🌯 Inclusive FinTech Knowledge Bites [Week #45]
🌯 Inclusive FinTech Knowledge Bites [Week #45]
The hidden engine of Nigeria's economy, MTN PSB's strategy for financial inclusion, and a practical guide to leveraging CBDCs for greater inclusion
This week on The Barefoot Economist:
⚙️ The Hidden Engine: Critical Insights into Nigeria's Economy
🎯 5 Strategic Moves from MTN’s PSB Nigeria to Drive Inclusion
💡 A Practical Guide to Driving Financial Inclusion Through CBDCs
Enjoy your reading!
Hugo Pacheco, The Barefoot Economist
⚙️ The Hidden Engine: Critical Insights into Nigeria's Economy
The informal sector in Nigeria contributes approximately 50% of household income, 90% of new jobs, 80% of non-agricultural employment, and 90% of employment for women.
🧠 𝗞𝗲𝘆 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀
𝗝𝗼𝗯 𝗖𝗿𝗲𝗮𝘁𝗶𝗼𝗻 𝗮𝗻𝗱 𝗚𝗿𝗼𝘄𝘁𝗵: Self-employment is a primary driver, expected to remain significant as youth and women increasingly look to informal work. There has been a 25% increase in informal urban enterprises, a 20% growth in MSMEs, and 8% growth in social security contributions.
𝗬𝗼𝘂𝘁𝗵 𝗮𝗻𝗱 𝗪𝗼𝗺𝗲𝗻 𝗣𝗮𝗿𝘁𝗶𝗰𝗶𝗽𝗮𝘁𝗶𝗼𝗻: 90% of women in the workforce are engaged informally, with substantial participation in agriculture, food services, beauty, and digital work.
𝗧𝗲𝗰𝗵𝗻𝗼𝗹𝗼𝗴𝗶𝗰𝗮𝗹 𝗔𝗱𝗼𝗽𝘁𝗶𝗼𝗻: Digital platforms are increasingly influential, helping to structure the informal economy, especially in urban areas. Over the next five years, the number of technology firms focused on the informal sector is projected to double expanding gig and freelance jobs.
𝗘𝗱𝘂𝗰𝗮𝘁𝗶𝗼𝗻𝗮𝗹 𝗕𝗮𝗰𝗸𝗴𝗿𝗼𝘂𝗻𝗱: 80% of informal sector workers have formal education, yet only a fraction possess training certifications, indicating a need for accessible upskilling initiatives.
𝗖𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲𝘀 𝗮𝗻𝗱 𝗩𝘂𝗹𝗻𝗲𝗿𝗮𝗯𝗶𝗹𝗶𝘁𝗶𝗲𝘀: Despite its importance, the informal sector struggles with challenges like limited market access, poor infrastructure, and lack of formal protections. For instance, 39.61% of informal workers can only cover living expenses without savings, highlighting economic instability within the sector.
𝗥𝗲𝗴𝗶𝗼𝗻𝗮𝗹 𝗗𝗶𝘀𝗽𝗮𝗿𝗶𝘁𝗶𝗲𝘀: Urban areas see more diversity in informal activities, with higher technology penetration, while rural areas, especially in Northern Nigeria, remain focused on agriculture with fewer opportunities for digital work
𝗥𝗼𝗹𝗲 𝗼𝗳 𝗠𝗼𝗯𝗶𝗹𝗲 𝗠𝗼𝗻𝗲𝘆 𝗔𝗴𝗲𝗻𝘁𝘀: agents provide critical financial access in regions with limited formal banking infrastructure. They serve as intermediaries, bridging the gap between digital finance and cash-dependent communities, especially in rural and semi-urban areas. With the rapid adoption of mobile financial services, these agents support local economies by facilitating remittances, bill payments, and transfers, effectively increasing financial inclusion.
