into the system presents a huge opportunity for banks.

Cashless Policy

The cashless policy is another initiative that was designed to support financial inclusion. The pilot phase of the initiative aimed at reducing the dominance of cash in the system commenced in Lagos last year January.

The CBN had, in response to public outcry over an earlier ceiling on daily cash withdrawals and deposits, raised the limits. The banking sector regulator had in March, increased the daily cumulative cash withdrawal/ deposit limit for individual accounts from the previously announced N150,000 per day to N500,000. Similarly, the limit for corporate accounts was also raised to N3 million per day, from the N1 million earlier announced. Penal charges were also imposed, for customers that wish to withdraw/deposit above the limits from April 1, 2012.

According to the earlier arrangement, the policy was expected to be implemented in other states by January 1, 2013. However, the apex bank recently explained that the January date was no longer feasible, saying that the connectivity challenges observed in Lagos would be sorted out before rolling out the policy nationwide.

Some of the alterative channels being offered by banks and service providers include Internet banking, mobile money transfer, point of sale (PoS) terminals and the use of automated teller machines (ATMs).

While officials of the CBN believed the policy had recorded a lot of success, Managing Director/Chief Executive Officer, Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, disagreed.

Rewane expressed concern over the low level of acceptance of the policy.

Rewane listed connectivity challenges with PoS terminals, ATMs and mobile services as some of the factors obstructing the growth of the scheme.

“The level of debit card activities in the supermarkets and shopping malls up marginally, but still less than 3 per cent of total sales,” he said.

He also argued that the cashless policy was “making traders and consumers less comfortable.”

The recent removal of the N100 charge on ‘other banks’ ATMs, is also expected to support the policy. Thus, in 2013, it is expected that in line with the financial inclusion target of the regulator, the challenges identified in the cashless policy would be addressed.

Financing of Power Sector Privatisation

With the announcement of 14 companies selected as preferred bidders for the generation and distribution companies under the power privatisation programme, the market will be looking up to Deposit Money Banks (DMBs) to finance the acquisition of the power assets this year.

Already, some of the banks have disclosed that they are already negotiating with the power sector investors on the structure of the deal. Investigations had shown that nearly all the banks, led by First Bank of Nigeria (FBN), Zenith Bank Plc, United Bank for Africa Plc (UBA), Fidelity Bank Plc and Skye Bank Plc, have been wooing the bidders and offering them mouth-watering proposals to fund their acquisitions.

Financing of the distributing companies (Discos) is attracting more interest from banks than the power generation companies (Gencos) because of their direct interface with customers and as such, could generate high returns and pose a lower risk to the banks.

Group Managing Director/Chief Executive Officer, First Bank Nigeria, Mr. Bisi Onasanya, disclosed recently that although First Bank has been supporting some of the preferred bidders, the bank is doing so meticulously.

“We have identified the parties that are credible and we are working along with them, together with their technical partners to make sure that we take them and hand-hold. What we are putting on the table with the consortia that we are dealing with, is not just funding. We are also involved in the technical side of it. So, it is not just First Bank alone that is involved in this.

“We have also had the opportunity to make our input known to the federal government in terms of what we expect. A lot still needs to be done as we go ahead with privatisation and a lot of resources are required. We have made suggestions and agreed with the central bank at the last Bankers’ Committee retreat that the proceeds of the privatisation should be used in fixing the transmission problems that we have.

“Banking has become globalised and so these transactions are not just available for Nigerian banks. There are foreign banks and foreign Development Finance Institutions who also want to be part of the transaction,” he explained.

Lending to Real Sector

In 2012, there was a lot of complaints by industrialists and operators of small and medium enterprises (SMEs) over their inability to access bank loans. This was largely blamed on the restrictive monetary policy of the CBN. It is also expected that banks would continue to invest heavily in treasury bills and government securities this year because of their high returns and low risk.

Confirming this, a financial consultant and Chief Executive Officer, B.A. Adedipe, and Associates, Dr. Biodun Adedipe, argued that with the experiences of what financial institutions suffered during recent the global economic crisis, they are not likely to soon forget the lessons. He predicted that banks would prefer to continue lending to the blue-chip companies in 2013.

