ITREALMS: Driving Pervasive Broadband Penetration to Deepen Digital Financial Inclusion for Nigeria’s Socio-economic Transformation

Friday, March 12, 2021

Driving Pervasive Broadband Penetration to Deepen Digital Financial Inclusion for Nigeria’s Socio-economic Transformation

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Driving Pervasive Broadband Penetration to Deepen Digital Financial Inclusion for Nigeria’s Socio-economic Transformation Being a Lecture Delivered, as a Guest Lecturer By Engr. Prof. Umar Garba Danbatta, FAEng. FNSE, FRAES, FNIEEE
Executive Vice Chairman/CEO, Nigerian Communications Commission at the 5th Annual The Bullion Lecture organised by the Centre for Financial Journalism on Thursday, March 11, 2021 @The Civic Centre, Victoria Island, Lagos.

Protocols:

I thank the Board and Management of the Centre for Financial Journalism for considering me worthy as the Guest Lecturer for this year’s edition of its annual ‘The Bullion Lecture 2021’, holding here at The Civic Centre, Victoria Island, Lagos.

This Lecture, being the fifth in a series, was skipped last year owing to the outbreak of COVID-19 pandemic, its attendant restrictions and the need to observe other necessary protocols and measures emplaced by the Presidential Task Force of Covid-19, towards curbing the spread of the pandemic. I am therefore happy that after the prolonged postponement, we are finally able to take the lecture today.

In the letter received last year and updates from the organisers ahead of this event, I understand that the theme of the programme is woven around: Telecoms, Digital Banking and Nigeria’s Economic Development. This theme is, indeed, topical and relevant within the context of our current socio-economy reality, where we require constant discourse and dialogues on salient national issues that speak to our collective socio-economic development and aspirations as a country.

It is, however, instructive that the Organizers, in their letter, clearly informed me that I am at liberty to fine-tune this topic as may be considered appropriate, as the country’s telecoms industry regulatory authority. My guess is that the Organisers are fully conscious of the fact that we are in a democratic dispensation, hence their decision to be more democratic regarding the topic given to me to discuss as the Guest Lecturer.

Riding on the crest of this ‘liberty’, therefore, distinguished ladies and gentlemen, I have decided to tinker with the topic by coming up with the revised topic: “Driving Pervasive Broadband Penetration to Deepen Digital Financial Inclusion for Nigeria’s Socio-economic Transformation.” With this in mind, it is my humble opinion that I would be able to do justice to the overarching theme of this event by examining key issues in the topic and more importantly, be at a vantage position to concentrate on NCC’s role in providing the needed digital infrastructure and supports for enhancing our digital financial inclusion quest for our national socio-economic development.

In the course of this lecture, I will interrogate some key and latent elements in the discourse for us to have an informed engagement at this Forum. Hence, I shall be discussing what financial inclusion is, why some sections of the population remain unbanked, what digital financial inclusion connotes, financial inclusion ecosystem in Nigeria, pervasive broadband and digital financial inclusion and their connecting cord, and then, look at what the NCC has been doing toward addressing risks associated with using digital/telecoms platforms for carrying out non-cash financial transactions.

What is financial inclusion?

According to a 2018 World Bank Report, financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way. [1]

The Enhanced Financial Innovation and Access (EFInA), an organisation that promotes financial inclusion and an organization that conducts biennial report on Nigeria’s financial inclusion industry, defines financial inclusion as ‘the provision of a broad range of high quality financial products, such as savings, credit, insurance, payments and pensions, which are relevant, appropriate and affordable for the entire adult population, especially the low-income segment.’[2]

In other words, financial inclusion means the sustainable provision of affordable financial services that bring the poor into the formal economy. As such, being able to have access to a transaction account becomes a first step toward broader financial inclusion since a transaction account allows people to store money, and send and receive payments. A transaction account serves as a gateway to other financial services. Indeed, financial access facilitates day-to-day living, and helps families and businesses plan for everything from long-term goals to unexpected emergencies. As account holders, people are more likely to use other financial services, such as credit and insurance, to start and expand businesses, invest in education or health, manage risks, and weather financial shocks, which can improve the overall quality of their lives.

