THE NATION WEDNESDAY, JANUARY 1, 2014
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THE NATION
BUSINESS MONEY
e-mail: money@thenationonlineng.net
END OF YEAR REVIEW
Unending reforms as banks step up deposit drive In August, the Central Bank of Nigeria (CBN) took a decision that changed banks’ deposit drive. CBN raised the Cash Reserve Ratio (CRR) for public sector funds from 12 per cent to 50 per cent. It also slammed a 48-hour limit on the use of foreign exchange (FOREX) bought from the Retail Dutch Auction System (RDAS). These were key policies that defined the financial services sector, writes COLLINS NWEZE.
I
N the past 12 months, policy changes under the Central Bank of Nigeria (CBN) Governor, Mallam Sanusi Lamido Sanusi, have been regular, swift and sudden. The CBN’s target is to keep the naira stable, reduce cost of banking operations and shift banks’ interest from public sector deposits to private sector funds. During the year, banks’ Net-Open Position Limit (NOPL) was also reduced to one per cent, and a 48-hour limit placed on the use of forex bought from the Retail Dutch Auction System (RDAS). On September 16, the Central Bank said it would, by December 2016, stop playing the implicit role of “banker of last resort” for the Real-Time Gross Settlement System in banking. The biggest policy within the year was the CRR hike, which on August 7, took away N1.3 trillion from the financial system. The CRR is the portion expressed as a percentage of banks’ deposit balances, which they must have as reserve in cash with the central bank. Sanusi said the policy was ignited by worries over the rise in liquidity from banks purchasing short-term government securities using public sector deposits. He was afraid that strong liquidity growth could trigger a rise in inflation, which was at 8.2 per cent in August. Olakunle Ezun, Currencies Analyst at Ecobank Nigeria, said the policies remained positive as long as they support the naira and reveal the health and soundness of the banking system. He sees them as indirect tightening of loanable funds to banks.
Agent Banking/ Mobile Money
Besides these policy changes, the CBN also within the year made case for improved financial inclusion. The regulator consistently advised banks on the need to provide access to affordable financial services and products for every Nigerian. Agent banking and mobile money were part of the policies taken by the regulator to get the message across to the unbanked. Subsequently, the CBN within the year issued Agent Banking Guidelines to reach the people in the grassroots where bank branches are scarce. Sanusi said financial inclusion had been defined in different ways around the world but the essence of inclusion is tied to economic development and providing a better way of life for all Nigerians. The CBN, he said, had over the years recognised certain barriers to achieving inclusion some of which include; distance to bank branches, cumbersome account opening requirements, lack of awareness of financial products and services amongst others. “As a regulator, we also recognise the challenges deposit money banks face in trying to reach the underserved communities which include; the cost incurred by the banks in catering to lower valued accounts and the cost of expanding their branch networks to excluded communities,” he said. He said the apex bank has taken a stand therefore to ensure that these barriers are broken down and several steps to address these constraints have been taken. Some of these include agent banking. The guidelines for agent banking have been developed and approved by the CBN. The guidelines are to ensure increased agent activity in the delivery of banking services outside traditional brick and Mortar bank branches, through additional financial access points such as existing retail stores, petrol stations, post offices or via technology such as ‘Point of Sale’ (POS) devices and mobile phones. The Financial Industry along with other stakeholders decided to make financial inclusion a top priority and launched a National Financial Inclusion Strategy. The strategy has targets to help reduce the number of adult Nigerians who are excluded from formal fi-
• Sanusi
• Ibrahim
nancial services from 46.3 per cent in 2012 to 20 per cent in 2020 with specific targets for payments, savings, credit and Insurance. Sanusi said sustaining Nigeria’s development hinges on ensuring that at least 80 per cent of all adult Nigerians have access to affordable financial services as well as the right environment within which to flourish economically.
payment platform. He said that though there was a lot that telecoms companies could contribute in a cash-less economy, their current mandate was limiting.
