Financial Inclusion: a tool for economic growth in Nigeria

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Financial Inclusion is a driver of economic growth as it provides access to financial services through participation of every economic individual unit. Financial inclusion plays a major role in poverty reduction and empowerment. A huge number of Nigerian are unbanked and even lack access to formal financial services.

Enhancing Financial Innovation and Access (EFInA) (2013) define financial inclusion as the provision of a broad range of high quality financial products such as savings, credit, insurance, payments and pensions, which are relevant, appropriate and affordable for the entire adult population especially the low income segments of the economy. The drive for Financial Inclusion is aimed at ensuring that all unbanked and disadvantage members of the economy have unlimited access to varying range of financial products to meet their needs and are rendered at affordable cost. According to Enhancing Financial Innovation and Access EFInA, (2012), research shows that 46.3% of the adult population were financially excluded in 2012. However, there have been a significant reduction in financial exclusion rate, which now stands at 36.8%.

It is worthy to note that only 56% of households in the southwest currently have a formal bank account (commercial bank, microfinance, cooperative society etc.), it’s even much worse in the northwest region with the banked population representing only 16% of households. This is not surprising, as most of the poorest states in Nigeria are in the north. This gives more credence to the notion that financial exclusion is heavily linked to poverty. This shows that there is also lack of access to finance to rural underbanked communities. Only large corporate wage earners and successful business individuals in the public and private sector have access to finance

Commercial banks’ passive commitment to financing small scale enterprises remains a major challenge to growing the economy from the grassroots. This is largely because the bank often considers the cost of financing these enterprises as being on the high side, risky and with low returns. Consequently, they scare them away with stringent loan conditionality. Hence, the level of credit available to small businesses is not sufficient to raise rural contribution to GDP (RGDP).

The financial inclusion strategy in Nigeria will entail servicing the excluded and unbanked public by encouraging patronage of financial services. It simply means ensuring that the low income earners or the deficit spending unit of the economy all have access to financial services by providing this services at affordable cost and most importantly making it more accessible. This implies that banks will have to relax some of their procedures and requirements such as complex documentations, procedure for account-opening and loan application, collateral requirements, service charges for routine banking services which serves as constraints to the less-privileged mostly illiterates in order to cater for their banking needs. Banks will also have to incorporate local language dialect into its financial services to make it more attractive. This will encourage the unbanked population to make use of available financial services. This presents the banks with the opportunity to diversify their range of financial products to meet the needs of people particularly in rural areas. Realizing that not so much have been achieved in deposit mobilization, commercial banks should engage in aggressive deposit mobilization from rural areas.

 Government as an engine and driver of economic growth needs  also create more policies that will encourage the establishment of financial institutions in the rural areas to capture the unbanked and provide funding for rural investment through financial institutions.

Financial inclusion remains the factor that will determine the speed at which financial access gap will be bridged for financial penetration in rural areas. Channeling of financial inclusion strategies in rural areas in Nigeria remains the mainstream for economic growth in the country.

 

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