Great strides have been made toward financial inclusion and 1.2 billion adults worldwide have gotten access to an account since 2011. Today, 69 percent of adults have an account, according to a World Bank Report.[3]

However, Global Financial Inclusion Database, otherwise known as Global Findex, which documents how people save, borrow and make payments, states that, close to one-third of adults – 1.7 billion – are still unbanked globally.[4] About half of unbanked people include women, poor households in rural areas or out of the workforce. This, thus, hinders women from being able to effectively control their financial lives, as financial inclusion has been identified as an enabler for seven of the 17 Sustainable Development Goals 2030. Also, financial inclusion is considered a key enabler to reduce extreme poverty and boost shared prosperity and countries with high mobile money account ownership have less gender inequality.

Reports indicate that since 2010, more than 55 countries have made commitments to financial inclusion, and more than 60 have either launched or are developing a national strategy. When countries take a strategic approach and develop national financial inclusion strategies which bring together financial regulators, telecommunications, competition and education ministries, among others, they increase the pace and impact of reforms.

Distinguished ladies and gentlemen, the socio-economic impact of having a sustainable financial inclusion drive is stressed in a report by Boston Consulting Group (BCG), a global management consulting firm, commissioned by Telenor, a multinational telecommunications company. The report clearly estimates that 1% increase in financial inclusion increases the real Gross Domestic Product (GDP) per capita by 3.6%.[5]

Therefore, access to financial services is a crucial enabler of economic and social transformation of any country. Until recently, policy efforts to develop financial services have focused on the formal banking sector and its intermediating function in converting savings into investment. This meant that the urban population enjoyed access to financial services while financial institutions neglected low-income population segments (who generated low or negative returns) and rural areas users. Suffice to say that some identified barriers to financial inclusion on the demand side include:

• Affordability, such as high interest rates on loans, high premiums on insurance products, and minimum balances on accounts;

• Awareness and understanding, both as to availability of products and how they are structured, priced and used;

• Accessibility, with financial products typically offered in urban centres and near high income users, and subject to heavy bureaucratic processes; and

• Desirability, with many products not designed for the needs of low income users.

Why are people unbanked?

It is pertinent to ask this question bordering on why certain people are unbanked. The answer to this poser is not far-fetched: It is simply because formal financial services are unavailable to certain categories of people.

The Global Findex report shows that, three out of four of the world’s poor do not have a bank account, not only because of poverty, but also due to cost, travel distance and paper work involved.[6] The lack of adequate access to formal financial services has left most people in all regions, with the exception of high income economies, borrowing from friends and family as the most commonly-reported source of credit for current loans. In fact, it was reported that, 55 per cent of borrowers in developing economies use only informal sources of credit.

It should be emphasised that the need to boost inclusiveness with respect to access to financial services necessitated the paradigm shift by most countries from simply pursuing financial inclusion to focusing more on digital financial inclusion, by leveraging the digital platforms to provide tailored-made, low-cost financial services to people that are excluded from the formal financial services circle.

What is digital financial inclusion?

In a 2016 report[7] by the International Telecommunication Union (ITU), Digital Financial Inclusion, Scope and Policy, digital financial inclusion (DFI) is captured basically as ‘the use of Information and Communication Technology and other non-bank retail channels to extend the delivery of financial services to the unbanked.’ Digital financial inclusion, thus, has the following characteristics: no bank account needed; use of agents for cash in and cash out; and use of mobile handsets and other digital means for transactions.

Today, digital financial services are offered through the use of a mobile phone to access financial services (with or without bank account) and to execute financial transactions. Mobile money, mobile insurance, mobile credit and mobile savings are mobile financial services. Digital financial inclusion, therefore, involves the deployment of cost-saving digital means to reach currently financially-excluded and underserved populations with a range of formal financial services suited to their needs that are responsibly delivered at a cost affordable way to customers and sustainable for providers.

The World Bank report has it that, with the prospect of reaching billions of new customers, banks and a widening array of non-banks have begun to offer digital financial services, leveraging access to mobile phones, for financially excluded and underserved populations. They are also building on the digital approaches that have been used for years to improve access channels for those already served by the formal financial sector, which takes the “brick and mortar” approach. Today, mobile money has been most successful, as one of the means to drive digital financial inclusion, replacing cash transactions for domestic remittances, such as urban workers sending money to rural families. The fastest growing mobile money service is cross-border, led by remittances but with potential to support trade and regional integration. In Central America, Colombia, Kenya, Mexico, Philippines and Tanzania, more remittances are sent by mobile phones than in cash.