He added: “I see them still playing in the safe sectors of the economy. They will still be interested in lending to blue-chips, oil and gas and telecoms. They perhaps would only look the way of SMEs if there is a clear intervention of the government or there is a clear commitment to infrastructural development.”

In his prediction for the banking industry in 2013, Adedipe said: “I see a Nigerian banking industry that would grow bigger, that, is talking about the balance sheet of the banks because the economy itself is also growing. In terms of the trajectory, the economy is on the recovery path.

“The expectation is that the Nigerian economy would grow further in 2013 and that provides the environment for the banks to grow. I equally expect them to have stronger earnings in 2013 because the reality is that the banks are not only renewing their technology, they are equally strengthening their operations.”

According to analysts, the expansionary 2013 budget and the recent approval of a supplementary budget for 2012, may send signal to the Monetary Policy Committee (MPC) that there is much liquidity in the system and may force the committee to retain high interest rates in the first quarter.

On his part, Deputy Governor Operations, CBN, Mr. Tunde Lemo, said: “Once we remove the structural factors that impede growth, over time we are going to see a lot more rebalancing in the economy.”

To Onasanya, having fixed the problem in the banking sector, all banks in the country are now solid. He advised banks to ensure that they continue to balance liquidity management, capital adequacy management and interest rate risk management.

“In doing all that, it is only the banks that have enough skills and discipline to strike that delicate balance between those three parameters that would make the difference in 2013. There are so many financing opportunities in the market today, but my advice to the banking sector is that they should not be greedy, they should know exactly what their limits are and they should put their skills in structuring deals and transactions, partnering with each other to fashion out financing model for the privatisation model that is going on presently to support the real sector of the economy,” he said.

He urged the “real sector needs to do better for the banking sector to come out and support it.”

SOURCE: This Day Live

Nigeria: Financial inclusion countdown: CBN deploys 101154 POSs, 9676 ATMs

By Amechi Ogbonna, Sun News Online

Bothered by the relatively high rate of exclusion of an estimated 39.2 million Nigerian adult population from modern financial services across the country, the Central Bank of Nigeria (CBN), pledged renewed commitment at lowering the number of the population currently not having access to formal banking services.

In its recent financial inclusion roadmap, the apex bank hinted it intends to raise the bar for extension of provision of adequate, appropriate and timely financial services for the 39.2 million financially excluded adult Nigerians. Speaking recently on its efforts so far, Central Bank Governor, Mallam Sanusi Lamido Sanusi, noted that the initiative occupies a central position in the country’s efforts at promoting and achieving rapid economic development.

Sanusi explained that one of the major reasons for the high rate of financial exclusion in Nigeria was inadequate knowledge of the service providers, services provided, terms and conditions and the benefits derivable from accessing financial services. According to the apex bank boss, the reforms in the banking sector has so far led to significant reduction of the industry cost – to serve by 30 per cent; while increasing access, convenience and service levels across the industry.

He stated that the process has also enabling greater financial inclusion and integration of financial services into the economy, pointing also that the bank has already prepared the framework for implementing the tiered Know-Your-Customer (KYC) requirements and the establishment of a unique identification mechanism for the financial services sector.

The bank pointed out that as at September 2012, a total of 101,154 POSs and 9,676 ATMs had been deployed in Nigeria, while the 20 Licensed Mobile Payment Operators, carried out transactions worth over N8 billion,with over 40,000 agents across the country. The CBN admitted that globally, access to financial services has remained a major challenge to development, citing reasons for this state of affairs to include: cultural barriers, low education, unemployment, gender, long distance to access points, lack of appropriate means of identification and high transaction costs.

In Nigeria, the rate of adult financial exclusion is estimated at 46.3 per cent, one of the highest in Sub-Saharan Africa, hence the development of a National Financial Inclusion Strategy (NFIS) by the CBN. It was also observed that about 90 per cent of children and youths do not have access to formal financial services even though 32.1per cent of world population is below the age of 18.

In Sub Saharan Africa, children make up 47.30 per cent of the population, and only 16.8 per cent of those between the ages of 15–25 years hold accounts in formal financial institutions. Furthermore, only about 1.5 million children and youths are currently saving with a total savings balance of USD7.53million an indication that a lot of work still needed to be done to ensure that in Africa, and across the world, children and youths benefit from combined financial education and inclusion.

