Nigeria’s goal to have 95% of its population included in the formal financial system by the end of this year is facing serious hurdles. A staggering ₦4.3 trillion is being kept outside of banks, indicating a severe lack of trust and confidence in the banking system. This article dives into the reasons behind this worrying trend and its implications for Nigeria’s economy.
Key Points At A Glance:
- Nigeria’s financial inclusion target of 95% by December may not be reached.
- A massive ₦4.3 trillion is held outside banks, showing a lack of trust.
- Digital fraud and economic challenges are major factors.
- Many Nigerians are struggling to save even small amounts.
- The North and rural communities are the most affected.
The Great Bank Distrust: Why Nigerians Are Keeping Cash At Home
Nigeria is facing a financial conundrum. Despite efforts to increase financial inclusion, a large chunk of money – a whopping ₦4.3 trillion – is circulating outside the formal banking system. This isn’t just a statistic; it’s a reflection of deep-seated issues that are preventing many Nigerians from fully participating in the modern financial world.
So, what’s driving this trend? A big factor is a lack of trust. The botched currency redesign last year and recent server issues across banks have shaken the confidence of many, especially small business owners, many of whom still have not recovered. This has led many to resort to keeping their money at home, opting for the perceived safety of physical cash over the uncertainty of banks.
Financial Exclusion: A Deeper Look
The data paints a concerning picture. While financial inclusion has grown from 56% in 2020 to 64% in 2023, a lot of Nigerians, especially the poor and the people in rural areas are still left out. Approximately 40 million adults lack access to the formal banking system. This problem has many faces: lack of regular income, high banking costs, and a general lack of faith in financial institutions.
It’s not just about having a bank account; it’s about financial well-being. A significant number of Nigerians struggle to raise even N75,000 in a week, leaving them vulnerable to shocks and emergencies. This highlights a need for more robust financial solutions that cater to the needs of all Nigerians, regardless of their income level.
The situation is particularly dire in the North and rural communities where financial exclusion is higher. Women, young people, and farmers are disproportionately affected. This disparity shows that a one-size-fits-all approach simply doesn’t work; specific strategies must be put in place to serve these communities.
The Impact of Economic Woes
Nigeria’s economic struggles are making things even worse. High inflation, job losses, and business closures have left many Nigerians struggling to make ends meet. These economic challenges have had a direct impact on financial inclusion, with more people being pushed out of the formal financial system.
The Manufacturers Association of Nigeria reported that many businesses have shut down due to difficult economic conditions. This has led to a large number of people entering the job market, making it harder to improve their financial situations and consequently, access financial services.
Fraud, Fees, and Poor Services: A Perfect Storm
Beyond a lack of trust, other factors are contributing to the financial inclusion problem. Many Nigerians have reported encountering unexpected fees and charges by banks, poor customer service, and a lack of clear and consistent information about financial products.
Digital fraud is also a major worry, with 2.3 million adults reporting fraud experiences involving financial service agents. This has further eroded trust in the system and made people even more hesitant to use formal financial services.
The ATM Challenge
Even things that are supposed to help, like ATMs, are not working well. Most ATMs are in cities, and they often don’t even have cash. This pushes people to use Point of Sales (PoS) systems, which have also become known for exploitative practices. The lack of infrastructure, especially in rural areas, is another major challenge.
Nigeria needs about 60,000 ATMs to meet its growing needs but is currently operating at a very small number. The country’s financial infrastructure needs a serious upgrade to support greater financial inclusion.
What’s The Way Forward?
The report by EFInA and A2F points out that poverty is a major hurdle to financial inclusion. They emphasize the need for policies to tackle poverty through investments in education, skills training, and market-friendly economic policies.
The naira redesign policy, while aimed at improving digital finance, had negative side effects. Businesses and households faced losses and market disruptions. It shows that policies must be carefully planned and implemented to avoid unintended negative consequences.
Nigeria needs a multi-faceted approach to tackle financial exclusion. It’s not just about getting people to open bank accounts; it’s about building trust, addressing economic issues, improving infrastructure, and providing financial services that are accessible, affordable, and reliable. Only then can Nigeria achieve its ambitious goal of financial inclusion for all.
