Alternative data can improve financial inclusion in Nigeria
The state of financial inclusion in Nigeria: Progressive but not entirely inclusive
For all the indications of financial progress, banking apps, fintech activity, alternate payment methods, and investment options in Nigeria, an astounding 40 percent of the bankable population (circa 50 million people) still remain unbanked. This means billions of Naira continue to circulate through the informal sector , outside the productivity growth opportunities provided by the formal sector.
Policy Gap
Nigeria’s strict mobile money regulations have stifled its pace on the financial inclusion front.
- Only licensed banks, or fintech companies in partnership with banks, are permitted to operate mobile money businesses. This bank-led approach has failed to bring rural and low-earning Nigerians into the banking sector.
- This coverage limit is exacerbated as Banks find it unprofitable to provide traditional banking services and products in rural areas characterized by low unit-customer balances.
This has reduced progress on the Nigerian government’s financial inclusion objectives, a situation that has prevented rural dwellers, as well as small and medium-sized business (SMB) from unlocking opportunities to build their finances through small but regular savings.
Source: EFInA Access to Financial Services in Nigeria 2018 Survey
This situation seriously poses a threat to the achieving the government’s objective of achieving 80% financial inclusion by the end of 2020.
Mobile penetration offers some hope
The three-pronged emergence of internet penetration, smartphone connectivity (currently 23 million smartphone users) and data analytics are generating an opportunity for fast tracking financial inclusion.
- Mobile and internet penetration surpasses financial services penetration (even in rural areas) hinting at a very big opportunity.
- Individuals without formal financial services are nonetheless creating digital footprints (social and cell phone data) with their mobile devices.
Mobile data and smartphone penetration have allowed FinTechs to develop products and go to market directly, leveraging app stores as a distribution channel to reach over 23 million smartphones.
A steady growth rate of 14% per annum
Source: EFInA Fintech Landscape and Impact Assessment 2020 Report
Alternative Data: A new era of financial services
One approach to inclusion could be to use these alternative data, including non-financial digital data to gauge financial services needs and birth a new era of product personalisation.
- As financial services providers (FSPs) access and enrich customer data, they can generate insights that can show opportunities for financial coverage. This can create a path to reach the unbanked with commercially viable and personalized products that will help improve the lives of the unbanked.
Alternative data sources for this will include cell phone data, social media data, rental payments, asset ownership, and utility bills payments data.
Opportunity in the Data
Alternative data provides an opportunity for FSPs the unbanked population perhaps represents the largest growth opportunity and also a chance to positively influence the lives of millions of Nigerians. Increasing financial inclusion is not just socially desirable, it is a vital component in driving economic growth and delivers hope for social parity. A youthful population, increasing smartphone penetration (and by implication, financial data footprint), and a focused regulatory drive, will only combine to achieve this.
KliQr has developed big data computing capabilities that can process large data to generate actionable insights that support financial inclusion. Our proprietary engine can leverage alternative data to improve FSP’s efforts at financial inclusion. Learn More
