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Driving Financial Inclusion through Customer Protection




Nigeria is still in the battle of having a high financially inclusive population and in this report, BUKOLA IDOWU and MBAKAAN KWEN write on the journey thus far and the target to having an 80 per cent inclusion by 2020.

Banking in Nigeria has over the years evolved as technology and innovation by financial institutions, strive to make life easier for customers and cut down operating costs for the banks. With innovation which has led to the advent of digital banking, new challenges have propped up in the system calling for more regulation and oversight by regulators.

The Nigeria Deposit Insurance Corporation (NDIC) recently held a workshop for financial journalists and business editors to examine some of the issues that have arisen in the sector. Themed “Financial Inclusion, Consumer Protection and Evolution of Virtual Currencies in Nigeria” the workshop focused on protecting customers in an evolving technology driven world.

Speaking during a panel discussion, director, Consumer Protection Department of the Central Bank of Nigeria (CBN), S.K. Salam-Alada, stressed the need to ensure adequate protection and safeguarding of customers funds to engender confidence in the financial system.

Represented by Emmanuel Hassan, deputy director of the Consumer Protection Department of the CBN, noted that while advancements in emerging disruptive technologies in financial services are part of critical national infrastructure, vulnerability of the electronic payment infrastructure remains a global issue affecting consumers, banks and national security.

This phenomenon, he said has been catapulted to the forefront in Nigeria with the adoption of RTP, adding that this has made consumer protection an imperative in the country.  Therefore he stressed the need for the protection of not only the consumers of financial services, but also the protection of the national electronic payment infrastructure.


Achieving 80% Financial Inclusion

The protection of customers particularly in a technology driven system has become paramount as it is a major factor in ensuring confidence in the system. The confidence and trust needed to fast track the financial inclusion strategy of the government. With financial inclusion indices of 46 per cent, Nigeria is looking at achieving 80 per cent inclusion by the year 2020 which is just two years away.

According to the World Bank, around two billion people don’t use formal financial services and more than 50 per cent of adults in the poorest households are unbanked. In her view, the federal government believes financial inclusion holds promise for economic empowerment, enhanced opportunities, productivity in various sectors and accelerated economic development.

In a report from the Central Bank of Nigeria, the federal government targets to have a 46.3 per cent adult financial exclusion rate taken down to 20 per cent by 2020, payment raised from 22 per cent to 70 per cent, an increase in savings from 22 per cent to 60 per cent, credit from two per cent to 40 per cent, insurance from one per cent to 40 per cent and pension from five per cent to 40 per cent.

Head, financial inclusion secretariat at CBN Temitope Akin-Fadeyi while speaking at a workshop for financial correspondents association of Nigeria (FICAN) in Benin said, the barriers hindering the process of having a financially inclusive population abound in the areas of lack of income, long distance to access points, lack of knowledge about financial services, high cost of services, cumbersome requirements and security.


Regulatory Interventions

It is on this backdrop that the CBN adopted some ways to tackle the issues such as no frills savings accounts, agent banking and mobile money, financial literacy and consumer protection, MSME development fund and the three tiered know your customer guidelines.

As at 2016, Enhancing Financial Innovation and Access (EFInA) survey in the financial services in Nigeria showed that out of an adult population of 96.4 million people, 40.1 million people were financially excluded, 36.9 million banked, 10 million and 9.4 million formally and informally included respectively.

It shows that the north east chart the highest with financially excluded population of 70 per cent while the south west has the lowest of 18 per cent. This is as a result of low adoption of the agent banking model by banks and uneven distribution of access points across the country, low literacy among clients on financial services particularly in rural areas, slow pace of implementation of the national identification scheme, religious and cultural factors in the northern parts of Nigeria, inappropriate financial services and continuous sticking to traditional and conventional models, concentration of mobile money agents in the urban areas and slow penetration in the rural areas where they are most needed and continuous exclusion of MSMEs despite interventions.

To this end, the CBN has planned a formidable governance structure which entails state level implementation arrangement, a shared agent network expansion project with target of 500,000 agents by end of 2019, setting for states and financial service providers, revised capital base for microfinance banks and introduction of payment service banks.

It therefore means if the federal government is able to roll out about 200,000 agents and each of them recruits 100 persons in a year who either save or withdraw through them, that will curb in addition 20 million people into the financial system.

The entire efforts to the journey of financial inclusion does not rest on the shoulders of the CBN alone and so, the head of corporate communications PENCOM Mr. Peter Aghaowa while elaborating on the efforts of PENCOM for financial inclusion said the commission has rolled out the micro pension scheme aimed at self-employed persons who can contribute for their pension.

