Texila International Journal of Academic Research

Volume 4, Issue 2, Dec 2017

Financial Inclusion in the Digital Age, its Role and Impact on Economic
Growth

Article by Folasade B. Femi-Lawal

Abstract
Globally, Financial Inclusion (FI) and Digital Financial Services (DFS) have become a life-blood and
key driver of socio-economic growth and development on the backdrop that economies are dependent on
financial services to attain advancement. The paper explored the role of Mobile Money Services (MMS),
also known as DFS in enhancing access to financial services.
The research was driven by the increasing mobile network spread, the under-served, ubiquity/
penetration of mobile devices amongst both the poor and low-income earners, factors affecting FI, fees
which are disincentive to users, introduction of cashless Nigeria by the Central Bank of Nigeria as well as
the emergence of Mobile Money Services in 2009. An in-depth analysis of MMS in driving FI and paradigm
shift in traditional payment systems was embarked on and focused on issues associated with services
provided MMS Operators viz transaction fees, transaction value and count; stakeholders within the
ecosystem, user experience and security of funds, policy and regulation on financial services delivery as
well as inclusive participation of the government, regulatory bodies and infrastructure providers.
The findings showed that while the MMS have a huge potential to drive DFS in Nigeria, it would require
deliberate actions by all stakeholders to establish an appropriate solution capable of transforming the
economy and also the contribution of MMS to FI in reducing the financially excluded is critical to the
nation. Advancing this therefore, the government and other critical stakeholders would need to create a
framework that will enhance access to financial services.
Keywords: Digital Financial Services (DFS); Financial Inclusion.
Introduction
Financial inclusion (FI) in itself is access to basic, useful and affordable financial products and services
that meet the needs of the excluded (unbanked and under-banked). Such needs include – payments, savings,
credit and insurance, delivered to them in a sustainable and suitable way. This is driven by innovation and
technology, e.g. mobile devices. And its implementation and adoption will culminate in bringing the
excluded to the mainstream of banking and result into economic development as more monies are expended
and saved.
In recent time, Nigeria has witnessed proliferation of mobile phones and growth in mobile network
spread. For instance, in the country, there are over 143 million active mobile lines with a teledensity of
102.2 (Nigeria Communications Commissions, NCC, June 2017) and still growing. Virtually every home
has, at least, a mobile handset. Thus, emergence of mobile telephony especially digital technologies such
as social media (especially the millennials), online games and mobile applications, multimedia, productivity
applications, cloud computing, and mobile devices have the potential to resolve lack of access to basic
financial services for both unbanked and under-served.
According to EFINA Access to Financial Services (2017), over 60% of working adults have no access
to the types of formal financial services delivered by regulated financial institutions. The availability
of basic financial services that meet the specific demands or needs of households without boundaries is a
key tool to reducing financial exclusion and driving economic growth.
However, recent events have hampered this progress. Hence, this research/ study. The study is aimed at;
1. Evaluating the relevance of MMS in Financial Inclusion of the under-served
2. Strategies/ best approach to reduce financial exclusion and,