🌯 The Barefoot Insight
In Nigeria’s informal sector, basic agents play an essential role as entry points for customers to access digital financial services (DFS). Under the right regulatory conditions, these agents become a key bridge between cash-reliant communities and formal financial systems extending the formal sector business and aggregators current role. Effective regulation goes beyond merely categorizing agent tiers; it requires adaptive Know Your Agent (KYA) policies that allow financial service providers to recruit entry-level agents suited to the diverse market landscape beyond small retail shops to act as financial agents—provided they meet eligibility criteria that ensure reliability and viability.
How Basic Agents Play a Key Role as an Entry-Level Gateway for Customers into the DFS Ecosystem–Under the Right Conditions
📍 Fragmented Sectors require mobility to operate
Individual entrepreneurs (natural persons) or microenterprises not formally registered as a business and without fixed premises. Influencers are both digital and in person and leverage social media (including WhatsApp, telegram groups) and community meetings, for information sharing and skill trainings for the informal sector workers.👨🏽👩🏽👧🏽👧🏽 Association/Cooperative organized sectors require digitization
Non-commercial entities like NGOs, associations, cooperatives, and Roscas, who in most cases are a point of entry to these informal sub sector, and membership is in most cases necessary for the informal sector worker to operate. The government already has a strong affiliation with these associations with a degree of localized policy to guard the informal sector economy 🎯 5 Strategic Moves by MTN’s MoMo PSB to Drive Digital Inclusion in Nigeria
MoMo PSB's new outbound and inbound remittance service allows seamless money transfers to 13 African countries, promoting cross-border transactions and financial connectivity. The additional PSSP license will also allow MoMo PSB to process payments and provide financial solutions, while the PTSP license will enable the deployment and servicing of POS terminals.
🧠 𝗞𝗲𝘆 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀
𝗘𝘅𝗽𝗮𝗻𝘀𝗶𝗼𝗻 𝗼𝗳 𝗦𝗲𝗿𝘃𝗶𝗰𝗲𝘀 𝘄𝗶𝘁𝗵 𝗡𝗲𝘄 𝗟𝗶𝗰𝗲𝗻𝘀𝗲𝘀: MoMo PSB, with its PSSP and PTSP licenses, is expanding its services to include payment gateways, POS terminal deployment, merchant aggregation, and financial solutions. This positions it to compete with major players like Interswitch Group, Flutterwave, and Moniepoint Nigeria in the market.
𝗜𝗺𝗽𝗼𝗿𝘁𝗮𝗻𝗰𝗲 𝗼𝗳 𝗢𝗳𝗳𝗹𝗶𝗻𝗲 𝗔𝗴𝗲𝗻𝘁 𝗡𝗲𝘁𝘄𝗼𝗿𝗸𝘀: By Q2 2024, MoMo PSB reported an agent network of 302,800 points, alongside 5.5 million active digital wallets. This extensive reach into underserved communities enhances access to digital financial services and strengthens MTN’s role in promoting financial inclusion across cash-based Nigeria where banking infrastructure is limited with physical touchpoints that simplify digital access and build user trust in mobile banking services
𝗥𝗲𝗺𝗶𝘁𝘁𝗮𝗻𝗰𝗲 𝗮𝗻𝗱 𝗖𝗿𝗼𝘀𝘀-𝗕𝗼𝗿𝗱𝗲𝗿 𝗦𝗲𝗿𝘃𝗶𝗰𝗲𝘀: Receive funds from six other countries through the MoMo app or via USSD channels. Transactions are automatically converted to the local currency with a low fee of 3%, making cross-border transactions more affordable and accessible.
