By Femi Apesin, Head, Growth & Marketing, OnePipe
If the 38.1 million Nigerian adults financially excluded at the end of 2020, saved N1,000 every month through a financial service provider, that would have meant an extra N457 billion available in liquidity to drive the Nigerian economy. It would have been almost half a trillion naira available to banks for lending to businesses and individuals.
The bottom line is this, there would have been more money digitally captured and potentially available to drive more economic activities; even if it came from something as little as N1000 saved per person. And this is just scratching the surface of possibilities for an economy where cash moving under the radar is de-emphasised.
Let us make it more personal. If you had a shop on one of the busy streets in Lagos, where you receive payments in cash and when the van comes to supply you with new goods, you also pay in cash. After doing this business for a year or two, you can do a self-assessment and conclude that the business is booming.
At this point, you want to expand to two shops, but to do this, you need a loan. Yes, you have a bank account, which you use occasionally but, really, your business has been largely cash-driven. You’re doing well, you’re popular as the biggest shop owner in the area, and everyone considers you successful, but how do you explain to your bank that the business has been doing well?
The bank could ask for your account statement, which exists but probably struggles to show about five per cent of your business transactions. You really haven’t been transacting through the formal financial system but more with cash. Doing this was honestly not a problem or limitation for your business, at least not until you needed to establish financial credibility to access a loan.
So, what happens? You remain at the status quo (the single shop); just because you cannot provide “relatable” proof that your business is doing well. However, what many people may not know is that by going digital, the trail that entities (like banks) want to accept as evidence that your business is doing well is readily available.
Now, let us multiply this availability of digitally available financial trail by the over 100 million economically active adults in Nigeria, the result is that there would be proof of financial existence, that can enable each of these people to effectively grow from one to two shops or more. This can then cascade to impact the economy and GDP, but a cash-driven society results in opacity thus preventing that from happening.
In summary: Dear shop owner, they will ask for evidence that your cash-driven business is actually doing well, but because you’ve been receiving only cash, no one can verify the financial health of your venture.
Also read: OnePipe, Fidelity Bank Partner to Launch PayGatePlus to Accelerate Online Payments
Keeping money at home or inside some drawer in the business place could attract thieves, so don’t do it. This would probably be the most common motivation for some people to use a bank in the first place. But really, this is the most elementary demerit of a cash-driven society. Yes, the risks of theft are there, but these exist mostly because of wider security challenges. What matters the most, is the consideration that all things being equal, your cash transactions which leave little or no trail, make it hard for you to leverage any possible track record for growth.
Billions of Naira pass through the informal sector and this has a negative impact on Nigeria’s economic growth and development, according to EFInA. It had also noted that in the absence of finance, people who are not connected with the formal financial system lack opportunities to maximise their income and expand their businesses, emphasising the point earlier made.
EFInA also emphasised that the country’s economic growth could be stifled: Vast unutilized resources, in the form of money in the hands of people who are in the informal sector could limit a country’s economic growth potential.
However, the business owner that has a bank account but hardly uses it is really not enjoying the full spectrum of financial inclusion. This limitation is caused because of the overdependence on cash.
The World Bank defines financial inclusion as individuals and businesses having 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. So, what if you own a bank account; do you derive maximum value in terms of financial products and services?
As noted in a KPMG report on financial inclusion in Nigeria, the “Mallam” who is a gateman but sells low-value groceries through the gatehouse of the compound he is employed, or the smallholder farmer in Northern Nigeria or the woman who sells tomatoes at the open market in southwestern Nigeria, sell on a daily basis but are all largely cash-driven, lacking access to proper financial services and this lack translates into limited economic wellbeing. Their net worth is more often than not, tucked somewhere under the little space they do business.
There is an opportunity for the private sector to step in and provide financial products and services to these groups of people, (who are in their millions) seen as low income demography yet highly productive. Innovating bespoke financial products and services that factor in possible aversion to technology and minimal literacy could get these people formally captured in the financial system. Where the traditional banks cannot reach them, other last-mile players can cater to these people, linking them to formal banking services without these individuals having to go through ‘the educated stress’ that may have turned them off in the past.
When they are captured, their widow’s mites as it were, when aggregated, could form a cash haul that can boost liquidity in the entire economy. More importantly for these new converts to the financial system, it would be an introduction to a new world of possibilities where they can make their money really work for them.