IFN Monthly Article on Nigeria: June 2018 Issue
Islamic Fintech required to further deepen financial inclusion in Nigeria
In 2010, the Nigerian Government set a target to reduce adult financial exclusion to 20% by 2020. However, according to Enhancing Financial Innovation and Access (EFInA), financial exclusion in Nigeria was estimated at 41.6% in 2016, showing the long road ahead for Africa’s most populous country. The International Finance Corporation estimates that the number of financially excluded adults in Nigeria is on the rise and reportedly grew by 2.1% to 40.1million between 2014 and 2016. In realization of the arduous task ahead, the Central Bank of Nigeria released an exposure draft of its National Financial Inclusion Strategy in July 2018. Among other initiatives, the strategy seeks to foster innovation by ensuring that financial market participants operate in an accommodating regulatory environment that recognizes their unique activities. This implies that the regulatory environmental should become more favorable for innovative Islamic financial solutions.
Islamic finance has long been identified as a means to deepen financial inclusion in Nigeria. The Islamic finance industry has grown moderately in urban areas where there is increased patronage of Islamic cooperatives, Islamic microfinance banks and shari’ah compliant savings & investments products. However, there is still limited penetration in rural communities, particularly in the northern region, where the bulk of Nigeria’s financially excluded reside.
The swift integration of financial services with technology (i.e. Fintech) in recent years is one of the major tools being leveraged on to tackle financial inclusion in Africa. In Nigeria, financial technology companies now provide mobile enabled solutions for bank account opening, payments and transfers, savings and investments and swift access to credit. It is only expedient for Shari’ah compliant service providers to join this train to effectively realise the industry’s promise of enhancing financial inclusion in Nigeria.
According to EFInA, only 38.3% of Nigeria’s adult population have a bank account. This means the other 62% save with informal cooperatives or with friends and family. With the adoption of digital platforms, Islamic financial service institutions will be able to introduce their products and expand their services to places where they have no brick and mortar branches. Products such as the hajj savings plan will be especially relevant to this class of people.
The Central Bank of Nigeria has maintained its financial exclusion target of 20% by 2020, which is a tall order. Nevertheless, it is our view that Islamic finance has a key role to play in achieving this target; and fintech may just be the catalyst needed. The more the Islamic finance sector is able to contribute to achieving the target, the greater its potential for expansion and growth in the Nigerian market.