Available records show that digital financial services — including those involving the use of mobile phones — have now been launched in more than 80 countries around the world, including Nigeria, with some reaching significant scale. As a result, millions of formerly excluded and underserved poor customers are moving from exclusively cash-based transactions to formal financial services — payments, transfers, savings, credit, insurance, and even securities — using a mobile phone or other digital technologies to access these services. The picture is continuing to shift rapidly with the emergence of ever more new technologies.

Digital Financial Inclusion in Nigeria

With a population of over 190 million people, research shows that 73.2 million adults, representing 41.6% of the adult population in Nigeria, are financially excluded. However, Nigeria remains one of the countries identified by the ITU to have developed policy directions towards deepening financial inclusion in order to address the challenge of access to formal financial services.

In 2012, the Central Bank of Nigeria (CBN) adopted the National Financial Inclusion Strategy (NFIS). The Strategy defined a set of targets for products, channels and enablers of financial inclusion. The Key Performance Indicators (KPIs) were defined, based on the various dimensions of financial inclusion, including access, usage, affordability, appropriateness, financial literacy, consumer protection and gender. In line with the 2012 NFIS monitoring plan, a review was carried out from October 2017 to June 2018 based on research reports, data analysis and stakeholder engagements. The exercise aimed to understand the state of financial inclusion in Nigeria, assess past approaches and lessons learnt in order to prioritise the most critical interventions to achieve the NFIS objectives.[8]

One of the key findings of the Review Committee, ladies and gentlemen, show that “Nigeria had made significant progress to implement the NFIS because Stakeholders regard financial inclusion as a national development tool.” It was also noted that, “In 2016, 58.4% of Nigeria's 96.4 million adults were financially included comprising 38.3% banked, 10.3% served by other formal institutions and 9.8% served by informal service providers. In 2020, Nigeria plans to have 70% of its adult population in the formal financial services sector and 10% included in the informal sector.”(National Financial Inclusion Strategy (Revised), October, 2018)

Meanwhile, the CBN has further reviewed the financial inclusion target from 70% to 80%, highlighting in the reviewed strategy that the role of the Nigerian Communications Commission (NCC), as a strategic partner in promoting access to digital infrastructure and platforms to financial inclusion drive of government, so that the banks, mobile money operators and fintechs can leverage such digital platforms to offer mobile-based or digital-based financial services to those already in the formal financial service sectors and those outside the financial inclusion curve.

Table: National financial inclusion targets

Source: CBN

Ladies and gentlemen, the position of CBN in the revised NFIS 2018 is in tandem with a study by McKinsey[9], a global consulting firm, which identifies Digital Infrastructure as one of the three building blocks for digital financial inclusion. Other two building blocks identified by McKinsey are financial service market and products people prefer to existing alternatives. It is, therefore, appropriate that I take some minutes to inform this gathering of distinguished stakeholders at this momentous Lecture on a number of initiatives that the NCC has implemented and continues to implement towards deepening the frontiers of broadband/digital access to the generality of Nigerians, on a larger scale.

1. Pervasive Broadband Drive and Digital Financial Inclusion

The Nigerian Communications Commission (NCC) has been actively involved in the actualisation of the Federal Government’s financial inclusion target of 20% exclusion or 80% inclusion by the year 2020. However, a recent report by EFInA indicates that even though its data showed that more people have become financially included, the financial inclusion pace was, however, not matching the country’s population growth rate.

Therefore, to achieve an accelerated financial inclusion target that the country desires, even as the population grows, technology and more importantly, broadband, has to play a massive significant role and what I see technology doing in terms of Nigeria’s financial inclusion is actually to democratize access. In doing this, the NCC embarked on various regulatory initiatives that have continued to increase access to telephone lines and improve access to high-speed Internet or broadband. This is in line with the Commission’s mandate of ensuring universal access to telecoms services in the country consistent with the ITU’s goal of achieving digital inclusion, globally.