𝗙𝗹𝗲𝘅𝗶𝗯𝗹𝗲 𝗔𝗰𝗰𝗼𝘂𝗻𝘁 𝗧𝗶𝗲𝗿𝘀 𝗳𝗼𝗿 𝗛𝗶𝗴𝗵-𝗩𝗼𝗹𝘂𝗺𝗲 𝗨𝘀𝗲𝗿𝘀: The introduction of Tier 2 and Tier 3 accounts for users with higher transaction volumes offers flexibility in daily transaction limits, catering to business users and high-volume remitters who require more extensive financial capabilities
𝗜𝗻𝗻𝗼𝘃𝗮𝘁𝗶𝘃𝗲 𝗚𝗶𝗳𝘁 𝗖𝗮𝗿𝗱 𝗦𝗲𝗿𝘃𝗶𝗰𝗲𝘀: Gift card feature allows users to purchase e-vouchers for international use, including online shopping, further broadening access to digital payments.
🌯 The Barefoot Insight
MoMo PSB's extensive agent network connects critical offline infrastructure to digital financial services in cash-dependent economies such as Nigeria, increasing accessibility and user trust. MoMo's multi-tiered agent network strategy tailors services and transaction limits to agent capability, thereby aligning agent tiers with service risk. Basic agents can complete basic transactions such as cash-in, cash-out (CICO) and account opening, whereas higher-tier agents can handle more complex needs such as credit and insurance. This tiered approach not only helps manage service complexities but also aligns well with MoMo’s flexible account structure for high-volume users. When combined with regulatory clarity on KYC requirements and service permissions for each agent tier, this approach maximizes agent network potential, empowering even the most remote areas with access to essential financial services.
How Financial Service Providers can utilize diverse agents to distribute a growing range of services with varying complexities?
💡 A Practical Guide to Driving Financial Inclusion Through CBDCs
A multifaceted assessment is crucial for designing an effective CBDC system that supports vulnerable populations, integrates with national development programs, and evaluates policy, legal, technological, and cost factors. CBDCs' value proposition for financial inclusion extends beyond accessibility to include economic resilience, quicker government-to-person payments, and strengthening social safety nets.
🧠 𝗞𝗲𝘆 𝘁𝗮𝗸𝗲𝗮𝘄𝗮𝘆𝘀
Financial Access for Poverty Reduction: CBDCs have the potential to reduce poverty by providing underserved populations with access to formal financial services such as savings, credit, and insurance. For low-income groups, CBDCs could enable secure, accessible banking, allowing them to participate in economic activities and improve financial resilience
Rural Financial Inclusion: CBDCs could be transformative for rural populations, particularly in regions lacking physical bank branches. By providing a digital alternative to cash, CBDCs will bridge infrastructure gap in these areas, offering rural residents access to digital wallets and basic banking services
Offline Agent Networks as part of CBDC Rollout: For a CBDC to succeed in fostering financial inclusion, offline agent networks are essential, especially in areas with limited internet connectivity or low digital literacy. By acting as trusted interfaces, agent networks can facilitate onboarding, assist with digital wallet transactions, and offer hands-on support for CBDC usage.
Alignment with SDGs: National CBDC strategies should integrate sustainable development goals (SDGs) to maximize impact on poverty reduction, gender equality, and economic empowerment.
Targeted Features for Inclusive Access: Support microtransactions via digital wallets and reduce remittance costs, facilitating easier and affordable cross-border transactions for migrant families
Addressing Digital Barriers: Expanding digital access and educational programs are key for CBDCs effectiveness reaching all society segments
Enhanced Social Protection Delivery: CBDCs can streamline access to social protection programs, including disaster relief, subsidies, and other government support for vulnerable populations.
Tailored to Local Needs and Barriers: Designing effective CBDCs requires understanding each country’s unique infrastructure, legal, and digital literacy challenges.
🌯 The Barefoot Insight
Changes in cash usage does not appear to be a factor in considering CBDCs in most countries in Sub-Saharan Africa because many respondents do not see a decline in cash usage. Over 80 percent of respondents have not observed a decrease in cash in circulation. Furthermore, over two-thirds of respondents do not anticipate a decline in cash use over the next six years - IMF Fintech report
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See You Next Week,
Hugo Pacheco