The major objective of the Strategy according to the apex bank was to reduce the exclusion rate to 20.0 per cent by 2020, in line with the Maya Declaration of 2011. In order to underscore the importance Nigerian government attaches to Financial Inclusion, the country has launched the National Financial Inclusion Strategy, as well as hosting Her Royal Highness (HRH), Princess Maxima of the Netherlands, the United Nations (UN) Secretary-General’s Special Advocate for Inclusive Finance for Development.

The two events held concurrently with the first Alliance for Financial Inclusion (AFI) Strategy Peer Learning Programme and the Regional Meeting of the Child and Youth Finance International for Africa, as a reflection of efforts of the Central Bank of Nigeria to enhance access to financial services in the country.

Meanwhile the apex bank has indicated its commitment to further enhancing Financial Literacy among Nigerians which is a process, by which consumers/investors improve their understanding of financial products, concepts and risks through information, instruction and/or advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, know where to go for help, and take other effective actions to improve their well-being.

It argues that, financial inclusion, financial literacy and consumer protection play complementary roles in the attainment of financial stability in any country’s economy. In the light of the above measures, the bank has also established the Consumer Protection Department, drafted the Financial Literacy Framework for Nigeria in addition to issuing Guidelines for Agent Banking. It has also revised the National Microfinance Policy, Regulatory and Supervisory Framework for Nigeria and revised the Microfinance Regulatory Guidelines.

Nigeria: Govt to reduce poverty with new banking scheme

By Madu Onuorah and Mathias Okwe, The Guardian Nigeria

IN a bid to reduce poverty the Federal Government has planned to make use of an all-inclusive financial scheme.

President Goodluck Jonathan yesterday said that financial inclusion was necessary if all citizens would directly feel the impact of growth in the economy.

The president said the financial inclusion strategy midwifed by the Central Bank of Nigeria (CBN) would enable more Nigerians to have access to funds and help reduce poverty, especially in the rural areas.

Represented by Vice President Namadi Sambo, Jonathan assured that the Federal Government was solidly behind the policy which was in line with the administration’s transformation agenda aimed at poverty reduction through job creation.

The CBN’s plan to bring all of the 84.7 million adult population of Nigeria into the banking system through the creation of access to finance kicked off yesterday with the launch in Abuja by Jonathan of the Nigeria’s National Financial Inclusion Strategy.

Jonathan told the visiting United Nations’ Special Envoy for Financial Inclusion, Princess Maxima of Netherlands at the Presidential Villa, Abuja : “It is important for us to have structures that will enable all Nigerians have access to financial services as well as funds, and we have started programmes targeted at empowering the youth, women and the creative industry.”

The president said that his administration would support the strategy and pool the relevant departments of government to implement it for the benefit of Nigerians.

Jonathan said he recognised the importance of small and medium enterprises as the major vehicle to create employment in an increasingly industrial world, and commended the CBN for the new strategy to provide access to funds.

Maxima commended Jonathan for supporting the financial inclusion strategy, the work of the Economic Management Team and the effective coordination of relevant ministries and departments.

She said a very good communications network was necessary for adequate support to reach rural agriculture, and commended Jonathan for providing the impetus required for this to be achieved.

The apex bank said 39.2 million of the adult population, representing 46.3 per cent had no link or access to any banking services of any sort and this strategy was aimed at bringing them into the fold, with the belief that this would go a long way in reducing the poverty level in the country.

Of the unbanked population, women account for 54.4 per cent while 73.8 per cent of the population are aged less than 45 years. Also 34 per cent of the population are without formal education, with 80.4 per cent of them living in the rural areas of the country.

Under the launched inclusion strategy, the apex bank is targeting to reduce this excluded population by 59 per cent in 2015 and to finally raise it to 100 per cent by making sure every Nigerian adult is covered and fully participates in the financial system by the year 2020.

However, Her Royal Highness (HRH), Princess Maxima of The Netherlands and the UN Secretary General’s Special Advocate on Inclusive Finance, who was in Nigeria to witness the launch observed that unless Nigeria’s high lending rate was brought down, the initiative could be counter-productive as the high rate might not encourage the financially excluded to buy into the banking system.

