Jaco Maritz
Significant opportunities exist to extend banking and financial services to Nigeria's rural population.
A survey by Enhancing Financial Innovation & Access (EFInA) shows that penetration of banking and financial services products in Nigeria is still very low. Jaco Maritz looks at the areas offering potential for further investment.
Nigeria's banking and financial services sectors have seen tremendous growth over the past decade with a large number of foreign firms investing in the industry.
The recent developments in the country’s banking sector, where the Central Bank governor, Lamido Sanusi, sacked the CEOs of five banks and announced a N400 billion (US$2.6 billion) bailout package to stabilise these institutions have however brought some uncertainty back into the system. With the audit results of 14 other banks still to be released, the sector could be in for some further shocks in the coming weeks.
A 2008 national survey by Enhancing Financial Innovation & Access (EFInA) shows that despite the current nervousness, opportunities in Nigeria’s banking and financial services sectors abound. The majority of Nigerians still don’t make use of any banking or financial services products, with many not even knowing the meaning of terms such as ATM, mortgage or credit card.
The survey, made up of 21,110 responses covering the entire country, shows that 53% of Nigeria’s adult population, approximately 46 million people, are financially excluded, and don’t make use of any formal or informal financial products.
Banking
Nigeria’s banking sector has made great gains since the consolidation exercise in 2005. EFInA’s report however shows that a large number of Nigerians are still unbanked.
According to the survey only 21% of the adult population has a bank account, equivalent to about 18 million people. About 86% of the rural population is currently unbanked, possibly showing the huge opportunities for mobile banking platforms.
The survey further found that the main reasons for not having a bank account are because of:
International banks looking at expanding to Nigeria will be glad to know that of the unbanked, 61% said that they would like to have a bank account, primarily for:
Saving
Nigerians make use of formal and informal methods of saving. Poorer citizens generally make use of savings clubs while the more affluent favour formal savings methods offered by banks or other financial institutions.
A savings club is semi-formal group of individuals who come together with a common purpose of saving money. Members contribute a certain amount every month and the lump sum of all the money is then paid out to a different member of the club each month. Sometimes the pool of money is also invested or lent out at a high interest rate. Around 22% of Nigeria’s adult population belong to a savings club.
Asked for the main reasons for saving, the top reasons were:
Loans and credit
A mere 7% of Nigeria's adult population currently has a loan from a bank with 26% of those who have a loan saying they have missed a payment in the past.
The survey found that the main reasons for taking out a loan are:
In many instances loans are however not from banks. Of the total adult population, 13% said they currently have credit from a local store. Other popular sources for loans are friends or family, loans from a pool and credit from an employer.
From the above it is clear that banks and microfinance institutions have a critical task to extent credit facilities to more Nigerians, especially those in rural areas.
Insurance
The insurance industry is another sector that shows great room for growth with Nigeria's national insurance regulator estimating that the industry is currently operating at only 10% of its potential.
According to the survey, knowledge about insurance products in Nigeria is still relatively limited with 48% of the adult population saying that they have never heard of the word "insurance" and 17% responding that they have heard of it but do not understand what it means.
For those who have insurance, vehicle insurance has the highest penetration, followed by pension schemes and medical insurance. The study further found that the top mechanism used for risk mitigation is personal savings as opposed to insurance.
In its conclusion, EFInA states that there are still large gaps in financial access in Nigeria. Much more also needs to be done to customise financial products to the needs of those with a low income. It is not merely an issue of selling products to the rural population, but about educating them regarding the advantages of using financial services.
