A Clearer Picture of Nigeria with New MIX Financial Inclusion Data Visualization Tool
In recent years, we have seen a proliferation of data in the field of financial inclusion, in part generated through the advent of new technologies (mapping and georeferencing among them), and thanks to an infusion of crucial investments. Well-calibrated policy choices depend on such data, but the link between policy and information comes in the form of analysis that transforms data into applicable knowledge. MIX, with support from The MasterCard Foundation, has developed the MIX Financial Inclusion Data Visualization Tool (soon to be freely available online) to support this crucial process. The tool combines key data sets with mapping, graphing, and analytical capabilities for an expanding range of countries. Data used in the Nigeria workbook comes primarily from the Bill & Melinda Gates Foundation (locations of the financial service providers collected in the first half of 2012) and contextual information from the 2006 census.
In the following post, we take a look at financial inclusion in Nigeria. We ask basic questions about physical access to financial services and use the MIX Financial Inclusion Data Visualization Tool to support the generation of applicable knowledge. Where are the important service gaps? Do different types of providers service distinct geographical zones? Who is excluded from access to financial services? We emphasize that our analysis is just one example of how this dynamic resource can support necessary research for the expansion of financial inclusion. We look forward to learning how you draw on the data and tools offered here to create the knowledge you need to advance toward our shared goals.
The North-South Gap
The first thing you notice as you situate yourself in the map of principal financial service provider service points is an enormous and apparent gap between the north and the south of Nigeria (Fig 1). Despite the half the population living in states in the geopolitical north, commercial banks and microfinance banks concentrate 70% of their agencies in the south (principally in Lagos, where we find one out of every four branches). The geopolitical regions of the northeast and northwest are home to 13.5% and 25.6% of the population respectively, yet they host only 4.5% and 9.6% of bank branches. This situation stands in contrast to the southeast of the country. Although these states represent only 19.7% of the population, they hold 40.1% of bank branches.
Commercial Banks: Great and few
According to the Central Bank of Nigeria, commercial banks in the country currently serve about 20 million clients through a network of more than 5,000 branches (less than 15% of the total population). When we take a look at data in the MIX Data Visualization Tool, we see that there are 21 private banks operating in the country – a figure much lower than the 90 banks in operation at the dawn of the last decade. This process of bank consolidation was strongly influenced by regulatory changes introduced in 2004, which significantly increased required levels of capitalization and sought to transform a system dominated (to that point) by a profusion of small banks (in 2004 there were 89 banks in the country and by 2005 there were just 25) . Today, nearly all banks have a presence in all of the country’s states. First, Bank of Nigeria, with its network of 640 branches, is the entity with the most capillarity, followed closely by Ecobank Nigeria (563) and United Bank of Africa (502).
Microfinance Banks: Tiny, but abundant
The snapshot for microfinance banks looks quite different. The 830 microfinance banks in existence offer a network of just 1,169 service points. The majority of these banks, mostly former community banks, are currently small, single branch institutions that were affected by the new prudential requirements and supervisory guidelines issued by the Central Bank in December 2005 (Fig 2). Lapo, the largest microfinance bank in Nigeria, is the only institution with more than 15 branches and the only one to have established a truly multi-regional presence. We can characterize microfinance banks then as many actors but, in general, of a quite modest size. In fact, according to Central Bank data, microfinance banks service about 3.2 million clients (slightly more than 2% of the population). The limited reach of microfinance banks becomes more evident when we see that only 14% of clients use credit products and only 65% use savings products.
Commercial Banks and Microfinance Banks: Together
Despite the considerable differences between commercial and microfinance banks, both tend to concentrate their branches in the same states. Indeed, when we use the median to divide between states that have more or less bank branches, we quickly see that commercial banks and microfinance banks have a larger number of branches in nearly exactly the same Nigerian states (Fig 3).
Sub-national Data Provides Clarifying Complexity
Although at first glance it seems clear that banks have established many more branches in southern states than in the northern ones, it is only when we take a closer look at Local Government Areas (“LGAs”) that we begin to focus a clearer picture of where exactly physical access is a more prominent problem. For example, when we compare the southern state of Bayelsa to the northern state of Bauchi (both with 45 commercial bank branches), we see how sub-national data helps us see a more nuanced image of access to financial services (Fig 4). All bank branches in the southern state of Bayelsa are concentrated in the LGAs of Yenegoa and Brass. In contrast, there are 10 LGAs in the northern state of Bauchi with at least one bank branch. Consequently, while 69% of the population in the southern state of Bayelsa lives in LGAs that have no banks at all, in the northern state of Bauchi only 31% of the population lives in an LGA with no commercial bank.