Maxima also advised the CBN to consider the use of mobile banking and other friendly services in the implementation of the plan so as to record a huge success. She urged the CBN to collaborate with other major stakeholders n the industry in the plan’s implementation.

While reacting to the high interest regime observed by Maxima, the CBN Governor, Mallam Sanusi Lamido Sanusi told reporters that with the tight monetary policy disposition of the apex bank aimed at sustaining price and macroeconomic stability, lending rates were sure to witness a south-ward movement.

Earlier, in a keynote address , Sanusi gave a perspective of the country’s financial inclusiveness and also explained plans by the apex bank to improve the situation.

Nigeria: 39m Nigerians excluded from financial services

By Abdulwahab Isa & Abdulrahman Abdulraheem, Peoples Daily

The Central Bank of Nigeria (CBN) has said 39.2 million out of the estimated 84.7 million adult populations in the country are excluded from financial services.

CBN Governor, Malam Sanusi Lamido Sanusi, reeled out the figures yesterday in Abuja at a stakeholders’ forum for the launch of Nigeria’s National Financial Inclusion Strategy.

A breakdown of the data showed that 80.4 percent of the excluded adults reside in the rural areas. 54.4 percent are women, 73.8 percent are those under 45 years of age while 34.0 percent are those without formal education.

Sanusi however gave assurance of the country’s preparedness to reduce its financial exclusion rate to 20 percent by 2020.

Similarly, President Goodluck Jonathan has said he would support the strategies adopted by the CBN to include more Nigerians in financial services saying such was necessary if all citizens will directly feel the impact of growth in the economy.

Jonathan, who stated this while receiving Princess Maxima of Netherlands, United Nations Special Envoy for Financial Inclusion, at State House in Abuja yesterday, noted that it was important for the nation to have structures that will enable all Nigerians have access to financial services as well as funds.

He told Maxima, who was at the launch of Nigeria’s National Financial Inclusion Strategy that his administration has started programmes targeted at empowering the youths, women and the creative industry adding that the financial inclusion strategy midwifed by the CBN would enable more Nigerians have access to funds and help reduce poverty, especially in the rural areas.

The President said he recognized the importance of small and medium enterprises as the major vehicle to create employment in an increasingly industrial world, and commended the CBN for the new strategy to provide access to funds.

At the launch, the CBN governor, said he was “overwhelmed by the presence of this large number of committed stakeholders from all across the globe saying such indicated the global resolve and commitment to deploy appropriate strategies for effective financial inclusion with the resultant outcome of poverty reduction, job and wealth creation, as well as overall growth and development of our nations’ economies”.

Speaking in an interview with newsmen, Princess Maxima applauded the CBN’s initiative and solicited for collective efforts by all concerned in realizing the goals.

Earlier, Princess Maxima commended President Jonathan for supporting the financial inclusion strategy, and for the work of the Economic Management Team and the effective coordination of relevant ministries and departments.

She said a very good communications network was necessary for adequate support to reach rural agriculture, and commended President Jonathan for providing the impetus required for this to be achieved.

The launch attracted dignitaries across the world as well as top functionaries from various countries.

India: Financial inclusion – India scores poorly on global stage

India had scored poorly on financial inclusion parameters when compared with the global average, said the Reserve Bank of India in its annual report.

The report quoted a World Bank study in April 2012, which had shown half of the world’s population held accounts with formal financial institutions. The study said only nine per cent of the population had taken new loans from a bank, credit union or microfinance institution in the past year. In India, only 35 per cent have formal accounts versus an average of 41 per cent in developing economies.

India also scored poorly in respect of credit cards, outstanding mortgage, health insurance, adult origination of new loans and mobile banking. “Financial inclusion remains a substantially unfinished agenda,” said the report.

RBI has admitted that they have faced criticism from extreme votaries of strong interventionist policies to promote financial inclusion and it was argued that such directed lending rates leads to mis-allocation of resources. However, the central bank said it has striven to ensure a balance between equity and efficiency considerations so that financial inclusion is furthered while not compromising on the financial health and the lending capacities of the banks.

