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Technical & Cost Proposal Prepared for World Bank Mozambique

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Technical & Cost Proposal Prepared for World Bank Mozambique c OPPORTUNITIES FOR INCREASING ACCESS TO DIGITAL FINANCE IN NIGERIA Technical & Cost Proposal prepared for World Bank Mozambique Grameenfoundation Intenral Use Acknowledgements This report was prepared by the Arrakis Group for Grameen Foundation. Copyright © 2014 Grameen Foundation CONTENTS I. Overview .....................................................................................................................6 II. Socio Demographic Overview of Nigeria .....................................................................6 III. Mobile Landscape and Access ................................................................................. 13 IV. Financial Services Landscape ................................................................................... 17 A. Current Level of Financial Inclusion ................................................................ 17 B. Demand Side Financial Sector Analysis .......................................................... 20 C. Supply Side Financial Sector Analysis ............................................................ 34 V. Agency Banking Landscape ...................................................................................... 41 A. Regulatory Framework ................................................................................... 41 B. Access and Uptake ........................................................................................ 42 C. Key Players and Products .............................................................................. 46 VI. Conclusion ...............................................................................................................65 Appendix: References ......................................................................................................66 LIST OF FIGURES Figure 1: Poverty Rates for Food, Absolute, Relative and Dollar / day Measures (2010) ............ 7 Figure 2: Nigeria Map Showing Population Density (2007) .......................................................... 8 Figure 3: Cities with Population over 1 Million in Nigeria (2006) .................................................. 8 Figure 4: Level of Education – Total, Urban and Rural Population (2008) ................................... 9 Figure 5: Rate of Full or Partial Literacy by Age & Gender (2008) ............................................. 10 Figure 6: Rate of Full or Partial Literacy by Area Type (Age 15-49 yrs) (2008) ......................... 11 Figure 7: Rate of Full or Partial Literacy by Wealth Quintile (Age 15-49 yrs) (2008) ................. 11 Figure 8: Adult Literacy in Any Language by State (%) (2010) .................................................. 12 Figure 9: Mobile Phone Ownership (%) by State (2012) ........................................................... 13 Figure 10: GSM Mobile Network Operator Market Share (June 2013) ...................................... 14 Figure 11: GSM Mobile Network Operator Market Share (June 2013) ...................................... 14 Figure 12: Smart Phone Penetration (January 2013) ................................................................ 16 Figure 13: Active Mobile Data Subscriptions by Provider (October 2013) ................................ 16 Figure 14: Market Sizing: Opportunity for Financial Inclusion (2012) ........................................ 17 Figure 15: Financial Access Strand by Income Group (2012) .................................................... 18 Figure 16: Financial Access Strand by Gender (2012) .............................................................. 18 Figure 17: Financial Access by Nigerian State (2012) ............................................................... 19 Figure 18: Financial Inclusion Definitions .................................................................................. 19 Figure 19: Financial Services Uptake (2008 – 2012) ................................................................ 20 Figure 20: Understanding of Financial Services Terms & Products (2012) .............................. 21 Figure 21: Financial Services Uptake (2008 – 2012) ................................................................ 22 Figure 22: KYC Documentation Ownership (2012) ................................................................... 22 Figure 23: Tiered KYC Requirements and Limits (2013) ........................................................... 23 Figure 24: Uptake of Deposit Money Bank Products (% of banked adults) (2012) ................... 24 Figure 25: Frequency of Banking Transactions per Month (% of banked adults) (2012) .......... 24 Figure 26: Frequency of Banking Channel Use (% of banked adults) (2013) ........................... 25 Figure 27: Frequency of Banking Channel Use (% of banked adults) (2013) ........................... 25 Figure 28: Top Criteria for Selecting Main Deposit Money Bank (% of banked adults) (2012) . 26 Figure 29: Barriers to Accessing Deposit Money Banks (% of unbanked adults) (2012) .......... 26 Figure 30: Uptake of MFB Products (% of MFB customers) (2012) .......................................... 27 Figure 31: Top Criteria for Selecting MFB (% of MFB customers) (2012) ................................. 27 Figure 32: Barriers to Accessing MFBs (% of MFB customers) (2012) ..................................... 27 Figure 33: Informal Saving Mechanisms (% of Savers) (2012) .................................................. 28 Figure 34: Reasons for Saving (% of Savers) (2012) ................................................................ 28 Figure 35: Barriers to Saving (% of Non-Savers) (2012) ............................................................ 29 Figure 36: Sources of Loans and Credit (Millions of Borrowers) (2012) .................................... 29 Figure 37: Reasons for Taking a Loan (Millions of Borrowers) (2012) ....................................... 30 Figure 38: Barriers to Accessing Credit (% of Non-Borrowers) (2012) ...................................... 30 Figure 39: Risk Prevalence (2012) ............................................................................................. 31 Figure 40: Risks with Greatest Impact on Household Finances (2012) ..................................... 31 Figure 41: Insurance Penetration by Product (% of 1.3 million insured people) (2012) ............. 32 Figure 42: Barriers to Insurance Adoption (2012) ..................................................................... 33 Figure 43: Population Doing Domestic and International Remittances (2012) .......................... 33 Figure 44: Transaction Size for Domestic and International Remittances (2012) ..................... 34 Figure 45: Top Banks by Account Ownership (2012) ................................................................. 36 Figure 46: Bank Branch and ATM Distribution per State / Population Under $2 (2013) ............ 37 Figure 47: MFI and MFB Distribution per State / Population Under $2 (2013) ........................... 38 Figure 48: Reasons for Using MM (% of MM customers) (2012) .............................................. 43 Figure 49: Mobile Money Access Channels .............................................................................. 45 Figure 50: Licensed Mobile Money Operators in Nigeria .......................................................... 47 Figure 51: Mobile Money Agents per State / Population Under $2 (2013) ................................. 55 I. OVERVIEW Nigeria represents a very large market which constitutes a great opportunity for digital financial services: of the 88 million adults in Nigeria, 57 million are only informally served or financially excluded altogether (EFInA, 2012.) Nigeria is also a very complex market as evidenced by the low Mobile Money penetration despite the existence of over 20 service providers. This report reviews the supply and demand side constraints which are hindering the adoption of traditional financial services by the mass market. It then provides an in-depth analysis of the agency banking landscape and reviews barriers to adoption, such as the regulatory context, technical and infrastructure challenges, lack of agent networks and mobile and language literacy among the target demographic. II. SOCIO DEMOGRAPHIC OVERVIEW OF NIGERIA Nigeria is the most populous country in Africa and the seventh most populous country in the world, with 175 million inhabitants (Economist Intelligence Unit, 2014) from over 250 different ethnic groups (Otite, 1990). Democracy was restored with the election of Obasanjo in 1999 after over 3 decades of post-independence military rule marked by violent coups, civil war, secessionist movements, tribalism and religious persecution (BBC, 2013). The general elections of April 2007 marked the first civilian-to-civilian transfer of power in the country's history. Today Nigeria is a constitutional republic comprising of 37 states and 774 Local Government Areas (LGAs), the multiplicity of which reflect the challenges of governing such a large, diverse populace (Igbuzor, 2011). Nigeria continues to experience longstanding ethnic and religious tensions, particularly in the North of the country. The government continues face the challenge of reforming a petroleum-based economy, whose revenues have been mismanaged and expended on institutionalizing democracy (KPMG, 2013). Nigeria is Africa’s biggest oil exporter and the continent’s second-largest economy. The oil and gas sector accounts for more than 95% of total exports revenue (OPEC, 2013) and 15% - 35% of its GDP depending on market
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