On Tuesday 6th December 2022, the Central Bank of Nigeria issued a memo to banks in the country directing the policy imposition of cash withdrawal limits on individuals and organizations, which take effect from January 9, 2023.

According to the new circular, individuals will only be able to withdraw N100,000 per week (from over the counter, Point of Sale Machines, or the Automated Teller Machines), while organisations can access N500,000 per week. The policy directives further said Withdrawals above the specified limits shall attract processing fees of 5% and 10%, respectively.

This is a welcome development to control excess liquidity outside the financial system which can potentially worsen inflationary rise in the country. However, Nigeria is a country that is facing a unique struggle with financial inclusion, which is one of the main reasons. Despite efforts to increase financial inclusion, Nigeria hasn’t experienced much of an improvement in financial inclusion since 2012.

Between then and now, only 2.9% of Nigerians that were previously financially excluded have gained access to the financial services they needed. According to Financial Journal report, there are many complex factors that have stunted the efforts for increasing financial inclusion in Nigeria, among the key challenges includes the following.

1. Lack of Required Documentation: Opening any sort of financial account requires legal identification, something that many Nigerians are lacking especially those leaving rural areas. A study from Inter Media and the Bill & Melinda Gates Foundation reports that only 79 percent of Nigerian adults possess the documents needed to register for mobile money or a bank account, making the lack of required documentation arguably one of the biggest challenges facing financial inclusion in Nigeria.
2. Low Levels of Financial Literacy: Nigerians who have access to financial services are reported as having a lack of basic resources and the financial knowledge necessary to carry out transactions: Only 16% of Nigerian adults report having the financial literacy it takes to carry out commonplace financial tasks such as registering for an account, and the lack of education around financial services has likely contributed to low financial inclusion.
3. Lack of Close-Proximity Service Points: One of the biggest challenges facing financial inclusion in Nigeria is that more than half of Nigerian adults don’t have close proximity access to financial services such as ATMs, banks, or service kiosks. Take Yobe State for instance, among the 17 LGAs only 4 LGA headquarters have physical presence of commercial banks. This has been the case for Nigeria for years, as the rate of access to formal financial services remained constant in 2016 at 42%. Even mobile money has been slow to be integrated into Nigeria.

Despite mobile money awareness seeing an increase from 12 percent in 2015 to 20 percent in 2016, a majority of Nigerian adults report still not knowing of a mobile money service point within close proximity. This makes limited access to service points a key hindrance to financial inclusion.

Challenges: Most of the Nigerian population (especially northerners) works in the informal sector. Naturally, this has made the use of financial services rather stagnantly slow. Also, predominant population leaves in rural areas with grossly inadequate modern infrastructures that can propel development and attract viable modern commercial activities.

Way Forward: while the federal government of Nigeria is working toward a goal set back in 2012 that targets financial inclusion for 80% of its population by the year 2020. Unfortunately, as at January of 2019 review, The Central Bank of Nigeria confirmed that studies then had shown about 36% of Nigerian adults still lacking access to sufficient financial services.

While we cautiously welcome this development, it is imperative for Political leaders at state and local governments levels to show genuine interest to protect small informal businesses in rural areas while awaiting wider national goal for financial inclusion. There is a need for community level awareness creation to prepare rural market and businesses to better manage the new policy transition. States can also work collaboratively with commercial banks in their respective states to expand coverage physically or through innovative proxies. Most importantly, state government can consider external shareholders opportunity who can invest in state owned micro finance banks to strategically fill the gaps of commercial banks in rural areas and scale up financial inclusion.