Traders at Lagos island market: providing financial solutions to the over 5m traders in Nigeria's informal sector could be very rewarding. The sector is worth an estimated $23b.

Nigeria’s financial services sector has undergone major changes over the last decade. Besides the reforms pioneered by the Central Bank of Nigeria (CBN), commercial banks have made it easier for citizens to open bank accounts and also lowered the cost of transactions. The result has been a steady increase in the number of bank account holders and a corresponding increase in deposits.

A significant development in Nigeria's financial services and banking sectors has been the use of information technology in delivering innovative products, and improving service delivery.

A research study carried out by Stanbic IBTC bank reveals that more than 70% of the population in Nigeria does not have access to financial services due to factors such as logistics, cost, and lack of financial literacy and compatible financial products. The report indicates that 74% of the adult population has never been banked, and 61% of the unbanked would like to own a bank account.

An estimated $23-billion circulate yearly in Nigeria’s informal sector, which constitutes of about 10.9-million traders. Half of this number are un-banked and their form of saving is mostly in informal cooperative societies known as esusu.

Financial institutions are realising that low-income earners actually save and are not really bad debtors, as proven by the extremely low bad debt ratios of most microfinance institutions operating in Africa. The realisation has brought along financial innovations targeted at the millions of people at the bottom of the pyramid.

An example of affordable approaches that use modern technologies to service the lower market segment in Nigeria is Stanbic IBTC Bank’s e.susu product, which was launched in March and targets informal traders. The e.susu savings product forms part of the bank's long-term strategy to become a leader in retail banking.

‘Stanbic IBTC has a vision to bring effective and efficient personal and business banking services to lower income segments through innovative solutions. One such target segment is the distributive trade segment and by extension the entire informal market that have limited access to banking or have been excluded over time. Although very challenging, the trader segment harnesses the very essence of our vision of being a leading player in global emerging markets,’ says John Smit, head of special projects, personal business banking at Standard Bank Group.

The technology that was deployed for e.susu is made up of three components, namely the Point of Collection (POC) device used by agents, a loop system in the bank's data centre, and the connectivity to the loop system either through General Package Radio Service (GPRS) or the bank’s Local Area Network (LAN). When a transaction is carried out at the POC it communicates with the loop system, which ensures that all transactions are transferred to the banking application server on a batch basis.

e.susu was piloted across four local market areas in Nigeria over a three month period. Traders in the pilot accepted the solution and not so much the product.  

‘Customers suggested some improvements to the product offering, which were implemented before the country-wide launch in March, 2010. There were 19,532 account holders by the end of June,’ says Smit.

Stanbic has products and services in the pipeline targeted at market segments including the youth, artisans and low income workers and subsistence farmers. ‘Each of these segments have their unique needs and thus our channel and product strategy must be customised to suit them appropriately,’ says Smit.

The wide gap, which exists between Nigeria’s formal and informal sectors is what Stanbic IBTC is striving to bridge with e.susu. Esusus are the predominant type of informal finance in Nigeria but carries risks because only a few operate within a legal framework.

‘Our mission is to create a robust operating platform for low-income earners to save safely and access credit and banking services with ease,’ says Smit.