Mobile Money
Acting Chief Executive Officer Etisalat Nigeria Matthew Willsher explained that mobile money remained a convenient, secure and affordable way to send money to friends and family using mobile phone also played dominant role in financial inclusion. He said that regulators like the CBN and National Communication Commission (NCC) need to work together to make mobile money a success. Telecommunication companies (Telcos) and banks which are expected to jointly drive the process are working at crossroads. The telcos insist that they should be in charge, and not the banks. They have been advocating for operator-led model instead of bank-led model being implemented by the CBN. The bank-led model requires that a bank deploys mobile payment applications or devices to customers and ensures merchants have the required point-of-sale (PoS) acceptance capability to carry out the transaction. Here, mobile network operators’ network merely serves as vehicle through which transactions take place. The model was based on the regulatory framework for mobile payment services issued by the CBN in 2009, which disenfranchised telcos from operating mobile money except through strategic partnerships with licensed operators. The Telcos, have consistently advised the CBN to allow them participate in the regulation of the subsector, but nothing has come out of the demand. The apex bank, which solely regulates the business, has given the Telcos little or no opportunity for control. This model has deprived the business the needed technological and infrastructural backing critical to its success. Globacom’s Director, Telebanking Unit, Tunde Kuponiyi. He insisted that the current regime of mobile money regulation, which is being bank-driven, is not friendly to telecoms companies who provide the mobile
Banks approach
Some of the banks that embraced agent banking are FirstBank of Nigeria Limited, Sterling Bank, among others. Sterling Bank said it has decided to take the agent banking approach to include the millions of the unbanked Nigerians in the financial system and by so doing, empowering them to become economically viable. Sanusi, who launched the bank’s agent banking platform in Lagos, said the lender engages pre-qualified individuals in different locations that are predominantly financiallyexcluded to serve as agents to the Bank under the CBN approved agent banking model.
How Agent Banking works
The use of biometrics-enabled POS with a well-tested application that has been successful in India that shares some similarities with Nigeria; agents that are carefully selected are then authorised to carry Out certain transactions, among others for customers under the scheme Such as the enrolment of new customers in line with the CBN Level KYC requirements, deposits, withdrawals, airtime top-up and bill payment and funds transfer.
Hitches
However, this cannot be done with the unbalanced distribution of bank branches in the country. According to the Nigerian Deposit Insurance Corporation (NDIC), out of the 869 licensed micro finance banks in the country, 346 or 39.8 per cent are located in the southwest geopolitical zone, 162 or 18.64 per cent in the south east, 158 or 18.8 per cent in the north central while only 63 or 7.2per cent and 32 or 3.6 per cent are located in the north west and north east. Lagos, Anambra and Abuja have the highest number of MFBs. Agent banking is part of efforts to increase the level of financial inclusion of the country, according to the Managing Director of the NDIC, Alhaji Umaru Ibrahim. Agent banks operate in simple ways such
‘The biggest policy within the year was the CRR hike which on August 7, took away N1.3 trillion from the financial system. The CRR is the portion expressed as a percentage of banks’ deposit balances, which they must have as reserve in cash with the Central Bank’
• Willsher
that they can be operated by supermarkets, gas stations, stores and the likes as they are not full-fledged banks. The Kenyan model of agent banks are usually equipped with a combination of point-of-sale (POS) card reader, mobile phone, barcode scanner to scan bills for bill payment transactions, Personal Identification Number (PIN) pads, and sometimes personal computers (PCs) that connect with the bank’s server using a personal dial-up or other data connection. Clients that transact at the agent use a magstripe bank card or their mobile phone to access their bank account or e-wallet respectively. Identification of customers is normally done through a Personal Identification Number, but could also involve biometrics. With regard to the transaction verification, authorisation, and settlement platform, banking agents are similar to any other remote bank channel. According to the NDIC chief, agency banking would go a long way in reaching out to the largely unbanked population by creating banking representations where banks ordinarily do not have enough resources to establish branches. Ibrahim explained that agent banks is a complimentary policy that is worthy of emulation as it would provide simple banking services to a variety of people on behalf of various banks. “Agent banking has the potentials to grow access to banking facilities in the country especially uneducated and those in rural areas. Another area where agents could be meaningfully deployed is in the mobile payment system as successfully done in Kenya and some other countries,” analysts said. Agent banking, however, comes with its own risks as banks and their customers would be faced with agent fraud, unauthorised fees, loss of customer assets and records, data entry errors, system failures as well as a host of others. These, they noted would have negative impact on the image of the banks affected customers’ confidence in them would water down, lowering their customer and profit base.
Cash-less banking
The year also ended without the CBN being able to fully resolve the connectivity challenge facing cash-less banking. CBN Deputy Governor, Operations, Tunde Lemo said the CBN has licensed 21 mobile money operators but the challenge remains how to link mobile money to the PoS among other issues. “That is a challenge that we are also working on. If mobile phones can serve as a touch point, our transactions would go up rapidly. So these are some of the things we are looking at, hoping that by next year, as we roll out more PoS machines, we have to see how we integrate the mobile phones into the network because in the hinterlands, the challenges would be more. We hope to roll-out to all the state capitals by the second quarter of next year,” he said.