BusinessDay 26 Feb 2018
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30<br />
BUSINESS DAY<br />
C002D5556<br />
Monday <strong>26</strong> <strong>Feb</strong>ruary <strong>2018</strong><br />
ANALYSIS<br />
Link between payment systems and Financial Inclusion<br />
PATRICK ATUANYA<br />
The World Bank Group<br />
and the Committee on<br />
Payments and Markets<br />
Infrastructures (CPMI)<br />
of the Bank for International<br />
Settlements recently convened<br />
a task force on Payment Aspects<br />
of Financial Inclusion (PAFI)<br />
to comprehensively examine how<br />
payment systems and services affect<br />
financial inclusion efforts.<br />
The PAFI task force, brought together<br />
experts from central banks,<br />
development banks and international<br />
organizations to examine<br />
this issue in a comprehensive<br />
manner.<br />
Its mandate was to examine<br />
demand- and supply-side factors<br />
affecting financial inclusion in<br />
the context of payment systems<br />
and services, and to suggest what<br />
measures could be taken to address<br />
these issues.<br />
The demand side is comprised<br />
by payment service users, like<br />
consumers, businesses, and government<br />
agencies and the supply<br />
side are payment service providers,<br />
like banks and authorized and/or<br />
regulated non-banks, as well as<br />
payment system operators.<br />
In September 2015, the PAFI<br />
task force released a consultative<br />
BALA AUGIE<br />
In Nigeria, millions of low<br />
incomes household face an<br />
extra difficulty when looking<br />
for financial products, especially<br />
finding a loan that compiles<br />
with Islamic laws or Sharia.<br />
In order to surmount the<br />
aforementioned challenges, the<br />
country is gradually opening up<br />
to Islamic finance, a strategy that<br />
could bring non-interest banking<br />
to 50 percent of the Nigerian<br />
population who are Muslims.<br />
Rates of financial exclusion<br />
are generally higher in the North<br />
Fig 1: Financial infrastructure for efficient payments system<br />
report on Payment Aspects of<br />
Financial Inclusion, for a threemonth<br />
public consultation process<br />
which ended in December 2015. As<br />
a result of the comments received<br />
the report was updated to strengthen<br />
the analysis and sharpen the<br />
message and the final report was<br />
issued last year.<br />
The report analyzed how payment<br />
systems and services promote<br />
access to and use of financial<br />
services and what elements of retail<br />
payments are critical to financial<br />
inclusion and how improving the<br />
payments infrastructure and services<br />
could accelerate access to and<br />
use of transaction accounts.<br />
It also discusses the relevance<br />
and importance of measuring the<br />
effectiveness of financial inclusion<br />
efforts from a payments perspective.<br />
Some of the conclusions<br />
reached was that safe and efficient<br />
payment services are important<br />
for the well-being of individuals,<br />
households and businesses, as well<br />
as a gateway to a broader range of<br />
financial services<br />
They also advance market efficiency,<br />
flexibility, integrity and<br />
competitiveness to support financial<br />
inclusion and stability.<br />
The PAFI task force also found<br />
that certain financial and other<br />
How banks are finding innovate ways to lend to Nigerian Muslims<br />
of the country, which has large<br />
muslim populations making it<br />
imperative for financial institutions<br />
and regulators to design<br />
products that would bring those<br />
citizens into the country’s formal<br />
financial system.<br />
In 2011, the Central Bank of<br />
Nigeria (CBN) granted licence<br />
to Stanbic IBTC Plc to carry out<br />
Islamic banking, which forbids<br />
paying and receiving interest on<br />
loans, enabling the bank to churn<br />
out Islamic banking products.<br />
The lender has brought Islamic<br />
banking to the door step of<br />
many Muslims that hitherto do<br />
not own bank accounts or were<br />
unable to access loans due to the<br />
fret of huge interest bearing loans.<br />
Jaiz Bank Plc, Nigeria’s first<br />
full-fledged non-interest bank,<br />
founded with a view to bridging<br />