Foremost amongst these regulatory initiatives, is the implementation of the Open Access Model for infrastructure deployment through the competitively selected Infrastructure Companies (InfraCos) called the InfraCo Project: The InfraCo initiative is expected to provide, at a minimum, broadband fibre and connectivity to every Local Government Areas (LGAs) of the Federation, totaling 774 fibre Points of Access (PoAs) with a minimum speed of 10 Gbps which will translate to, at least, 38,296km of Optic Fibre Cable (OFC) to the Transmission over the next years.

So far, the Commission has licensed six of the seven InfraCos to implement this project and it is intended that the presence of fibre point of access in each LGA will not only spur development, lower cost of entry for telcos and bring about innovative services and applications, but also, improve the conditions of living in the rural, urban and semi-urban areas, especially with respect to access to financial services. The InfraCo Project can be considered as the beginning of the “Next Level” journey towards achieving the 120,000km target of fibre connectivity set by the current administration. We have recently begun a process to strategically review the InfraCo framework and its funding options towards ensuring effective implementation of the national fibre project. When fully implemented, it will ensure robust and pervasive broadband infrastructure to drive availability, accessibility and affordability of financial services.

The NCC also provided the requisite infrastructure, connectivity and capacity to interconnect four Internet Exchange Points (IXPs) in Lagos, Enugu, Port Harcourt and Kano in order to localise some of the internet traffic in Nigeria and encourage the creation, hosting and interchange of data within Nigeria. This has enabled the local hosting of companies like Google, Facebook, Vodacom, China Telecom, Akamai, Juniper Solutions etc. alongside all major Nigerian Internet Service Providers (ISPs), Mobile Network Operators, Sub-Marine Cable Operators as well as major tier 1 to 3 Data Centers. This has not only reduced cost, which is key to digital financial inclusion and conserved foreign exchange but also has drastically reduced latency. Thus ensuring sustainability of digital financial services.

Realising the promises of wireless infrastructure for rapid advancement and ubiquitous coverage, which can be leveraged for financial inclusion, among other services, the Commission has put in place a number of guidelines and regulatory measures towards ensuring availability and sustainability of wireless technologies. Some of these include:

- development of Spectrum Trading Guidelines to enable operators in possession of un-utilised or under-utilised frequency spectrum to trade such limited assets in the secondary market place, thus freeing resources and eliminating spectrum hoarding;

- Ongoing efforts to leverage the television white space (TVWS) technology to extend affordable broadband services to Nigerians in the digitally excluded areas:

- Effective and proper utilisation of available wireless spectrum frequency resources for widespread service deployment to Nigerians:

- Trial of Fifth Generation (5G) network in Nigeria, preparatory to its commercial deployment to improve digital services experienced by Nigerians;

- Development of Guidelines for commercial satellite deployment which has seen the registration of major satellite providers in the country. This will help to provide satellite-based broadband services to those hitherto excluded, among others.

- Development of framework for National Roaming Service, which is currently being trialed on some networks.

- The ongoing development of licensing framework for Mobile Virtual network Operators (MVNOs), that will ride on and buy capacity from incumbent mobile network operator to provide telecoms services to unserved, under-served and rural communities sin the country.

In addition to the above, the Commission, through the Universal Service Provision Fund (USPF), has been actively stimulating the adoption of ICT in various areas of the society in order to facilitate connectivity and access, thereby building resilient infrastructure and promoting sustainable industrial growth in the country. Some of the projects undertaken in this regard are Tertiary Institutions Knowledge Center (TIKC), School Knowledge Centre (SKC), Base Transceiver Station (BTS), Backbone Transmission Infrastructure (BTRAIN) project, University Inter-Campus Connectivity (UnICC), E-Accessibility or ICT for Challenged Groups/Persons Living with Disabilities (PWD), among others.

I am happy to inform you that, through all the afore-mentioned initiatives, broadband penetration in Nigeria has been on the upward trajectory, rising to 45.02% as of December, 2020[10]. Penetration was far below 10% when I assumed office in 2015. The Commission is, therefore, poised to further accelerate this growth, as it works with the Ministry of Communication and Digital Economy to support the Federal Government’s National Digital Economy Policy and Strategy (NDEPS), drive the Nigerian National Broadband Plan (NNBP) 2000-2025 targets of 70% broadband penetration, towards boosting digital access across the nooks and crannies of the country.

