If I told you it was impossible to send money to someone and they receive it instantly no matter where they were in Nigeria fifteen years ago, would you believe me? How about receiving or sending money without a bank account? Technology has significantly improved how we use money in Nigeria, but not for everyone.
Financial inclusion is the level of an individual’s (or a business’s) access to and usage of various financial services — regardless of their age, income level or social status. It also refers to the efforts to make these services available to everyone.
The concept (sometimes called inclusive finance) aims to ensure everyone — particularly those in underserved and marginalised communities — has access to affordable, convenient and secure financial services. We have compiled all you need to know about financial inclusion, including how PiggyVest promotes inclusive finance for Nigerians from all backgrounds.
How does financial inclusion work in the real world?
Financial inclusion addresses the barriers preventing individuals from participating fully in the formal financial system, including distance and lack of technology. However, how exactly does this work in real life?
In practice, financial inclusion involves the participation of individuals, businesses and the government in formal financial channels. This includes access to bank accounts, credit facilities, insurance services and electronic payment systems.
A great example of a financially inclusive system in Nigeria is the Bank Verification Number (BVN), a brainchild of the Nigeria Inter-Bank Settlement System Plc (NIBSS). This invention allows financial institutions to identify users and their financial transactions, improving financial security for Nigerians and giving even more people access to credit systems they might otherwise be unable to explore.
However, this effort also extends to providing financial education and literacy programs. Financial institutions are crucial in driving financial inclusion in this way. For example, we at PiggyVest use articles, ebooks and even physical events (like OpenHouse) to achieve this.
But that’s not all financial institutions do. They also design and offer products (as well as services) tailored to the needs of underserved populations like low-income individuals, rural communities and small business owners. These products and services are typically affordable, accessible and easy to use.
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The CBN and financial inclusion in Nigeria
It’s almost impossible to talk about financial inclusion in Nigeria without mentioning the nation’s apex bank — the Central Bank of Nigeria (CBN). After all, it’s the foremost authority in the country on money matters.
Therefore, it’s no surprise that financial inclusion has become a priority for the CBN in its effort to foster economic development. The apex bank defines financial inclusion as the provision of a broad range of financial services (like savings, credit, insurance and payment systems) to all individuals and businesses at an affordable cost.
The CBN recognises that inclusive finance is essential to reducing poverty, stimulating economic growth and building sustainable development in Nigeria. Therefore, it aims to achieve this by addressing the various barriers and challenges that hinder people’s access to financial services.
Why is financial inclusion so important?
The main aim of inclusive finance is to provide individuals and businesses with the necessary tools and resources to manage their finances, save for the future, invest in productive activities and protect themselves against unexpected financial shocks. But why exactly is this important?
Financial inclusion is important for several reasons:
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- It empowers individuals and businesses by providing them with the means to enhance their financial well-being. This access to financial services allows people to save money more effectively, access credit for investment or emergencies, manage risk through insurance and engage in digital transactions.
- Financial inclusion also contributes to economic growth and development. When more people have access to financial services, they can participate more actively in economic activities, make investments, and contribute to sustainable development. Plus, financially included individuals are more likely to start businesses, create employment opportunities, and generate income for themselves and their communities.
It’s no wonder most governments and policymakers (including in Nigeria) want to create more inclusive and equitable financial systems.
What determines financial inclusion?
Various factors influence the level of financial inclusion in a particular country or community.
These inclusive finance determinants include:
- Availability and accessibility of financial institutions and services
- Affordability of financial products
- Quality and relevance of financial education
- Regulatory environment
- Income level
- Education
- Geography
- Gender
The last four are socio-economic factors that also significantly influence a nation’s level of financial inclusion. For example, low-income individuals, citizens living in remote areas, and women are often more excluded from formal financial services.
How to measure financial inclusion
Measuring financial inclusion is essential to assess progress, identify gaps and inform policy decisions.
