Solving the unbanked problem through ambition and competition

 A guest contribution by CrossFund. CrossFund is a funding platform that helps investors from all over the world to invest in early-stage tech startups from emerging markets.

This year, 42 million Nigerians were estimated to be living in areas without access to basic banking services. Yet, at the same time, Nigeria’s fintech and neobanking sectors are outperforming those of every other African nation. Connecting these two facts in a few snapshots helps to understand how reform has come together with private-sector ambition to close this gap in the most populous nation in Africa. 

In 2011, Nigeria’s leaders put out an ambitious document, the National Financial Inclusion Strategy, which declared an aim of bringing 80% of Nigerians into the financial fold by 2020. While valiant effort was made in some areas, the figure was still only around 64% by that year. A number of factors hamper the efforts of the public and private sectors to shift the goalposts: an economic downturn, worsening security in some parts of the country (especially the north), low literacy rate, and legacy mistrust of banks and anyone providing financial services all add to the list of obstacles.  

So how about the good news? 

In the private banking sector, entry-level account options are becoming common, with customers needing only a passport photograph and a registration number to open an account on the same day. Microfinance has also been blooming to service the vast number of unregistered SMEs, including vulnerable women working in treet trading who can avail themselves of low-interest loans and credit. Startups from Lagos’ pumping digital ecosystem are competing for the attention of industrious Nigerians moving money within, into, and outside the nation.  

The reason for these fast moves? Competition. Offline banks compete with online, and online offerings with each other. Since the pandemic, an even more rapid digitalisation of banking and finance has been taking place, with Lagos’ lawmakers leading the way via the momentous launch of the e-naira, among other initiatives. 

Solving the problem digitally is not simply a matter of setting out a storefront online and waiting for citizens to take advantage: unbanked, underbanked, and low-income people may have limited access to or knowledge of connected devices and make little daily use of social media. Here African resourcefulness has been coming into play—the simple text message has percolated through enough of society to make its functionality a reliable basis for contracts. Some banks are now using texts and Unstructured Supplementary Service Data (USSD) codes that can be entered into a phone, even without a live internet connection, to open accounts, send money, pay bills and even ask for loans. Some startups are finding ways to make and distribute low-cost portable POS devices through the marketplace.

The inclusiveness of a digital banking tool that works even without live internet is a clincher element of China’s CBDC, too. The fact that Nigeria has already put a working toolset into play to match China’s tells you a lot about the scale of the need for solutions, and the skill of  local ingenuity in finding them. 

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