In a similar way, we see that in Lagos there are 1,504 bank agent branches, while in the Federal Capital Territory (“FCT”) there are only 234. However, 6.5 times more people live in Lagos than in the FCT. So while in Lagos there are 16.5 commercial bank branches for every 100,000 people, there 25 per 100,000 in the case of the FCT.
Population is crucial contextual information for the interpretation of the financial inclusion situation in a specific area. Utilizing per capita data, we see that northern regions not only have fewer bank branches, they also have poorer indicators for physical access. Meanwhile, the southwestern geopolitical zone has almost six times more bank branches per capita than the northeastern zone.
Financial service provider locations generally do not distribute uniformly within a country. So while national and regional data offers us an overview of financial inclusion in a given country, more granular data is critical to gaining a real understanding of access at the local level. Today, most financial indicators gathered in Nigeria are at the national level. Data organized by MIX provides us a more detailed analysis at the sub-national level. At the state level we can easily observe that the FCT has 33 times more bank branches per capita than Katsina, but problems of physical access to formal financial services are made particularly evident when we look at the distribution of agencies at the LGA level. In 322 of Nigeria’s LGAs (42% of the total), there are no commercial banks and no microfinance banks. This implies that 35% of the population of Nigeria lives in an LGA in which the availability of formal financial services through bank branches is simply non-existent.
Why Here and Not There?
It is obvious that simple physical access to financial service providers is an important contributing factor to the high rates of financial exclusion observed in Nigeria.
In light of this observation, we should ask ourselves what factors determine if a banking entity opens a branch in a particular area? The answers are most likely multiple and interlinked, but if we take a look at the data, we clearly see that population density plays a crucial role. It is therefore unsurprising to observe that in the LGAs where banking entities do not have branches, the population density is more than 18 times less than in those LGAs where there are more than 50 branches (Fig 5). For example, while Apapa has 94.6 commercial bank branches per 100.000 people, Zaria has 0.2 (385 times fewer branches per capita than in Apapa).
Another typical characteristic of bank branch locations is their predominantly urban nature. Some 86% of commercial bank branches and 68% of microfinance bank branches are located in urban zones. In a country in which half the population lives in rural areas, it is clear that the chiefly urban location of bank branches plays a meaningfully role in the high rate of financial exclusion among the rural population.
Increased terrorist violence in the northern region will undoubtedly be one of the important considerations on the table when financial service providers decide whether or not to expand their branch networks. It seems clear, however, that despite these considerations, population density and rurality play an important role.
ATMs: Reaching rural clients?
The location of off-site ATMs follows a pattern of distribution that is quite similar to that of bank branches, which indicates that they are not currently a channel used by banks to increase their presence in rural areas (only 13.5% of ATMs are located in rural zones). In 2009, the Central Bank, in an attempt to diversify ATM presence and improve their management (in Nigeria, it is common for ATMs to run out of money or to be out of service) required banks to cede management of off-site ATMs to independent companies authorized for this purpose. Based on this new policy, banks could only manage ATMs located at their own branches. Given the geographic distribution of off-site ATMs, it does not seem that this measure has significantly contributed to improve the financial inclusion situation in rural areas. In fact, technological challenges to the expansion of ATMs in rural zones, pressure from banks, and the difficulties encountered by the independent companies charged with off-site ATM management to becoming financially viable (ATM Consortium, the largest independent ATM management company in Nigeria collapsed at the end of 2012) seem to be behind a recent (2012) Central Bank decision to rescind the prohibition on banks’ management of their own off-site ATMs. Although the financial inclusion strategy expected to see 75,000 ATMs in 2015, it seems that this will be difficult given the current situation.
Post Offices, Bus Terminals, and Mobile Phones as Networks for Financial Inclusion
With Nigeria’s concentration of bank branches in urban areas and very limited coverage in rural areas, expanding the network of locations of financial service providers, especially in less densely populated areas, is a key element in the improvement of access and financial inclusion in Nigeria. Mobile money and the provision of financial services through networks with an extensive presence throughout the territory, such as the Nigerian Postal Service or motor parks, can help improve access and contribute to better overall financial inclusion in the country.
While Nigeria has a high rate of penetration of mobile phones (124 million active lines in December 2013), mobile money still does not have the same importance or relevance as it does in other African countries, like Kenya or Uganda. The Central Bank developed a regulatory framework for mobile money in 2009, and in 2011 the first Mobile Money Operators (“MMOs”) received operating licenses. Currently, seven bank-led MMOs and 14 non-banks MMOs are authorized.