Latest figures indicate that there are over 110,000 business correspondents employed, which is not a large number in context of the number of banked villages, RBI said. However, the regulator said, they have taken several initiatives to make financial inclusion high on the agenda of Indian banking in the recent years. It required banks to provide no-frills account, tried to improve the outreach of banks through the business facilitator and business correspondent (BC) models and set up goals for banks to provide access to formal banking to all 74,414 villages with population over 2000.

RBI also adopted the information, communication, technology-based agent bank model through BCs for door-step delivery of financial products and services since 2006. However, in its annual report, RBI said the BC model has not been effective in addressing financial inclusion needs. “The model, by itself, cannot serve the financial inclusion objective. It cannot substitute the services and the customer confidence that the brick and mortar bank branches provide,” said RBI in the report.

RBI said that there is a need for mainstreaming financial inclusion. “To improve the access of the poor to banking, banks need to open branches to provide low-cost intermediation with simple structures, minimum infrastructure for operating small customer transactions and supporting up to 8-10 BCs at a reasonable distance of 2-3 km,” said RBI.

It said that the medium-term strategy for banks would need continue with a multi-facet approach with activities woven around linking of bank finance with self-help groups through microfinance institutions or otherwise. “It is in banks’ medium- to long-term interest to do so, as financial inclusion may be a short-term pressure on banks’ profitability, but over the years could increase the size and scope of banking in India. It will add to the banks’ revenue stream, making it commercially viable,” the regulator added.

SOURCE: Business Standard

India: MFIs as BCs – Game changers in financial inclusion

By S V Krishnamachari, Declan Herald

Financial inclusion could witness a paradigm shift if microfinance institutions (MFIs) are appointed as banking correspondents (BCs), says a recommendation made by economist Raghuram Rajan’s Report of the Committee on Financial Sector Reforms in 2008.

The move, it is believed, could result in routing cash transactions running into thousands of crores, through banking channels, in making financial inclusion truly meaningful.

The Rajan Committee, in the chapter titled “Broadening Access to Finance”, says, “The Committee recommends that the BC definition be broadened and endorses the recommendations of the Rangarajan Committee on Financial Inclusion with regard to the BC model.

It supports the proposal to allow microfinance NBFCs to act as limited BCs (banking correspondents) for banks with regards to savings and remittances and recommends that microfinance NBFCs also be allowed to provide credit as BCs of banks, if they choose to do so. Finally, in order to make this business viable, it is important that business correspondents be allowed to levy reasonable user charges to recover the cost of services.”

The recommendation was recalled by an MFI during a panel discussion on “Financial Inclusion” jointly organized by Bankers’ Club and Centre for Public Policy, Indian Institute of Management, Bangalore, as part of the seventh annual international conference on public policy and management.

Samit Ghosh, chief executive officer and managing director, Ujjivan Financial Services, an MFI with a turnover of about Rs 1,200 crore, said there are benefits for all. “We disburse about Rs 100 crore and collect about Rs 90 crore every month, all in cash. If this amount can be brought into the banking system, it would scale up business for the banks.

At the same time, it would eliminate the risk of physically carrying cash. If we are appointed as BCs, we would be in a position to ensure all these,” says Ghosh, a former banker.

The company is bullish on opportunities in microfinance, having raised Rs 128 crore in January this year through equity and firmed up plans to raise about Rs 45 crore by issuing fresh equity to the International Finance Corporation, by the end of this month. Meanwhile, aggressive bidding by institutions to grab a share of the rural banking space, have led to concerns being expressed over viability.

The bidding process kickstarted in May after the Union Finance Ministry divided India into 20 clusters in April this year to pave the way for the appointment of a BC in each cluster. Commission rates quoted by the bidders were too low, given that many BCs who were appointed earlier by bankers individually were citing this as the precise reason for the model becoming unviable.

“We earned about Rs 8,000 per centre for rendering services in seven centres of Kunigal taluk in Karnataka, while our expenses were Rs 10,000; clearly the model is a loss-making proposition for us,” says Vivekanand N Salimath, managing trustee, Initiatives for Development Foundation (IDF), appointed as BC by the State Bank of India in Karnataka.