Table 2: Broadband penetration in Nigeria

Source: NCC

It is noteworthy that the liberalisation of the telecommunications sector in 2001 and the effective regulatory environment, engendered by the Commission, has, so far, attracted huge local and foreign direct investment (FDIs) into the sector. A larger chunk of this investment, running into over $70 billion, has been used as capital expenditure (CAPEX), essentially channeled into the deployment of robust telecommunication infrastructure that has ensured that more Nigerians have access to telecoms services – be it voice or data.

2. The Unstructured Supplementary Service Data (USSD)

Today, the number of active telephone lines being used by Nigerians has significantly increased from about 400,000 in 2001 to over 204 million as of December, 2021. As telecommunication services and infrastructure became more accessible in the country, the banks identified the Unstructured Supplementary Data Service (USSD) channel as a cost-efficient way of delivering financial services to their customers. The banks subsequently applied for and were granted USSD short codes by the Commission to deliver financial services to Nigerians. The banks, Other Financial Institutions (OFI) and mobile money operators licensed by the CBN are now leveraging the large number of mobile subscriptions in the country to provide mobile-based financial transactions to Nigerians, leveraging the USSD platform on Mobile Network Operators (MNOs).

Table 3: Number of active mobile lines in Nigeria.

Source: NCC

3. SIM Registration and Subscriber database audit

Closely linked with this, is the effort of the Commission in ensuring that all Subscriber Identification Module (SIM) cards in the country are properly registered. As pointed earlier, as of December, 2020, there were over 204 million[11] active mobile (SIM) numbers across licensed mobile networks in the country. To this end, the NCC ensures regular audit of the subscriber database of the MNOs to ensure there are no anonymous mobile subscriber on their networks. This effort has helped to improve the customers’ Know Your Customer (KYC) in the financial services. Indeed, mobile number has become a requirement for accessing financial services and helped to enhance confidence in the system. NCC is working to ensure proper harmonisation of subscriber data into the national citizen database being statutorily managed by the National Identity Management Commission (NIMC). More importantly, the ongoing SIM-NIN Linkage exercise will further improve credible identity management for national planning purposes, socio-economic transformation and for other legal commercial activities.

4. New numbering plan

Also, to bridge the current access gaps and in order to provide enough SIM numbers that can be used by Nigerians in this era of new and emerging technologies, where most devices and things would be connected within the Internet of Things (IoT) ecosystem, requiring more SIM cards to be used, the NCC, as a proactive regulatory agency, has developed a new numbering plan (NNP) that will serve the needs of 500 million connected Nigerians for the next 30 years.

The NNP would, among others, help to provide numbers that would satisfy the needs of the projected one billion globally-interconnected machines and devices by 2050; promote efficiency in the allocation of the scarce national resource; promote competition among service providers; and eliminate the risk of running short of all categories of numbers. No doubt, financial services sector will benefit hugely from this regulatory measure, as it will facilitate the introduction and development of innovative services across different sectors of the economy with financial services sector being one of the beneficiaries.

5. MoU with CBN on mobile money

Distinguished ladies and gentlemen, while the initial approach adopted by the Nigerian Government was to make mobile money operations bank-led, the NCC has actively engaged and collaborated with the CBN, through signing of a momentous Memorandum of Understanding (MoU) to ensure mobile money licenses are also issued to telecoms operators that will operate as Payment Service Bank (PSB). This is based on the recognition of the fact that, since the MNOs own the over 204 million mobile subscribers – scattered in rural and urban settings - on their networks, allowing these operators to offer direct digital financial services to their customers would produce better financial inclusion traction. This has been witnessed in the case of the ‘Mpesa’ introduced by Safaricom in Kenya, which has made mobile money the most popular channel of carrying out financial transactions in the country with most Kenyans now financially included. It is gratifying , therefore, that the roll-out of Payment Service Banks guidelines that allows licensing of telco subsidiaries has become a welcome development and should be implemented.

