Financial inclusion gap persists in Nigeria as over 300 LGAs are unreached by traditional banks

• Enhancing Financial Innovation and Access’s report stated that over 300 LGAs were unreached by traditional banks in 2023
• It said high banking costs, fraud, and poor banking services are among the persisting challenges
• The report revealed that non-bank financial service providers stepped up to the challenge

A report by Enhancing Financial Innovation and Access (EFInA) has revealed that over 300 Local Government Areas (LGAs) in Nigeria remain underserved by traditional banks in 2023, highlighting a persistent financial inclusion gap.

The report noted that despite strides in financial accessibility, a quarter of Nigerian adults still lack access to essential financial services. 

According to the Access to Financial Services in Nigeria 2023 Survey Report shared on EFInA’s official X handle at the weekend, the persisting financial inclusion gap has led to the growing role of alternative financial solutions such as Village Savings and Loans Associations (VSLAs) and cooperatives in addressing the needs of underserved communities.

It noted that these non-bank providers are crucial in reaching regions where conventional banking institutions have limited or no presence.

The survey shows that Nigeria’s financial inclusion rate grew from 68 per cent in 2020 to 74 per cent in December 2023, while formal financial inclusion increased from 56 per cent in 2020 to 64 per cent in 2023.

It attributed the growth to fintechs’ advances and innovations, and the proliferation of digital financial services.

The survey indicates that the use of financial agents surged, with adoption rising from 4.4 per cent in 2018 to 54 per cent in 2023. 

This shift demonstrates how technology is transforming access to financial services. Mobile phone usage, for instance, has climbed to 93 per cent, further facilitating the adoption of digital banking solutions.

The report stated, “Financial inclusion (formal and informal uptake) has increased to 74% in 2023, up from 68% in 2020, representing about 10 million Nigerian adults who have been added to the financially included universe.

“Formal financial inclusion increased from 57% in 2020 to 64% in 2023 almost reaching the recommended National Financial Inclusion Strategy (NFIS) targets of 65% of adults formally included by 2024.

“The growth in formal inclusion is largely driven by the uptake of other formal nonbank financial products/services which increased to 57% (62.8 million) from 32% (33.9 million) in 2020.

“Growth in the non-bank sector was most significantly driven by the uptake of mobile money services (increasing from 5% in 2020 to 12% in 2023) and the growing penetration of financial agents (increasing from 24% in 2020 to 54% in 2023).”

Challenges to financial inclusion drive

The report noted that despite gains in the North-East and North-West regions, financial exclusion levels in these areas continue to exceed the national average.

It said physical access to banking services remains critical, but irregular income has emerged as a significant barrier, with 49 per cent of respondents citing it as a hindrance, up from 31 per cent in 2020.

The report also highlights issues such as high banking costs, fraud, poor service quality, and a lack of clarity in financial information as factors that contribute to a decline in financial health, with the proportion of financially healthy adults dropping by 12 percentage points since 2020.

Non-bank financial service providers to the rescue

The report also highlighted the role non-bank financial service providers play in bridging the financial inclusion gap as traditional banks struggle to extend their reach.

It noted that informal financial services, including village associations, have grown by 39 per cent since 2020, with the Southeast region recording the largest increase in the use of these associations.

The survey revealed an increase in the use of savings, remittances, credit, and insurance services.

The report stated, “With high inflation eroding the purchasing power and disposable income of Nigerians, the savings landscape has not changed much since 2020, with the same proportion (62%) of adults saving in 2023.

“The uptake of insurance remains roughly stagnant and critically low as only three per cent of adults (3.4 million) were reportedly covered by a regulated insurance policy.”

The report highlights the need for the Central Bank of Nigeria (CBN) to double its efforts in meeting its ambitious financial inclusion target of 95 per cent of adults having access to financial services by the end of 2024.

With growth of digital payment in Nigeria, is cash still king?

Meanwhile, TheRadar reported that the value of digital transactions increased 47.4 times between 2013 and 2023 to reach N657.8 trillion from N13.9 trillion, representing an average monthly figure of N54 trillion over the 10 years.

With the growth in digital transactions, driven by Nigeria’s young demographic, fintech innovations and the policies of the Central Bank of Nigeria, one wonders if cash is still king.