He says that the agreement with SBI puts a cap on commission earned so that it does not exceed Rs 6 for deposits and Rs 9 for withdrawals by the beneficiaries. The commission otherwise is 0.50 per cent of the value of the transaction, he added.

Salimath says that BCs who have won by quoting rates as low as 0.03 per cent (for Karnataka and Goa) could find the going extremely difficult. The winner is believed to be Financial Inclusion Network & Operations Limited (FINO). When contacted, a spokesperson for FINO declined to comment on the rate but said his firm did bid for Karnataka and for other clusters as well.

On the flip side, concerns of aggressive bidding have come from the central bank. Harun R Khan, deputy governor, RBI, had said during the course of a speech on June 30, 2012 at the Indian Institute of Public Administration, Bhubaneswar.

“Pursuit of higher volume of business for revenue maximisation may dilute prudential requirements exposing the banks concerned to whole host of risks like reputation risk, strategic risk, compliance risk, operations risk besides the risk of contaminated asset portfolio,” Khan had said.

With financial inclusion slated to be extended to 3,50,000 more villages in the coming months, this space is set to witness many changes and could see forays into insurance also, an almost neglected area. This holds out opportunities for many players. As A K Bhattacharya, general manager, RBI, Bangalore says, “The coverage is abysmal.”

Banking on Africa’s poor

LONDON — Vast distances, high costs and unstable incomes.

Those are just some of the challenges faced by millions of Africa’s poorest trying to access financial services in rural communities in Sub-Saharan Africa.

Until recently, commercial banks across the continent hadn’t bothered to reach out to impoverished Africans in rural areas because they saw little profit potential. Instead, they focused on wealthier clients with larger transactions, which had a better chance of surpassing the cost of the bank infrastructure and staff.

“Current operating models are very much focused on serving other clients who are richer and have larger transactions on average, and thereby it’s very much heavy on brick and mortar infrastructure and personal attention,” said Benedikt Wahler, a manager at Roland Berger Strategy Consultants GmbH in Nigeria.

“Those two things contribute to high transaction costs that would not be feasible for the kinds of transactions volumes that you see from low-income households.”

But now, the potential for billions of dollars in deposits from people earning less than $10 per day has spurred many financial institutions to reconsider the way they do business. Now, they hope to lure the 95 percent of the estimated 498 million adults in Sub-Saharan Africa who earn less than $10 a day. This group could account for a potential $59 billion in deposits, according to Roland Berger.

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Nigeria: Financial inclusion is beyond microfinance

By Babajide Komolafe & Ahmed Ibrahim, Vanguard

Nigeria should look beyond micro-finance institutions to achieve the goal of financial inclusion and poverty reduction says Mr. Laoye Jaiyeola, immediate past president, Chartered Institute of Bankers of Nigeria (CIBN).

“To facilitate inclusion, we may however have to look beyond microfinance, as studies in other countries have shown, microfinance can help the unbanked have access to credit but it has been discovered that the monies made available to them are merely for sustenance and may not necessarily have an effect on bringing them out of the shackles of poverty”, he said on Friday.

In a valedictory speech delivered at the 2012 Presidential Address of the Institute, which also marked the end of his tenure as the President of the Institute, Jaiyeola said that that the existing banking practice in the country doesn’t encourage financial inclusion, adding that that is why despite all the reforms in the banking industry, banking services have remained limited to few people in the country.

He said, “Let us be clear, the kind of lending into which we have descended, or is it forced, is unlikely to create the kind of inclusiveness that we seek. The few who are rich will get wealthier whilst the overwhelming majority of our fellow countrymen and women will, as data from the National Bureau of Statistics shows, continue to wallow in poverty. This can only be a prescription for divisiveness and erosion of our national integrity.”

“Available data shows that in 2010, the aggregate value-added of banks amounted to 1.21 per cent of total value, or Gross Domestic Product, created in the economy. In contrast, the value-added created by the 20 most capitalised non-finance companies listed on the Nigerian Stock Exchange amounted to 1.86 per cent of GDP in 2010. If the ‘real sector’ firms are creating greater wealth than banks, how do we justify the sharply higher difference in remuneration for staff and management of banks?

