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Our goal is to be a model for financial inclusion – Sanusi

By BusinessNews Staff on December 23, 2013

Recently, members of the World Economic Forum (WEF), visited the Central Bank of Nigeria (CBN), as part of the build up to the hosting of the forum on Africa in Nigeria next year. The occasion provided the CBN Governor, Sanusi Lamido Sanusi an opportunity to touch on issues relating to financial inclusion, credit to Small and Medium Enterprises and the newly flagged off biometrics exercise in the banking industry among others. Senior Correspondent, Efe Ebelo was there. Excerpts:

Where would you say you are on the issue of financial inclusion?

Looking at the subject of financial inclusion and our experiences so far, this has been a priority for us in the CBN for at least two to three years. Since we are talking about overcoming barriers, may be some of the issues we have had to deal with and are still grappling with will be helpful and as we have a public private sector conversation it could be worth talking about actual empirical experience.
Obviously there are many ways of looking at this, we have been fortunate in this country that going back to 2008, there was an institution set up called RUFINA, which started off a lot of the research in bringing up data on financial inclusion.

So we did not have to start from scratch in terms of getting an idea of where exclusion was. As you can imagine the patterns are very clear, very high levels of exclusion where you have very high levels of poverty, therefore the greatest exclusion is in the North East and North West of the country. There are very high levels of exclusion among the rural poor as compared to the urban population, high levels of exclusion among women as opposed to men.

Therefore you have got a general high level of financial exclusion but different levels of exclusion among the poor rural women especially in the North. Therefore we have had to think very deeply on how to improve inclusion generally and how to address areas of extreme exclusion.
Clearly there are very strong connections between exclusion and poverty, you need to have money before you save, and you need to earn something before you can even have access to finance.

One of the myths we need to dispel is this idea that simply being able to transfer money through mobile phone will take you out of poverty. In inclusion it is important, but it does not address poverty. It is an important part of the process, but it is going to be accompanied by developmental and poverty alleviating policies.
The second is obviously to recognize that it is one thing to make products available which is what we all focus on as CBN and as bankers, how do you make affordable and accessible products available to the rural poor and the excluded.

But it is another thing to get people into a state of mind where they actually use those products. Therefore inclusion cannot happen without a strong focus on financial literacy and financial education. It is not enough to know that you can save; it is not enough to know that you can borrow, but how do you take sound financial decisions. Many of the experiences we have had in parts of the world with micro finance have indicated that giving products without financial education can be counter productive.

The fact that people are told suddenly that they can borrow money without being told the implications of borrowing at high rate of interest to finance consumption means that people end up seeming to have better life style but are actually poorer in terms of their network because the assets that they have purchased are not in themselves generating income while they are accruing very high rates of interest and clearly if they were to default they would not have enough network to pay back the loans.
So, we have in a sense starting off a little bit later than other countries, we have the benefit of seeing some of the pitfalls of other nations and also try to borrow from best practice and those are the kind of things we have done so far.

When did the issue of payment system come in?

We knew from the beginning that we had to start with the payment system transformation.

Certainly any kind of system that relies on people walking into a bank branch with a cheque book, national identity card or passport to withdraw cash was not going to serve the purpose. The transformation first of all of the payment system and increase in the use of channels and cards was a major one.
We knew from the beginning that we had to start with a payment system transformation. Any system that relies on cash is not good; the transformation of payment system and increase in the use of electronic channels and cards was a major one.

This is why we started with cashless Lagos and then cash less Nigeria. On PoS, we started off in 2002 with 11,000 PoS terminals in the entire Lagos area and less than 6000 PoS terminal doing transactions of N5 to N10 million daily.

Today we have got over 150, 000 PoS deployed in Lagos and about 20 per cent of them are active and we are doing anything between N1to N2.5 billion daily on POS transactions. They have got NEFT, movement away from cheques and a general reduction in percentage transaction by cash and that has reduced cost of cash management, it has helped to bring people to the financial system.
We have introduced online banking, we have initiated KYC, it is now much liberal for people to open accounts and we have tried to centralize the KYC process.

What is the main objective here?

The objective of this project for the banking industry is to provide a centralised platform through which banks may enroll and uniquely verify the identity of each customer for ‘know your customer’ or (KYC) purposes, perform credit checks, verify customer’s integrity and to authenticate customers from a point of transaction device.
With the increasing incidents of compromise on conventional security systems (password and PIN), there is a high demand for greater security for access to sensitive or personal information in the banking system. In recent times, biometric technologies have been used to analyze human characteristics as an enhanced form of authentication for real-time security processes.

What does a biometric authentication system comprise of?

A biometric authentication system mainly comprises the following functional units: Sensor device – for acquisition of biometric raw data, feature extractor – to create biometric template for each individual feature, matcher – to compare the actual biometric template with the stored reference templates, reference archive – for storing the biometric reference templates and to use biometric information as a means of first identifying and verifying all individuals that have account(s) in any Nigerian bank and consequently, as a means of authenticating customer’s identity at point of transactions.
Once you have registered in your village, you don’t need a photo ID anymore with the biometric base. Once your fingerprints have been taken in a location, anywhere you are in the country you can collect your cash and pay cash. This is what we will allow all the agents to do.

