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Financial Inclusion in Nigeria to see a Major Setback as a Result of Capitalization Policy.

Updated on February 12, 2016

Financial Inclusion to see a Major Setback as a Result of Capitalization Policy.

"I failed a key primary school test 2 times, I failed the middle school test 3 times, I failed the college entrance exam 2 times and when I graduated, I was rejected for most jobs I applied for out of college. (Ma was the only one out of 5 applicants to the police force to be rejected and the only one of 24 applicants to be a KFC (YUM) manager to be rejected. "I applied for Harvard ten times, got rejected ten times and I told myself that ‘Someday I should go teach there.’"

Jack Ma, Alibaba creator and 33rd richest person in the world according to Forbes in 2015 with $22.7 Billion. (

It is easy to read inspirational stories about persistence, but what may be lost in the story are the infernos burning in the bellies of committed entrepreneurs that are not found among leaders of big corporations and banks because of the many options available to them. Entrepreneurs should be celebrated for their tenacity and risk taking especially in Nigeria where financial inclusion should be treated as a national security issue.

Mobile money license holders in Nigeria are foot soldiers for financial inclusion and many have shown commitments by continually investing despite the slow uptake.

The lack of quick successes and financial returns has led some banks to return their mobile money licenses or to simply allow their services to fall fallow and telecommunications firms are still finding their footings as super agents.

There is no silver bullet and it is wise to recognise the gains made so far and to build on them jointly. Together with and guided by CBN, all stakeholders continue to improve the ecosystem that will lead to sustained benefit for the common Nigerian.

The Implication of Raising Share Capital

As part of the effort, last year CBN advanced a policy to take effect in June 2016 that required a 100 times increase in the capitalization of all mobile money licensees, from ₦20 million to ₦2 billion.

Experts in this field have faulted this ₦2 billion capitalisation requirement as both unnecessary and impractical. This figure is unnecessary since the main purpose of the capitalization is to cover settlement risks, which have not materialized. The new policy was written with great optimism which may have prompted regulators to set this extraordinarily high figure ₦2 billion figure but the high level of activity has not come to pass in results. Furthermore there has never been a single documented case of settlement failure for any Nigerian mobile money licensee; the risk is entirely theoretical.

The new 100-times higher requirement is also impractical. No licensee has internally generated this amount and the climate for investment has taken a serious recent downturn. Business cases do not exist to justify this level of investment to in essence, sit idly simply to maintain a ₦2 billion cushion. Again the anticipated growth that might have raised the stakes and, in theory, the associated settlement risk has not materialized. Businesses across the federation with stronger cases for utilizing funds and generating attractive returns are struggling themselves to generate investment and trillions of ₦ are leaving the country in search of safer harbors. This is hardly the time to mandate what are at best nice-to-have cushions, 100 times larger than present.

The capitalization requirements for similar business in other countries, some of which have experienced successful mobile payment uptake, are much lower and are often tied to outstanding liabilities. Courtesy of the GSMA, below are examples of the minimum capital requirements for e-money issuers (or similar entities).

WAEMU: USD $571,000 and to have ongoing funds of 3% of the greater of (i) the prior day’s; OR (ii) average outstanding e-money liabilities. .

Brazil: USD $655,000

European Union: USD $435,000 initially, then 2% of “average outstanding electronic money.”

Namibia: Greater of: (i) USD 216,000; or (ii) 2% of outstanding electronic money liabilities.

Kenya: USD $225,000

USA: None

Afghanistan: USD $173,000

Peru: USD $709,440 (as of Q4 2012, with quarterly inflation adjustments going forward)

Financial inclusion experts believe that capitalization requirements should be a function of a percentage of liabilities and should be introduced gradually, over an extended time frame. Globally, there is a direct and strong correlation between high capitalization and low uptake as high capitalization will stifle innovation and bar young and capable companies from offering mobile payments services.

Financial inclusion in Nigeria will witness a major setback as a result of this high capitalization policy and the gains in the last 4 years will be erased. Agents who have invested in setting up will lose money and will not be interested in mobile payment business in the future. Third party service providers that leverage on mobile payments will disappear. Innovation will dry up and remaining providers will not be nimble. Finally, investors are weary of the market due to this capitalization guideline and will flee.

Nigeria’s business climate requires committed providers with experience, ideas and resolve to deal with the ever changing consumer needs and ability to continue to improvise. Mobile payment services of the past are different from today.

It is well within our powers to learn from global best practices and appreciate stakeholders who have made it their mission to invest in the cashless initiatives for the betterment of the society.


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