Some of the metrics used to measure financial inclusion include:
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- Percentage of adults with a bank account
- Usage of digital payment systems
- Number of loan accounts per capita
- Density of banking infrastructure
- Percentage of the population covered by insurance
By monitoring these indicators, policymakers and stakeholders (including businesses) can gain insights into the state of financial inclusion and take appropriate actions to address any existing barriers or gaps.
How to achieve financial inclusion
Financial inclusion is measurable, and it can also be improved. In fact, shareholders can implement various strategies and initiatives to achieve or enhance inclusive finance in a community.
Some of the ways to achieve financial inclusion include:
- Promoting financial literacy and education programs to enhance people’s understanding of financial concepts and products.
- Expanding the reach of financial services by establishing physical branches, mobile banking agents and digital platforms.
- Developing innovative financial products and services that are affordable and tailored to the needs of underserved populations.
- Enhancing the regulatory framework to promote competition, consumer protection and innovation in the financial sector.
- Collaborating with stakeholders such as financial institutions, policymakers and technology companies to drive financial inclusion initiatives.
Properly executing these strategies isn’t easy. Therefore, achieving financial inclusion often requires the collaboration of several parties, including individuals, businesses and the government.
Does financial inclusion reduce poverty?
Financial inclusion reduces poverty. By giving Nigerians access to financial services, they can save money, build assets and invest in income-generating activities. Financially included individuals can better manage their finances and protect themselves from unexpected expenses or emergencies.
In fact, a study by the International Monetary Fund (IMF) found a strong correlation between financial inclusion and poverty reduction. It showed that increasing access to financial services contributes to stronger economic growth and reduces income inequality, thereby lifting people out of poverty.
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What is digital financial inclusion?
Digital financial inclusion is a particular type that focuses on technology-driven accessibility and usage of financial services. It also refers to the efforts and products (like the internet and smartphones) that make tech-driven inclusive finance a reality.
This type of inclusion can potentially (and already has) overcome traditional barriers to financial inclusion, like geographical distance and lack of physical infrastructure. It also enables individuals to conduct transactions, access credit and save money using their mobile devices — even in remote areas where regular banking services (like ATMs and physical banks) are limited.
How PiggyVest helps to promote financial inclusion in Nigeria
PiggyVest is the better way to save and invest money in Nigeria. Today, we serve more than 4.5 million users and have been a part of financial success stories to the tune of 1.2 trillion Naira — including interest. However, beyond (and within) these numbers, we’re a platform that promotes financial inclusion in the country.
We provide access to various financial services — including savings and investment opportunities — through our user-friendly mobile app. This app allows you to save money regularly (using options like HouseMoney™ and Target Savings), invest in low-risk opportunities, and gain financial literacy through our educational resources — including our Blog and Comics.
What is the relationship between financial inclusion and financial stability?
Financial stability and financial inclusion are closely interconnected. Financial inclusion promotes stability by reducing the reliance on informal and unstable financial channels. When more people have access to formal banking services, it strengthens the overall financial system — making it more resilient to shocks and crises.
Financial inclusion also contributes to reducing systemic risks. By integrating individuals and businesses into the formal financial system, authorities can monitor and regulate financial activities more effectively.
This helps to prevent illicit financial activities like money laundering.
What is the difference between financial inclusion and financial literacy?
While financial inclusion focuses on ensuring access to financial services, financial literacy relates to an individual’s understanding of financial concepts, products and services.
Financial literacy is essential for making informed decisions about saving, investing, borrowing, and managing one’s finances effectively. It gives people the power to navigate the complex financial landscape easily, avoid predatory practices, and take advantage of all kinds of financial opportunities.
Financial inclusion complements financial literacy by providing individuals with the actual means to implement their financial knowledge. It ensures that individuals can access appropriate financial products that meet their needs and help them achieve their financial goals.
Summary
Financial inclusion is vital to promoting economic development, reducing poverty and achieving a more inclusive and equitable society. It aims to provide individuals and businesses — especially those in underserved communities — with affordable and accessible financial services to enhance their economic well-being.
PiggyVest is committed to inclusive finance in Nigeria. That’s why we constantly address barriers and promote access to financial services for everyone. This way, we can create a more inclusive financial system that benefits everyone.