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DOI: 10.21522/TIJAR.2014.04.02.Art018
ISSN: 2520-3088
3. Assessing the impact of FI on economic growth and development.
Problem statements
Inspite of the increasing penetration of mobile phones and growth in mobile network spread, there have
been concerns on the number of adults that are without bank accounts. These concerns are associated with:
a) Cultural and religious challenges, particularly Northern Nigeria, where women are constrained to
their homes and deprived of appearing in the public;
b) The challenges brought about by high illiteracy and technology used for mobile financial services;
c) Lack of appropriate digital financial products and services that suit their need, e.g. micro-credit,
micro-insurance
d) Lack of trust resulting from cyber-security threats to financial transactions via digital platforms from
illegal activities.
e) Stringent requirements to access financial services by banks which include but not limited to mode
of identification, utility bill, Bank Verification Number (BVN), amongst others.
f) Proximity to the location of financial services. Most of the underserved live in remote locations,
where vehicular mobility is limited.
g) The high cost of building and operating brick-and-mortar bank branches has been a major obstacle
for extending financial services to the poor/ low income households
h) Nigeria being Africa’s most populous country with an estimated population of over 180 million, and
out of 96.4 million adults, 40 million adults representing 41.6% are still financially excluded (EFInA
Access to financial inclusion survey 2016).
i) The Proportion of Nigerian adult with access to formal and informal financial services shrunk
marginally from 60.4% in 2014 to 58.5% in 2016 due to a slight reduction in appeal and coverage of
informal services (EFInA Access to financial inclusion survey 2016).
All of the aforementioned have culminated in consumers having apathy to bank products and services
and lacking full confidence in the security of using mobile technology to transactions.
Existing solution
One potentially effective way to accelerate financial inclusion and deliver a broader set of benefits is
payments digitization. According to KPMG in its publication on “Understanding the Value Proposition
of Fintech in Nigeria”, Innovation and technology have brought about a radical change in traditional
financial services. The world has seen the emergence of more than 12,000 start-ups and massive global
investment of USD 19 billion in 2015 in the FinTech space.
Presently, several digital financial services solution abound in the country to extend basic financial
services to both unbanked and under-banked, and prominent amongst these are Mobile Money Service and
Unstructured Supplementary Service Data (USSD) banking. The MMS is considered the most appropriate
for the financial excluded, in that, users do not have own a bank account to carry out financial transactions.
All that is required is virtual account, aka, ewallet. On the other hand, USSD banking requires users to have
a bank account before they can initiate a financial transaction. Though, the unbanked can create a 1 st-tier
account that does not require mandatory account documentation, but it is important a customer registers for
BVN to conduct any meaningful transactions.
On the basis of this, the MMS is now considered as the most used by the government and social welfare
scheme campaigners such as UNICEF, Bill and Melinda Gates Foundation, USAID/AIDS, Catholic Relief
Services (CRS) amongst others (in Nigeria) to drive financial inclusion. Since inception, Mobile Money
Operators (MMOs) have established and created innovative digital products and services such as airtime
top-up, fund transfer, bills payment, tokenization, purchases, conditional cash transfer schemes (cash
disbursements) and retail payments. These services are not tied to any bank operative account. Rather,
customers are able to open virtual account anywhere and anytime without, necessarily, visiting any bank
branch, or banks could bulk register the beneficiaries of such schemes.
However, the use of digital financial services by previously excluded households and businesses brings
not only benefits but also risks, due in part to the characteristics of a typical poor customer (inexperienced

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with formal financial services and unfamiliar with consumer rights). Some of the risks are new while others,
although well known, may take on different dimensions in the financial inclusion context. According to
GSMA recent report, of the 4.8 billion Global Mobile Subscribers, 3.6 billion are located in low and middle
income countries.
Examples where the MMS solution was deployed successful in Africa include the following;
a) Mobile phones are increasingly used for payments and collections with companies like PayAttitude,
Visa and MasterCard offering contactless payments solutions. Other FinTechs are also expanding
their payment options to create omni-channels for the customer. Virtually wallet (mobile money is
on the fastest growing options for the unbanked segment).
b) Another example of digital financial inclusion in the digital age is the Kenya’s MPesa. Its growth has
shown the potentials of collaborative partnerships within the financial & telecoms sectors and its
dramatic transformational effect on money transfer & payment systems in Africa.
c) Approximately 255 mobile money services were operating across 89 countries in 2014. They are now
accessible in more than 60 percent of developing markets. Sub Saharan Africa is the region where
mobile money is most widely spread, followed by Southeast Asia and Latin America (Forbes, 2015).
d) In Nigeria for instance, several financial services providers, particularly the banks, are aggressively
driving financial inclusion using both digital technologies and agent banking. The major players are
FirstBank of Nigeria Ltd, GTBank, StanbicIBTC, Ecobank and Access Bank.
e) These banks have used digital innovation to extend basic financial services to the unbanked and
under-banked. Today, Donors like EFINA, UNICEF, Catholic Relief Services/ USAID, World Bank
and the Federal Government of Nigeria have adopted the mobile money services to drive financial
inclusive participation.
f) Specifically, FirstBank Nigeria Ltd, is not new to Digital Financial Services. Leveraging technology
and innovation, in 2013, partnered UNICEF to implement its mobile money solution for the
disbursement of payments to rural women in the Northern part of Nigeria on Polio Eradication
Programme (PEP). Between June 2013 to May 2014, the bank disbursed about N880M to over
25,000 (cumulatively) rural women located in 536 wards across 82 Local Government Areas in Seven
(7) Northern States (Bauchi, Kaduna, Kano, Katsina, Kebbi, Sokoto and Zamfara). The participants
were Polio Survival Groups (PSGs) “the physically challenged”, Volunteer Community Mobilizers
(VCMs) and Volunteer Ward Supervisors (VWS). As the pioneer bank of this innovative financial
services, it was award “the Best Mobile Money Operator in 2014 by EFInA”.
Limitations
In spite of the social impact and role of MMS in expanding financial inclusion and enhancing economic
development, it is faced with technology and innovation, ICT, infrastructure, economic, communication
and regulatory limitations. These are:
 Lack of trust/ confidence in financial products and services.
 Poverty as a result of unemployment and under-employment
 Inadequate network coverage in remote locations, where financial inclusion is required to support
their socio-economic activities such as farming and petty trading.
 Inadequate infrastructure to support the scheme
 Interoperability challenge. Difficulty in inter-scheme financial transactions still persist and must be
addressed to facilitate the desired growth.
 Socio-cultural complexities are also a major factor inhibiting financial inclusion. Most cultures in
Nigeria limit public presence of the female folks.
 Low level of literacy about financial products and services.
Achievements
Without a doubt, MMS has positively impacted financial inclusion and economic development.
Notwithstanding the limitations advanced above, households and businesses in Nigeria now use digital
payments and financial accounts to interact seamlessly and efficiently, unleashing large gains in