“To make it easy for entrepreneurs who would opt for the scheme, we have made it possible for them to access 40 per cent of the funds contributed when they are in need of their savings. Similarly, we are creating a window that would allow retirement savings account (RSA) holders to transfer from one pension fund administrator (PFA) to the other. However, we are currently working on our data base to ensure we do not have duplicated accounts.”


e-Fraud As Challenge

It suffices to say that, in spite of the federal government interventions in the financial sectors, cyber-crimes have continued to hamper the efforts thereby sending some people away from engaging with the financial sector. According to the director, insurance and surveillance of the NDIC Mr. Muhammad Umar, internet/online-banking and ATM Card-related fraud were the major cases reported by deposit money banks (DMBs) in 2017, constituting 24,266 or 92.68 per cent of all the reported cases, resulting in 1.51 billion or 63.52 per cent of losses in the industry during the year.

This has further discouraged some people from banking but rather adopt the primitive modes of saving money. He however recommended continuous capacity building for end-users to educate them on the Dos and Don’ts to have hitchfree banking and financial transaction experience. However, a high level of fraud may see the current level of financial inclusion not rise as expected as loss of funds through fraud may further reduce confidence in the system.

Director of the Consumer Protection Department of the CBN, noted that the advancement in technology and development of new products is opening the financial sector up for fraud adding that there is need to ensure that bank customers’ deposits are adequately protected against fraud.

The CBN director who said 83 per cent of the fraud cases reported in the sector are through electronic channels noted that the rapidly changing financial landscape , evolving technology in the fintech space as well as changing policy and regulatory environment pose challenges for consumer protection and enforcement in the country.


Consumer Protection Framework

The CBN had in 2016 issued a consumer protection framework which compelled banks to open up consumer protection desks but Salam-Alada stressed the need to “restore public trust and confidence in the financial system because of the problems of malfunction in our e-channels and electronic fraud (e-fraud).”

According to him, the Consumer Protection Framework (CPF) by the CBN is supposed to not only engender public confidence in the financial system, but also guarantee high standards for efficient customer service delivery, market discipline and ensure that consumers are treated fairly by financial institutions regulated by the CBN.

“Innovation technology is increasing rapidly and disrupting the financial space. We no longer go to our banks physically as often as we did in the past for financial transactions. He noted that the volume and value of e-transactions is projected to continue to increase nationally and globally as a result of broader ecosystem scope, evolution of channels adaptability to disruptive innovations and modes of payment as well as increased inclusion in the financial space.

To this end, he said the apex bank is working on initiatives such as development of the Consumer Complaints Management System (CCMS) and the National Financial Education Strategy. He said the revised framework will ensure that banks invest in consumer education.

Also speaking, Mr. Olayinka Tiamiyu, general manager, internal audit, Access Bank Plc called on financial players to take their customers serious by ensuring that they carry out consumer education through seminars, town hall meetings, noting that consumer education should not be taken for granted because banks don’t have customer they won’t exist.”

He however noted that consumer education comes at a huge cost to banks as sending a single text message to customers sometimes cost up to N18 per text. Education of the public has become even more paramount as disruptive technologies such as digital currencies are becoming more popular. In recent times, the digital currencies also invaded the financial sector with enormous risks associated with the trade.

This is why the NDIC as well as CBN warned banks and Nigerians, through several platforms to stay away from digital currencies because the corporation does not provide insurance cover to risks and loses associated with trading in any form of currency not issued by the CBN.

Several countries have banned the trading of virtual currencies such as China’s central bank, central bank of India, central bank of Russia, the European banking authority etc. This is largely due to the fact that digital currencies are stored in electronic medium called e-wallets and are vulnerable to losses due to loss of password, hacking, virus/ malware attack etc. The loss of the wallet could result in the permanent loss of the digital currencies held in them. Some people out of greed to make fast money trade these currencies without weighing the risks involved.

Dr. Kabir Katata, deputy director research with NDIC said more than 70 risks were identified in connection with DCs by the European Banking Authority (EBA), including risks to users, non-user market participants, financial integrity, such as money laundering and other financial crime, existing payment systems in conventional FCs, regulatory authorities.

There is a yearning for financial literacy, inclusion and consumer protection to avoid situations that would further drive financial exclusion of the Nigeria population. Currently, the volume of bitcoin, the most popular cryptocurrency, traded in Nigeria is in excess of N1 billion. This is asides the other cryptocurrencies such as Etherum and hundreds of other cryptocurrencies traded in the country.



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