Mobile network operators are explicitly not authorized to act as MMOs, which limits some business models that are used in other countries. Mobile money in Nigeria is a relatively recent phenomenon and still at the early stages; consequently, the agent networks of different MMOs are still in the process of consolidation. In 2012, the Bill & Melinda Gates Foundation (BMGF) carried out a detailed mapping of agents, geo-referencing a total of 4,222. Being a new and expanding phenomenon, the number of agents is changing rapidly. Taking a look at the location of MMO agents georeferenced by the BMGF, we see that they have a better presence in rural zones (29% of the agents are in rural areas) and in areas with little bank presence (such as the states of Taraba and Sokoto). Although present agents act principally as points for payment and money transfer, MMOs have the potential to contribute to better financial inclusion, especially as financial services like deposit and loan payments gain relevance.
Mobile money, in addition to addressing serious physical barriers to access (mobile agents tend to have better geographic penetration than some other financial service providers), may have a role to play in reducing the costs associated with formal banking services. According to the recent World Bank report analyzing Global Findex data in the context of global financial inclusion, of the unbanked adult population, 25% sayy “they are too expensive”. In Nigeria, over 37% of non-account holding adults cited expense as a contributing factor.
The Nigeria Postal Service (NIPOST), a public Company of the Nigerian postal service, has an extensive network of offices and an important presence in rural areas (59% of NIPOST offices are located in rural zones), allowing it to potentially act as an agent for banks, microfinance banks, and MMOs. Currently, NIPOST offers very limited financial services, principally payments, money orders and the sending and receiving of remittances (Fig 6).
In other countries, post offices take advantage of their ample coverage of rural areas to play an active role in the promotion of financial services for underserved populations. In Nigeria, unlike other countries, the post office does not fall under the supervision of the Central Bank. Nevertheless, NIPOST could take an agent role for financial service provision and even act as a distribution point for financial education campaigns, as the National Financial Inclusion Strategy suggests.
In the same way, bus terminals (or motor parks as they are known in Nigeria) could play a larger role in the provision of financial services, given the elevated traffic and excellent presence throughout the territory (36% of motor parks are located in rural areas). Currently, motor parks play a key role in the provision of informal financial services, primarily through the sending of domestic transfers through bus drivers. An expansion of mobile money could provide a more central role for motor parks. In fact, in September 2013, Teasy Mobile Money – one of the 14 non-bank led MMOs licensed by the Central Bank – announced a new partnership with the National Union of Road Transport Workers (NURTW) (which manages many Nigerian motor parks) to increase mobile money penetration in the country. Through this agreement, clients will be able to deposit and withdraw money at NURTW motor parks (Fig 7).
The Big Picture
Challenges to financial inclusion in Nigeria are diverse and, beyond the proximity of service points, include complex socioeconomic factors, such as employment status and financial literacy. States with the highest unemployment rates (like Zafara and Bauchi) tend to also be the areas with the most limited bank presence. Similarly, states like Yobe and Kwara, with the lowest literacy rates, are areas with low presence of bank branches. Using contextual information, we can better understand who will have the most difficulty in accessing financial services. The data from the MIX Financial Inclusion Visualization Tool lets us analyze the network of commercial bank branches, microfinance bank branches, and unregulated microfinance institutions (SACCOs and NGOs). The tool’s information on the network of MMO agents, motor parks, and NIPOST branches further allows us to analyze how mobile money could impact financial inclusion in the country.
Through interactive visualizations that combine information about the physical location of financial service providers with contextual data (including population density, literacy rates and unemployment rates) we can paint a clearer picture of financial inclusion in Nigeria.
 Central Bank of Nigeria (2012), National Financial Inclusion Strategy. Summary Report.
 Olojo, Akinola (2013), “Nigeria’s Troubled North: Interrogating the Drivers of Public Support for Boko Haram”. ICC Research Paper.
 The Nigerian Voice, December 2012, “Banking Consolidations Caused Collapse Of Atm Consortium”.
 Demirguc-Kent, A. and L. Klapper. (2012). “Measuring Financial Inclusion: The Global Findex Database Report”. The World Bank. Development Research Group. Finance and Private Sector Development Team. Policy Research Working Paper 6025.
 Anson, J., A. Berthaud, L. Klapper, and D. Singer (2013) “Financial Inclusion and the Role of the Post Office”. The World Bank. Policy Research Working Paper 6630.