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ISSN: 2520-3088
productivity and investment, and prompting greater financial inclusion. Therefore, with the vision of
reaching millions of adults and new customers in Nigeria, Financial Institutions and Financial Technology
Companies (FinTech), have started offering digital financial services (DFS) for the financially excluded
and under-banked, leveraging on the methods that were implemented and used for years to advance access
channels for those who are already served by banks and other financial institutions.
Beyond this, Nigeria has recorded huge successes in financial inclusion through MMS. Examples include
a) FirstBank of Nigeria Conditional Cash Transfer (CCT) partnership with UNICEF. Over N800 million
was disbursed to over 8,000 beneficiaries across 8 Northern States in Nigeria, namely, Bauchi,
Kaduna, Kano, Katsina, Kebbi, Sokoto and Zamfara. These beneficiaries comprised of Volunteer
Community Mobilizers (VCM), Volunteer Ward Supervisors (VWS), Polio Survivor Groups (PSG).
The FirstBank mobile money solution (Firstmonie) was deployed to cater for their monthly stipends
for a period of 12 months (June 2013 to June 2014). This partnership resulted into beneficiaries
opening bank accounts. Particularly, beneficiaries in Kaduna, Kano and Sokoto are well positioned
now to use financial products and services.
b) Another achievement of FirstBank’s Firstmonie MMS is the successful deployment of stipends to
CRS beneficiaries in Kebbi and Sokoto States
c) Finally, partnership with New Incentives (All Babies Are Equal) helped women living with
HIV/AIDS in some select States (Cross Rivers, Akwa Ibom, Anambra and Abuja) resulted in serving
this segment with the bank’s financial services. Although, Cash tokenization was used to pay these
women.
Methods
Nigeria is used as a case study to advance this discuss. Nigeria, located in West Africa Sub-Region, is
the most populous country in Africa and has 2.5% of the world population with an estimated population of
over 192 million. Nigeria is a multi-religion and ethnic country with 6 major geo-political zones, namely;
North East, North West, North Central, South East, South-South and South West.
Experiment was carried out based on the following methods:
a) A priori knowledge derived from my instinctive skills.
b) Posteriori knowledge, derived from my experience driving digital banking and mobile financial
services in FirstBank. With over 5 years’ cognate experience, I have driven and delivered several
DFS projects which are today considered as the fastest growing mobile payment in West Africa.
c) Press and journal researches.
Statistical method adapted is factor and descriptive analysis. Statistical data were collected from
different journals and desk research to analyse and summarize my findings.
Results
The study revealed that growing mobile network spread and penetration of mobile handsets have resulted
into establishing regulated agent network, more agents are now available in key locations to serve the
unbanked and under-banked, increased bank accounts, increased number of MMS customers and growing
conditional cash transfer schemes by NGOs and Governments.
Thus, the proliferation of mobile money services does raise the need for banking and telecom regulators
to work together to allow the ecosystem work without interference. It is also advanced here that as mobile
money services continue to expand more proactive policies are required to ensure that the market can
continue to grow and serve local consumers, which would lead to growth in economic activities.
It was also observed that Fintechs have been active across the value chain of the Nigerian Banking space
and Financial Services Institutions. Example is the Interswitch Financial Inclusion Services (IFIS), a
licensed Agent Network Operator. Nigerian Banks are beginning to take a strategic and structured approach
such as Agent Banking and Mobile Money Agent in engaging the Fintech Community. Digital Financial
Services have become a platform for extending basic financial services to the poor and the banked segment,
real time and anywhere.

