Addressing financial exclusion using satellite technology

Addressing financial exclusion using satellite technology

Nigeria’s Central Bank is relying on the deployment of the wireless hotspots through NIGCOMSAT’s satellite technology in every local government of the country to financial exclusion in Nigeria. SpaceWatch reports

“In Nigeria, a survey conducted in 2008 by a development finance organization, the Enhancing Financial Innovation and Access revealed that about 53.0% of adults were excluded from financial services”. So far, the global pursuit of financial inclusion as a vehicle for economic development had a positive effect in Nigeria as the exclusion rate reduced from 53.0 % in 2008 to 46.3 % in 2010. Encouraged by the positive development, the Central Bank of Nigeria in collaboration with stakeholders launched the National Financial Inclusion Strategy on 23rd October, 2012 aimed at further reducing the exclusion rate to 20% by 2020. Specifically, the goal is to increase the number of adult Nigerians with access to payment services  from 21.6% in 2010 to 70% in 2020, while those with access to savings should increase from 24.0% to 60%; and Credit from 2% to 40%, Insurance from1% to 40% and Pensions from 5% to 40%, within the same period.

The channels for delivering the above financial services were equally targeted to improve, with deposit money bank branches targeted to increase from 6.8 units per 100,000 adults in 2010 to 7.6 units per 100,000 adults in 2020, microfinance bank branches to increase from 2.9 units to 5.5 units; ATMs from 11.8 units to 203.6 units, POSs from 13.3 units to 850 units, Mobile agents from 0 to 62 units, all per 100,000 adults between 2010 and 2020.

According to Godwin Emefiele, financial inclusion has continued to assume increasing recognition across the globe among policy makers, researchers and development oriented agencies. Its importance derives from the promise it holds as a tool for economic development, particularly in the areas of poverty reduction, employment generation, wealth creation and improving welfare and general standard of living.

“According to statistics published in the 2013 year book of the African Satellite Communications, population that can only be reached by satellite in Nigeria is 127.9 million, who are beyond 10km reach of fiber network”. The Bank is therefore relying on the deployment of the wireless hotspots through NIGCOMSAT’s satellite technology in every local government of the country to actualize the implementation of this vision. “Deployment of relevant internet technologies in the rural areas with sponsorship from the Bank will reduce the capital expenditures of mobile money operators, ATM service providers, E-payment/E-channel operators, settlement providers and other financial services providers to enhance the availability cum provision of these financial services to the entire federation and especially the rural populace”.

The implementation of the Strategy is impacting positively on the rate of access to financial services. The adult exclusion rate reduced from 46.3% in 2010 to 39.7% in 2012. All the geopolitical zones in Nigeria equally recorded improvements with exclusion rate declining between 2010 and 2012 as follows: North East, 68.3% to 59.5%, North West, 68.1% to 63.8%, North Central, 44.2% to 32.4%, South East, 31.9% to 25.6%, South West, 33.1% to 24.8% and South-South, 36.4% to 30.1%.

In recent times, a pilot project of this Strategy is being implemented in Borno State in collaboration with the State Government and other stakeholders. Meanwhile, some key stakeholders are taking advantage of the opportunities it offers to roll out products and innovation to actualize their corporate aims and objectives.

Satellite for ubiquitous connectivity

“Given the ubiquitous coverage of satellites and the current availability of satellite based broadband Internet access, satellite communications can immediately bridge the broadband coverage gap, in remote areas, where other wireless technologies on their own cannot be used”. Not only do satellite communications provide full reach, they also provide broadband speeds comparable to terrestrial connections. Due to innovative encodings and new satellite architecture, broadband connectivity with up to 30 Mbit/s is now available.

“The choice of a satellite-based network was premised on a number of factors. First, satellite-based network was considered to be the technology that would provide a more reliable network than a terrestrial network in our environment”. Generally, a terrestrial network is always susceptible to some environmental and infrastructural effect which causes network outages. “Most of the environmental factors such as physical fibre cuts, power outages and equipment failure at one or more repeater stations among others are eliminated in a satellite-based network, which uses space as medium of connecting any two end points (nodes).

In addition, a satellite-based network has unlimited reachability as long as the satellite being used has a footprint within the network region. The effect of this is easy connectivity to remote locations by sim;ply installing an earth station. However, two main downsides of VSAT are its high bandwidth cost and its slowness in transmission when compared with a land-based network. This is due to the inherent long distance that signals have to cover from an earth station to another earth station via the satellite transponder that is in orbit. This factor is   outside the control of any provider.

 

“The VSAT was designed to integrate with the existing Private Automatic Branch Exchange (PABX) machine to enable inter-branch voice communications through the bank’s VSAT network, thereby saving cost on trunk calls for the Bank”. Before the implementation of the VSAT WAN, the installed PABX in each of the Bank’s branches was used for inter-communication (intercom) between staff within a branch only while inter-branch calls were through the costly public telephone network PSTN lines. The VSAT was therefore as an added advantage for the CBN because in addition to the data transmission, inter- branch voice communication was made possible at no cost.

 

“Satellite technology when effectively deployed can change the cost and access equation, making it economically viable for banking sector to reach poor and isolated individuals and communities”. A key source of innovation is the capacity of technology to reduce costs and overcome other barriers to the provision of sustainable financial services to the excluded. With nearly 150 million Nigerians and the number growing rapidly, the costs of communications and information technology are shrinking. This present an unprecedented opportunity to use technology to address financial exclusion.

 

Transforming the payment system

In Alan Greenspan’s ‘Age of Turbulence’ lies a good lesson for any developing economy. In that epistle, it was clear that efficient payment system is a prerequisite for the development of the national economy. According to him, the payment system is a significant national infrastructure and is critical to the growth of the national economy just like telecommunication, electrical power, and transportation infrastructures are.

