Citizens and Capital: How Fintech can connect Nigerians to their financial system

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In the modern age, financial systems have the ability to empower citizens by increasing their participation in the economy and society. For this to work the system must prove itself to be reliable and accessible for the population. While traditional banking in Nigeria has made very impressive strides, the rise of Fintech has introduced interesting developments regarding how the industry can work better for its large and entrepreneurial citizenry. 

Rooted in the nation’s colonial history, the financial system has always struggled to adequately serve the general population. Initially banks in Nigeria were created to service British expatriates and businesses restricting access to the native population. The advent of independence in 1960 encouraged an explosion of banks eager to reverse this by providing financial services to the citizens of the new nation. However, this had a negative impact; it created an oversaturated and inefficient banking sector that resulted in poor business practices which threatened the nation’s stability and prospects. 

In 2004 the Central Bank of Nigeria introduced reforms to address these issues. The reforms outlined a strict criteria that banks had to follow in order to stay in business. The accuracy of the reforms were evident as they tackled the bloated sector and reduced the number of major banks from 87 to 25 by the end of 2005. Since these changes the financial system has been in a relatively better position. Perhaps the biggest testament to this is the industry’s ability to weather significant shocks such as the 2008 financial crisis and 2014-2016 oil crash. 

Nonetheless, the banking system is yet to become an integral part of people’s lives. Only 40% of adult Nigerians have a standard bank account according to the Global Findex Database of 2017. This is a fact many are aware of and has heightened the focus on how technology can help the sector. Fintech, the use of technology to improve or create financial services, comes in many different forms. While all of these new developments will become more relevant as time goes on, some will be more valuable than others for connecting Nigerians with financial opportunities. 

Firstly, the use of mobile phones to facilitate banking services is one example of Fintech bridging the gap between citizens and banks. As aforementioned, Nigerian banks have improved considerably but customer experience is still a key issue for many. Mobile phones have the potential to make banking more user friendly as digitizing services in a familiar format can provide a more streamlined way of doing business. “Mobile money” as it is known has been hugely successful in other parts of the continent such as Kenya. With the projected number of smartphone users expected to hit 140 million by 2025 according to Statista, this would be an astute way of improving access to financial services for the populous. 

In conjunction with this idea is the role Fintech can play in improving financial literacy. In order for the population to truly benefit from the financial system users must understand its risks and rewards. This not only helps people navigate opportunities but more importantly prevents predatory practices that create unsustainable financial arrangements which could reduce trust between people and the sector. While the onus will remain in the hands of regulators to safeguard users, this should still be a core consideration for companies. Developers should look at this not only as an ethical matter but also as a part of their business strategy. The companies that can offer the most transparent and reliable services for users will inevitably be more likely to attract and maintain customers. Therefore, factoring financial literacy into the banking experience should be an essential consideration for the future. 

Arguably the most important role Fintech can play is creating alternative financing methods such as peer to peer lending. A massive challenge for any developing nation is allocating capital to those who can solve market and social failings. Unfortunately, it is notoriously hard for Nigerian citizens to gain access to loans from traditional banking institutions. Peer to peer financing circumvents traditional loan processes by connecting lenders and borrowers via digital platforms. Companies such as KiaKia have already started to launch services and applications that can facilitate loans to underserved groups in the nation.  A more flexible financing process for businesses and individuals can increase their access to much needed resources that can bring their ideas and solutions to life. 

Despite the potential there is a clear need to be cautious about the introduction of new and complex financial instruments. As the post independence banking boom highlighted, a rapid and unfettered flurry into financial markets can put nations in a precarious position. To prevent Fintech from becoming an issue policymakers must walk a fine line of encouraging progress while ensuring high standards to safeguard the public and industry in general. With Nigeria sitting at the heart of economic plans for the region, the security of the nation’s financial industry has never been more important. Furthermore, very practical challenges regarding infrastructure must still be overcome to ensure Nigeria’s Fintech progress. Without stable energy and telecommunication infrastructure the true potential of the field will always be stifled.

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