You talked about overcoming barriers and making products available and affordable. What are the other challenges?

Another challenge obviously is one of infrastructure in general. The least expensive ways of deploying products would rely on technology and low levels of Internet penetration are a big problem. Excessive reliance on the telephone companies also has its problems because in this country the telcos make a lot of money from SMS and voice and the incentive to invest in greater bandwidth is limited unless they can see the additional commercial value of investing in that.
So we have to figure out how to go about it, one of the things we are thinking of is if we can use a satellite company and just drop Internet across the country.

If we can get Internet access to say each of the 774 local government areas within half a mile radius, we will achieve a lot. If you solve that problem in all the local government areas, it goes to create a hot spot and in there you can have Internet cafés, you can have your mobile banking, you can have PoS, ATMs and therefore you address that problem.
The point for me is that every environment that deals with specific challenges has got to keep dealing with those challenges.
But how do we handle the issues of access to credit?
We know there is the question of access to credit which is a big problem for SMEs and for micro enterprises. Some people think it is the high rate of interest, of course, it is debatable. I think high rates of interest are a problem, but I think it is far more fundamental and goes to the point I am making which is that when you deal with credit in particular, it got to sit within a broader ecosystem.

We cannot continue blaming the banks for not lending to SMEs. We have got to say, how much is the government spending on SMEs, how much investment is actually being done to create viable SMEs? They do not have electricity, they do not have infrastructure, they do not have security, may be the tariff regime or incentive regime is not fair, it is difficult to do business under these circumstances.
Having said that it is not to say that the attitude of the Central Bank or the banks is to say we cannot lend because those things are just not there. It is to say how we can interface with government to see that those things that need to be done are done so that we can lend. We have done that in agriculture for example.

We cannot lend to them, but we need to see how to interface with government so that we can see how we can solve this problem. We worked with the Ministry of Agriculture and fixed value chains and have encouraged the banks to increase lending to agriculture from less than one per cent to four per cent in two, three years and we would try to do that with the SMEs.

We just came out of a retreat that involved engagement with the Ministry of Trade and Investment and will continue to do that with the Ministry of Finance if we are going to have industrial clusters that would benefit from electricity and special economic zones, those are opportunities that are created for safe lending.
How do we tackle funding issues at the micro level?
Now, at the micro level, clearly funding is a problem. We have micro finance banks but the lending rates have become so exorbitant that what is supposed to help the poor is not helping them anymore. I saw an exhibition where there was a display by a micro finance banks marketing its loans to the poor and I said what is the rate of interest and they said two per cent a month. That would be 48 per cent and that for the poor is killing. What we have done is set up a micro small and medium enterprise fund and signed an MoU with one of the state governments as the first and the idea is to make money available to micro finance institutions at very low rate of interest so that they can lend at low interest rates.
We try to work with the state governments because we believe that again micro finance needs to work within a developmental framework. So if you are lending N250,000 to a very poor woman, you need to give her training on how to use it, you need to give her education on how to manage her finance , you need to ensure that would have given her the skills to know how to manage her finance and be profitable.

You need to protect her against cultural issues, you need to ensure that if you lend to her, her husband is not going to take the money from her and blow it away and throw her into debt.

This is not what the CBN or the commercial banks or micro finance banks can do; it is going to work with the local authorities. And that is why we need local political authorities to assist.

These are all constraints, cultural issues, attitudes towards borrowing that we have to deal with.
Lack of infrastructure, lack of training and so on and so we are working on that.
Where is the bank on disbursement of MSME N220 billion funds?
On the N220 billion funds, in the case of Kano which we signed an MoU with for example, the state will be responsible for repaying the N2 billion and it is at 9 per cent to them and then the state subsidizes.

So, the ultimate borrower will get money at no more than six or four per cent per annum and this compared to 48 per cent is a lot of money and this fund is available to them for two to three years.

So, it is stable, it is low interest and tied to a developmental agenda and 60 per cent of the fund is dedicated to women. So we are yet to have a census in all the villages, six out of ten of them must be women because we think you can’t really address poverty without laying additional emphasis on women who are more poor.

I always say that if the poor people are at the bottom of the pyramid then the poor women are below the pyramid. We have to look at them and address them properly.
We have an agent banking guideline rolled out. We have with the Bill and Mel Gates Foundation financial access points from banks to micro finance banks, to insurance houses, to post offices to motor parks and it gives us a basis for rolling agents across the country including super agents that would be handling things like vault cash and basically some of the retail aspects of the distribution and logistics of cash.

So, we as an industry here made tremendous progress and tried to benchmark ourselves against the best. We think that 100 million Nigerians hold mobile phones. If we are able to crack this problem, then the problem of technology, Internet bandwidth, KYC, biometric and the problem of agents and financial education are solved.

This country would probably be in the next few years the example of the most rapid expansion of financial inclusion in the world given the population.

We do have ambitions, our ambitions are to be the model and this concerns all fields and financial inclusion is a field where we hope to be tops. We are tired of hearing that Kenya is a model, we really want to get to a point where in a year or two people would be coming to Nigeria to see how you can get financial inclusion.

[Daily Independent]

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