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Also in with recent study by PWC, FinTechs are redrawing the competitive Financial Services landscape
and blurring the lines that define players in the sector. Their offerings range from competing financial
services such as alternative lending, to additive solutions atop existing banking services, to enabling
technologies for the banks themselves. Capitalizing on the latest mobile, cloud and digital technologies,
Nigeria is increasingly becoming home to many FinTech firms who are trying to shake up and be accretive
to the banking value chain (Price Water – Price Waterhouse Coopers, 2017).
Discussions
Digital Financial Service is not only seen as a tool for solving the problem of proximity to the locations
(physical distance), but also a platform to innovate and reach the target market. Today the unbanked and
under-banked populations are increasingly gaining access to financial services through digital channels,
thanks to global financial inclusion drive by organizations such as Bill & Belinda Gates Foundation, United
Nations, World Bank, amongst others.
Financial Institutions (Banks, microfinance), Mobile Network Operators (MNOs), and third party
providers (such as OEMs) are leveraging penetration of mobile phones, point-of-sale terminals, together
with networks of mobile money agents, to offer basic financial services at greater convenience, scale and
affordable price than what traditional banking offers.
The Central Bank of Nigeria has defined a strategy that sets clear target for financial inclusion which is
to decrease financial exclusion from 40% in 2010 to 20% in 2020. The Financial Inclusion Strategy of the
Federal Government of Nigeria clearly states that “All Nigerian adults, in particular the low income group,
participate in a formal financial system that sustainably provides a suite of financial products that are
affordable and accessible, thus reducing poverty and improving household economic wellbeing”
Conclusion
From the foregoing, it is becoming increasingly clear that for the financially excluded to be provided
access to basic financial services together with addressing financial exclusion will require an all-inclusive
and systematic tactic on the part of financial services providers and regulators in driving top-of mind
awareness (TOMA) about financial products and services, education, and advice on how to effectively
manage their funds, safety and reliability of infrastructures , driving savings culture and affordable micro-
credit that would improve their economy which will subsequently impact economic development.
Therefore, Financial Institutions and Fintech would have to establish and create specific but innovative
strategies to expand the scope of their products so as to stimulate and facilitate financial inclusion. One of
the ways in which this can be achieved in a cost-effective manner is through forging linkages with
microfinance institutions, NGO’s and local communities. Banks should give wide publicity. Technology
can be a very valuable tool in providing access to banking products in remote areas. ATMs cash dispensing
machines can be modified suitably to make them user friendly for people who are illiterate, less educated
or do not know English. And one of such approach is Human Teller Machine (Mobile Agents).
From the above discourse, it is apparent that digital technology and innovations are key drivers of
expanding the businesses of the banks and other financial instituions. Furthermore, with increasing threats
of Fintech, Nigerian Banks are now left with no choice but to ‘innovate or die’ with the associated
requirements to invest in these innovations and technologies for the provision of payment systems that
would address the issues earlier identified.
As more people are financially included, financial institutions will experience multiplier effect on their
businesses. As investments thrive, the unemployed/ unbanked are economically engaged with jobs that will
improve their economic life. These and other socio-economic initiatives will help the financial and
technology industries develop new services and achieve the UN Sustainable Development Goals (SDGs).
Furthermore, as more participants are involved in driving financial inclusion, it is believed that large
numbers of the unbanked will gradually decline. I recommend that the private sector should collaborate
with Financial Inclusion Campaigners (CGPA, GSMA) to advance and champion the discourse that will
culminate in new ways of thinking and innovation in financial inclusive products and services, which will