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The FinTech industry revolutionised the financial system as it made financial services cheaper, more secured, and faster. In fact, between 2011 and 2014, the number of adult account holders in the world increased by 700 million and the unbanked population fell by 20%, mainly due to FinTech. However, there are emerging market strategies with several problems when it comes to financial inclusion.
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Nigeria is an emerging market with a reputation for hosting the strongest ecosystem for FinTechs to thrive in Africa. However, a larger population of the country are presently underserved. Over 8% of the country do not enjoy the dividends of FinTech opportunities as we have seen in the US, China and EU. In this article, I lay out three surefire strategies FinTechs can adopt to improve financial inclusion in Nigeria.
  1. Lowering Transaction Costs.
Offering FinTech services like transfer and e-payment services to low-income clients can boost inclusion when made affordable. Moreover, those living abroad can also transfer their income easily, quickly and cost-effectively through e-banking solutions. Furthermore, lowering the cost of transactions can help consumers access other financial services such as risk management options and investments, helping families boost their financial stability and resiliency. For example, a study done by Human Sciences Research Council (HSRC) stated that 76% of low-income consumers indicated that high transaction fees are major drivers of financial exclusion, which has led to a high percentage of Nigeria, using mobile money, which is extensively affordable than bank transactions, and accessible mainly due to fintech companies. Similarly, in countries like Myanmar, Ghana, and Kenya, governments are reducing transaction costs and increasing the number of transaction limits to encourage consumers to use FinTech platforms, helping accelerate the process towards digital solutions. Remittance is another great problem in Nigeria. According to a recent report by  The World Bank, annual remittances in Africa amount to 40 billion dollars, but the cost of the money transfers is the highest in the world. In developing countries, mobile wallets, also a FinTech solution, have proposed an enormous opportunity to lower the cost of remittances across the entire continent.
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  1. Improving Competition.
Another way to improve financial inclusion in Nigeria is by creating an atmosphere of healthy competition. Through FinTech, clients can access money from local agents like post offices or small businesses. Presently, more than 4.3 million people are registered mobile agents all over Africa, including in rural areas, which has led to new, reliable sources of micro-lending and micro-insurance. By improving competition with the few amount of banks in Nigeria, it can steer banks towards improving the efficiency of their processes and reducing operating costs. Therefore, the government ought to create an ecosystem that can create entry points for new competitors. This will make room for more inclusiveness, because new competitors are generally smaller, which means they have less operating costs and can offer the same services at lower prices, which will ultimately benefit consumers.
  1. Reducing Credit Market Problems.
Entrepreneurship is a key factor in economic growth in emerging markets like Nigeria, and yet, numerous small and medium enterprises (SMEs) struggle with access to credit facilities to kickstart operations. In Nigeria, only 7% of businesses have taken out a formal loan, and most of them are generally not approved. Trade credits are crucial to the day-to-day operations of small businesses, but due to the global financial crisis, provision is plummeting and access to trade credits is becoming increasingly more difficult. By embracing FinTech solutions, companies have found ways to democratize credit options for small businesses. Furthermore, studies have shown that credit risk assessment is also quite costly in Nigeria. By not having credible sources of accounting and financial information on businesses and individuals, as well as the fact that there are no credit bureaus, it is extremely difficult for banks to grant loans. Also embracing FinTech solutions such as big data and machine learning, the cost of credit risks assessments can be lessened.  FinTechs, for example, provide more information on individuals and businesses through their mobile phone usage data as well as payment data.  In another development, digital microloans are also becoming exceptionally prominent as an option for family loans. In Nigeria for instance, several FinTech companies offer small loans of as little as $150 in 24 hours. Featured image: Ventures Africa
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This article was first published on 30th January 2022 and updated on February 1st, 2022 at 11:40 am

nnaemeka-emmanuel

Nnaemeka is an academic scholar with a degree in History and International Studies from the University of Nigeria, Nsukka. He is also a creative writer, content creator, storyteller, and social analyst.

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