financial exclusion and tapping<br />
the existing opportunities in the<br />
system, has been offering non<br />
interest financial services.<br />
The bank currently operates<br />
in six states and has about 18<br />
branches across the country after<br />
receiving licence from the CBN.<br />
Part of the banks products<br />
includes, Shirkat (Partnership),<br />
Ijarah (Rental), Kafalah Wakalah<br />
relevant infrastructures that are<br />
necessary for an efficient national<br />
payment system also form one of<br />
the basic foundations for financial<br />
inclusion.<br />
They include:A large-value<br />
interbank settlement system, an<br />
interbank system for retail payments,<br />
in specific electronic funds<br />
transfers, a payment card processing<br />
platform or platforms and an<br />
effective and efficient identification<br />
infrastructure, credit reporting<br />
and other data-sharing platforms<br />
also play an important role and<br />
finally, a robust communications<br />
infrastructure and power supply<br />
system are essential.<br />
Without these financial infrastructures,<br />
the efficient provision of<br />
various transaction accounts and<br />
electronic would be very difficult<br />
(see Fig 1).<br />
The Central Bank of Nigeria<br />
(CBN) has enthusiastically embraced<br />
its cashless policy push<br />
because having an efficient, accessible<br />
and safe retail payment<br />
systems and services is necessary<br />
to be able to extend access<br />
to transaction accounts for the<br />
millions of Nigerians who are still<br />
underserved by regulated financial<br />
service providers or at worst<br />
financially excluded.<br />
The CBN has been able to mostly<br />
put in place the relevant infrastructure<br />
for a national payments<br />
system with critical help from the<br />
private sector.<br />
The Nigeria Inter-Bank Settlement<br />
System (NIBSS) Plc, provides<br />
the infrastructure for automated<br />
processing, settlement of payments<br />
and fund transfer instructions between<br />
Banks and Card Companies<br />
in Nigeria.<br />
NIBSS is owned equally by all<br />
licensed banks in Nigeria, and the<br />
Central Bank of Nigeria.<br />
The CBN has also licensed 3<br />
credit bureaus to provide credit<br />
reporting and other data-sharing<br />
platforms while the liberalisation<br />
of the telecommunications<br />
space in 2001 led to a robust<br />
communications infrastructure<br />
with investments north of $50<br />
billion by all operators between<br />
2001 and 2015.<br />
The PAFI work is part of a<br />
worldwide financial inclusion effort,<br />
particularly from the World<br />
Bank Group’s UFA2020 initiative.<br />
Its goal is to ensure that all<br />
working-age individuals and businesses<br />
can have access to at least<br />
one transaction account operated<br />
by an authorized and/or regulated<br />
payment service provider<br />
to:perform most, if not all, of their<br />
payment needs, safely store some<br />
value and serve as a gateway to<br />
other financial services.<br />
based Guarantee, and Qard (Benevolent<br />
Loan).<br />
The bank plans to operate in<br />
all 36 states by upgrading and<br />
obtaining a national operating<br />
license and increasing the share<br />
capital base to N15 billion (USD<br />
$78 million).<br />
Another form of Islamic banking<br />
fast deepening financial inclusion<br />
in Africa’s most populous<br />
nation is the Takaful Insurance<br />
System, where members contribute<br />
money into a pooling system<br />
in order to guarantee each other<br />
against loss or damage.<br />
At present, takaful is growing<br />
at 20 to 25 percent per annum<br />
compared to world average<br />
growth of conventional insurance<br />
at five to six percent.<br />
A number of Insurance companies<br />
have embraced the Takaful<br />
system as a way of extending<br />
package to Muslims. The product<br />
has also helped bolster top lines<br />
of insurers due to high patronage<br />
from customers.<br />
Africa Alliance Insurance,<br />
Nigeria’s oldest life insurer was<br />
issued a licence by NAICOM, the<br />
body that regulates insurance<br />
business, to market the Takaful<br />
product.
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