Banking the unbanked and the underbanked

Olatawura Ladipo-Ajayi, Lagos Community Manager
Lagos, 5 December 2014

Financial inclusion has become the focus of many nations in the Global South, and has become the biggest buzzword in the financial sector of many countries, including Nigeria. The concept of extending financial services and access to the wide range of citizens, especially the urban poor, has become a focal point in the banking sector of Lagos. It is not important just for having an inclusive system, but also for access to credits and funding to start enterprises which the urban poor often desperately need. A recent report shows that only nine percent of MSMEs surveyed in the nation received start-up capital through commercial loans.

Most efforts at including the poor revolve around policies requiring commercial banking institutions to revamp their account opening policies and expand their reach. These requests have been met with various responses from the different commercial banks including increased branch openings, 'no minimum balance' account options, mobile money programs, and point of sale terminals (PoS) to mention a few. While these efforts contribute to inclusion, the major barriers to inclusion — lengthy time requirements for both account opening/maintenance and credit approval — are not thoroughly addressed. However, one bank stands out with its agent banking program: the Sterling Bank.

In an effort to overcome the many barriers to financial inclusion, the Sterling Bank rolled out in December 2013 an agent banking program in the Lagos slum areas of Makoko and Itun Agan, amongst other locations around Nigeria. The idea of the program is to have community agents who reside and work in these areas to provide financial services as bank agents to the immediate community. The program also includes modifications to traditional banking requirements and technology by using non-traditional banking retail outlets that rely on technologies such as PoS machines recognizing fingerprints, mobile phones, and a biometric and voice-enabled device. Other features include zero opening account balance and no daily minimum account balance provisions. The program, through these modifications, reaches the unbanked poor in slums areas: it includes the illiterate unbanked population through its voice recognition and fingerprinting system, which also serves to increase security and trust. There are currently 60 agents serving various areas of Lagos city in areas ranging from Ajegunle to Akowonjo to serve the lower-income, excluded, and poor city residents.

While programs like this do not confront the issue of access to credit, they do effectively target a major issue of financial inclusion: access to financial services. The ability to be included in the formal sector, while not guaranteeing credit access, is definitely a step in the right direction for the urban poor. Being part of the formal financial system introduces various financial services and options to those previously excluded. It provides opportunities for saving with minimal requirements, and creates the initial banking relationship vital for credit access. The inclusion effort for those at the base of the pyramid in Lagos has been evolving, starting from multiple branches, to mobile money. The groundbreaking Sterling Bank effort is another chapter in this rapid evolution. The hope is that the next stage of innovation for inclusion will involve practical solutions to credit access.

Photo: Institute for Money, Technology and Financial Inclusion

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