Financial inclusion is one of the most rampant words these days within the financial ecosystem.  It is defined as the availability and equality of opportunities to access financial services. It refers to a process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products.

What is means in practical terms?

For years, Tunde, a micro-entrepreneur who ran a Shawarma stall near Sangotedo, Lagos, Nigeria, didn’t have a basic bank account. He earned less than $3.20 a day and kept her savings at home or deposited them with informal collectors who may be unreliable and typically don’t pay interest. Tunde, like millions of people, didn’t have a choice—formal banks lacked extensive branch networks, especially outside of major cities.

That was four years ago—today, Tunde, 32, uses a bank agent near her home to make deposits every month in her account at a popular microfinance bank. In Nigeria, more than 42 million adults live in rural areas that lack basic banking services. While the number of Nigerians who own a bank account has been steadily increasing, a 2021 EFInA study on trends in access to financial services in Nigeria shows that many gaps remain.

For example, while 71 percent of urban adults have bank accounts, only 40 percent of those in rural areas have a formal account. More than 60 percent of rural communities surveyed don’t have a bank branch, agent or ATM. Mobile money has not proven to be a widespread option as only 4 percent of adults in the EFinA study (less than 6 percent in 2017 according to Findex) report having such accounts. In addition, women are less likely to be financially included than men. While 57 percent of men in Nigeria have a financial account, only 45 percent of women do. Women living in rural areas are even less likely to be financially included.

The LAPO contribution

Since 2012, LAPO has been supporting low-income households, particularly women in rural communities by providing group loans. The microfinance bank, in partnership with IFC, started piloting an agent banking network in 2017, aiming to expand its footprint and the range of services it offered. Agents are typically retail outlets located in the heart of the community contracted to facilitate transactions such as deposits and withdrawals. For customers, banking agents are an easily approachable alternative to brick-and-mortar branches. Similarly, banks benefit because they offer a cost-efficient alternative to reach new customers or provide additional services.

How is LAPO helping to reduce these gaps?

IFC’s recent publication highlights how LAPO is helping to reduce these gaps and providing services to marginalized groups in Nigeria using banking agents. In coordination with LAPO, IFC designed an evaluation to understand who benefits the most with the roll-out of the agent banking network and to provide feedback to the project and to the client.

The study’s findings show that the agent banking model is successful in areas with a low presence of financial institutions. The growth in the share of LAPO accounts holders in these areas was almost twice as high as in locations with many bank branches and outlets. This is particularly important as our survey shows clients in these areas were more likely to lag behind, with 27 percent of people illiterate and 39 percent without a basic bank account, compared with 8 percent and 27 percent, respectively, in other areas. Evidence of inclusion of illiterate individuals is encouraging as these are clients who would struggle to use other options such as digital financial services.

A key barrier for people to have bank accounts is the lack of easily accessible bank branches.  But financial institutions can expand their geographical footprint by focusing on agent banking. In areas with a low presence of financial institutions in 2017, banked respondents in the study reported spending, on average, 150 naira ($0.42) in transportation and 80 minutes every time they made a transaction at the bank branch. This is not a trivial amount as 28 percent of the respondents in our study live with less than 1,150 naira ($3.20) a day, and 56 percent are self-employed, either owning shops or hawking their wages, were losing an hour of work can make a dent in their daily income. In comparison, LAPO clients using agents in these areas in 2019 reported spending on average 41 minutes and 46 naira ($0.13) every time they made a transaction.

The study also showed the positive impact of agent banking on women. In our sample of 1,000 individuals living near selected agent locations, the number of women who signed up for LAPO accounts was slightly more than men. Two years after the agent banking locations were deployed, 46 percent of female respondents and 40 percent of male respondents had an account with LAPO in areas identified as low penetration by financial institutions.

This contributed to a narrowing of the overall financial inclusion gap in our study population when looking at all types of accounts: while 34 percent of female respondents and 15 percent of male respondents were unbanked in 2017, 19 percent of women and 12 percent of men reported being unbanked in 2019. While more research is needed in this area, we hypothesize that LAPO’s experience serving women together with agents who are part of these communities helped overcome trust issues common across the unbanked in Nigeria.

To identify possible customer pain points, the study collected feedback from customers. The results show that the overall experience among agent users is positive. Over 80 percent of respondents found the pricing structure of agent banking fees clear and reasonable. In addition, around 55 percent of users perceived an improvement in their ability to access and manage their money.

The PoS Business in shaping Nigeria’s Financial Inclusion landscape