How mobile banking can help Asia’s poor

By William Pesek, Today Online

The iPhone has become a symbol of something Steve Jobs never envisioned: Chinese sweatshops.

Any of us (full disclosure: This includes me) who use one of Apple’s smartphones, iPads or iPods is, at least indirectly, supporting the exploitation of electronics factory workers in China.

Yet, what if the iPhone is a key to ending the poverty that forces so many Asians to toil in such abhorrent conditions?

The buzz phrase “financial inclusion” is getting increasing attention these days. It refers to the world’s unbanked masses, what bankers like to call “the other three billion”. That’s the estimated number who lack access to the most basic of financial services. In nations such as India and the Philippines, a key answer may be mobile phones. Poor Asians who lack bank accounts often have one.

That has banks turning to experts on mobile device networking systems, such as Mr Jay Collins. Working for Citigroup in New York, he is one of modern finance’s true alchemists, endeavouring to find ways for the poor to move, pay, collect and store money on mobile devices.

No more wasting an entire day at the bank. No more public officials skimming money off the top. No more turning to loan sharks.

CUTTING OUT MIDDLEMEN

That also goes for small and mid-size enterprises, which account for almost half of all employment in developing Asia. Owners and managers could make payments to suppliers and employees directly into accounts connected to mobile phone SIM cards, eliminating any number of middlemen all looking for their cut. The more cash and credit these businesses get their hands on, the more Asians they can hire.

“We view this as our killer app that could transform banking and reduce poverty and corruption at the same time,” Mr Collins says.

Citigroup isn’t an altruistic venture. It’s championing this revolution because of the potential profits: Loads of new customers, deposits and, of course, fee income. Just as George Soros’ Quantum, Goldman Sachs Group and Nomura Holdings invested in microfinance, Citigroup realises there’s money to be made even from those with little of it.

The potential of mobile banking deserves far more attention than it’s getting from governments. Asia’s poor would suddenly have a way to manage income, build assets, invest in the future and buy insurance to prepare for risks like health crises or natural disasters.

MOBILE FINANCE ECOSYSTEM

Political leaders should facilitate the technology’s growth with regulations and oversight to ensure security against hacking and scams. They should commit to distribute certain salaries, benefits and subsidies on mobile systems. They should step up efforts to raise financial literacy in the region.

“The perfect-world, mobile-finance ecosystem would sound like a symphony orchestra, where the various industry and government participants show up at the same time, with the same sheet of music, and play in harmony,” Mr Collins says. “Currently, players appear at different times and places, with their own music and tempo.”

There are big benefits here for governments. Phone transactions create a cyber-trail to give tax authorities and national-security officials greater insight and influence over the movement of money. It adds a level of transparency that Asia’s current cash-based environment doesn’t.

India’s potential is a great example. The Boston Consulting Group reckons increased mobile finance would be a boon to growth. In last year’s report, it predicted a 5-per-cent jump in gross domestic product, a US$50 billion (S$62.8 billion) increase in tax revenue annually and the creation of 600,000 new businesses by 2020. We’re not talking sweatshop jobs, but decent-paying ones in air-conditioned buildings.

NOT A QUICK FIX BUT …

The Asian Development Bank’s experience in Afghanistan also is instructive. The Manila-based lender has made more than US$100 million in loans to help mobile phone providers extend coverage to parts of the nation with no telecommunications infrastructure. The financing also supported the creation of mobile phone banking services.

It had a couple of unanticipated consequences, both for the better. First, fewer government soldiers were going AWOL. It was feared that they were conspiring with local tribal leaders who might be supporting terrorism. It turned out that they had been disappearing to take their pay back to their home villages. Second, soldiers suddenly were getting more money. Superiors could no longer pocket big chunks of their wages.

Mobile phones are hardly a quick fix. The causes of poverty, and the ways to address it, are as diverse as they are complicated.

For many, though, exclusion from the banking world is a formidable barrier to better lives. Imagine the ripple effects should mobile phone consumer finance take hold.

Banks once gave out toasters to new customers. Free iPhones, anyone?

Tokyo-based William Pesek won the 2010 Society of American Business Editors and Writers prize for commentary.

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