Therefore, Nigeria‘s vision 202, of being amongst the top 20 economies by the year 2020 is premised on efficient and modern payment system that is positively correlated with economic development and also a key enabler of economic growth.

In many developing countries like Nigeria, cash is the main mode of payments and a large percentage of the populations are unbanked. The personal demerits of carrying cash on the growth of financial deepening are enormous.

In 2012, the Central Bank of Nigeria (CBN) introduced a cashless policy with the main objective of reducing the amount of physical cash circulating in the economy through the encouragement of more electronic-based transactions. The Central Bank of Nigeria, also, in collaboration with stakeholders launched theNational Financial Inclusion Strategy on 23rd October, 2012 aimed at reducing the adult financial exclusion rate in Nigeria from 39.7% in 2012 to 20% by 2020.

In order to achieve this objective, a tripartite MoU was drafted for NIGCOMSAT, CBN and Nigerian Interbank Settlement System (NIBSS) for the provision of Wi-Fi hotspots. The effort was to address the internet connectivity problem, being one of the major challenges affecting the implementation and penetration of the cashless policy in the country.

Technically speaking, local wireless equipment, sometimes referred to as WLAN equipment, connects to a broadband ISP and allows Internet devices such as laptops, cell phones, and PDAs to wirelessly access the Internet. Essentially, the emergence of Wi-Fi allows can permit Nigerians from all walks of life to access the Internet through cell phones, personal digital assistants (PDAs) or laptops with appropriate wireless equipment. In layman’s terms, Wi-Fi is wireless high speed access to an Internet service provider (ISP) allowing consumers to explore the Internet without the restriction of wires. With this capability,  several locations provide wireless networking ranging from public spaces such as schools, airports, and cafés to private residences and corporate offices

 

So far, activities have already commenced with NIGCOMSAT with the view to exploring other alternatives to the available General Packet Radio Service (GPRS) network being used for the deployment of Point of Sale (POS) terminals. With this deployment, the Central Bank of Nigeria, CBN hopes to connect every part of the country with internet service via Wi-Fi hotspot.

The development would further assist to drive down cost of delivering banking, payments and financial services to rural Nigerians.  In retrospect, Wi-Fi basically adds value to primary and secondary schools across the 774 council areas in the country as they will be fitted with Internet hotspots for digital empowerment of this section of youths and future leaders.

Cashless Policy

The Central Bank of Nigeria (CBN) introduced a new policy on cash-based transactions which stipulates a ‘cash handling charge’ on daily cash withdrawals that exceed N500,000 for Individuals and N3,000,000 for Corporate bodies. The new policy on cash-based transactions (withdrawals) in banks, aims at reducing the amount of physical cash (coins and notes) circulating in the economy, and encouraging more electronic-based transactions (payments for goods, services, transfers, etc.

The new cash policy was introduced for a number of key reasons, including:

  1. To drive development and modernization of our payment system in line with Nigeria’s vision 2020 goal of being amongst the top 20 economies by the year 2020. An efficient and modern payment system is positively correlated with economic development, and is a key enabler for economic growth.
  2. To reduce the cost of banking services (including cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach.
  3. To improve the effectiveness of monetary policy in managing inflation and driving economic growth.

 

The pilot was run in Lagos State from January 2012 while the policy took effect in Rivers, Anambra, Abia, Kano, Ogun and the Federal Capital Territory (FCT) on the 1st July, 2013. The policy will be implemented nationwide on July 1st, 2014.

In terms of volume, NIBSS transfers have risen from 87,000 transactions a month in January 2012 to 3.1 million transactions a month as at June 2014.

According to recent figures, volume of Point of Sale (PoS) transactions increased astronomically from less than 2000 monthly as at January 2012 to 1.6 million per month in June 2014 while transactions in value moved up from N38 million per month in 2012 to N24 billion monthly.

Licensed payment terminal service providers licensed to increase PoS terminal penetration increased from 5 to 10 with over 150,000 PoS terminals across the country as at last month.The target is to increase the PoS terminals to at least 350,000 by 2015. At the moment, mobile money transactions value went up to N819 million monthly while 22 licensed mobile money operators have already secured licenses.

Nigeria’s payment system has since seen a rapid transformation on the back of a cashless policy introduced by the CBN in 2012 to drive Vision 2020.

The CBN’s cashless policy went nationwide on July 1, 2014, after a successful implementation, first of all in Lagos State in the first phase, then, in the five states of Abia, Anambra, Kano, Ogun, Rivers and Federal Capital Territory (FCT) in the second phase.

So far, there has been a significant increase in volume and amount of electronic payment and that extra measures have been taken to enhance connectivity and forestall fraud.  The next step being taken is to implement connectivity agreement with NIGCOMSAT that would allow the installation of hotspots in the 774 local government areas across the country to improve connectivity and better penetration of the policy.

The NIGCOMSAT Ltd, according to the Central Bank of Nigeria, CBN is expected to leverage on its ICT infrastructure and ICT infrastructure of NIGCOMSAT’s strategic partners to provide shared secured connectivity services across 1000 locations nationwide for the Central Bank of Nigeria (CBN)/NIBSS Cashless Project. The service is required to enable the successful implementation of Financial and Digital Inclusion for the CBN cashless programme in Nigeria. Microfinance Banks, especially in rural communities are also expected to leverage on this facility. The project is designed to be implemented in phases. The first phase of the project is going to be a pilot for 20 locations, the success of which will determine the approval for the subsequent phases.