6. Collaboration with other institutions

Besides, the Commission is also partnering with relevant organisations and stakeholders and lately with a foremost international organization - Bill and Melinda Gates Foundation (BMGF) - to ensure better cooperation between telecommunications and the banking sectors towards advancing the frontiers of financial inclusion in Nigeria.[12]

7. Addressing Risks Associated With Digital Financial Services

Ladies and gentlemen, for a lot of Nigerian adults, who transact exclusively in cash due to lack of effective access to formal financial services, having digital access - as it is being driven by the Commission - to financial services may be transformational. However, just like the two sides of a coin, the Commission is mindful of the risks associated with the use of telecoms platforms - (voice, data, text) for carrying out financial transactions. These come in form of ‘e-fraud.’

Indeed, the Commission has received reports that cybercriminals, hackers and other unscrupulous elements are exploiting online platform vulnerabilities to gain illegal access to bank accounts through phishing and smishing, and other ploys such as fraudulent SIM swaps to bypass authentication security levels, regardless of whether the transactions are conducted via mobile phones, desktop browser, or on point of purchase.

Desirous of addressing this issue, the NCC, in November, 2019, inaugurated a multi-sectoral Committee to develop an MoU on financial frauds, which have been discouraging many Nigerians from embracing digital financial services despite the fact that digital services are available and accessible to them.

The inauguration of the 26-member Committee - comprising the Central Bank of Nigeria (CBN), Federal Competition & Consumer Protection Commission (FCCPC), Nigerian Inter-Bank Settlement System (NIBSS), National Identity Management Commission (NIMC) and the Association of Licensed Telecom Operators of Nigeria (ALTON), Economic and Financial Crimes Commission (EFCC), Office of the National Security Adviser (ONSA), Nigeria Police Force (NPF), Nigeria Financial Intelligence Unit (NFIU) and the Federal Ministry of Justice, among others - goes to demonstrate NCC’s unflinching commitment to not only provide digital platforms to enhance financial inclusion but also forge necessary partnership to protect such platforms for the users.

It is our staunch belief that successes recorded from this effort will, no doubt, complement similar existing inter-agency an inter-stakeholder collaborations aimed at strengthening protection of Nigerians, who use mobile-based digital platforms to carry out financial transactions.

Accordingly, the Commission has been consistent in its nationwide cybersecurity awareness sensitization programme, especially for the younger generations – students in secondary schools - as well as their parents - who use mobile platforms in order to sensitise them on the menace of cybercrimes as well as equip them with requisite skills needed and necessary precautions to be taken to be protected when using digital platforms for executing financial transaction or other related activities. A recent engagement in this regard was when the Commission joined the rest of the world on November 9, this year, to celebrate the Africa Safer Internet Day 2020 with NCC’s representatives visiting selected secondary schools in Abuja and Lagos to sensitise younger generation of Internet users on measures to be taken in order to be safe from all forms of cybercriminal ploys while online.

Ladies and gentlemen, let me emphasise that while Nigerians currently access digital financial services through the digital infrastructure stimulated by the NCC, the telecommunications sector, however, is faced with a myriad of challenges, which if, collaboratively addressed, would help in enhancing a more persuasive broadband penetration, robust enough to improve access to digital financial inclusion for Nigeria’s socio-economic transformation.

Some of these challenges range from the Right of Way (RoW) issues, multiple taxation and regulation, vandalism of telecoms facilities, indiscriminate shutdown of telecoms base stations by state agents, insecurity leading to bombing of telecoms installations by insurgents, among others. We are, however, working with governments at all levels and other necessary agencies of government and industry stakeholders to address some of these impediments to having a more robust telecoms infrastructure environment that can improve access to digital services that will positively impact on our socio-economic development.

Permit me, ladies and gentlemen, to stress that the need to create an enabling environment to ensure sustained investments in digital infrastructure is crucial to Nigeria’s economic growth and development. This is because digital infrastructure is now globally recognised as a key enabler and catalyst for growth in all the spheres of our socio-economic life. It is more important for bridging financial inclusion gap. Therefore, the Commission, in furtherance of its mandate, will continue to promote and facilitate the expansion of broadband infrastructure that will stimulate adoption of digital financial services and the emergence of new services and industries. We also hope that through this, we will help in creating jobs, reducing the inequality gap, increasing our gross domestic product (GDP) and unlocking greater economic prosperity for Nigeria. It is our firm belief at NCC that, together, we will achieve more if we strengthen inter-agency collaboration on the one hand; and collaboration with other stakeholders across the three levels of government on the other hand.

Table 4: Telecoms contribution to GDP