Fostering Financial Inclusion Through the Adoption of Digital Currency

The prospect of Africa’s largest economy becoming cashless has led to the revolution of its digital payment landscape and the decision to deepen its penetration of financial inclusion.

The Central Bank of Nigeria (CBN), with the support of major financial players, has been working to deepen financial inclusion in the country. However, 38.1 million of the country’s 106 million adults (18 and older) remain completely financially excluded, according to the World Bank’s 2021 “Global Findex Database” report.

Nigeria’s quest to deepen its financial inclusion lies in the adoption of digital currency. At a recently concluded blockchain-focused event titled Web3: Engineering the Internet of Tomorrow, Obi Emetarom, co-founder and CEO of Appzone, said digital currency adoption remains the most convenient and easiest way for the country to deepen its financial penetration.

“Not having a fully financially included nation today is because physical money based on fiat currency is still very much in circulation. Because digital currencies don’t have and don’t need of paper cash equivalents, an immediate transition to fully digital payments based on digital currencies will enable immediate 100% inclusion,” he said.

“However, three key issues, namely regulation, interoperability and ease of use, need to be addressed.”

Despite the circulation of fiat currency, the term “cash is king” could quickly fade. There has been an organic increase in the adoption of digital currencies by people across the world, including Nigeria.

During the COVID-19 pandemic, in particular, the use of cash has dropped dramatically as more people have turned to digital alternatives for security reasons. Beyond that, the increase in cross-border and intra-country transactions makes it almost impossible to trade in cash.

A report published by PricewaterhouseCoopers (PwC) titled “Charter a cause amidst evolution and revolution” also indicates that cashless transaction volumes will increase by more than 80% to reach 1.9 trillion by 2025 and that digital payments per person will triple by 2030.

Also read: Investors expect higher rate as CBN pays maturing Treasury bills on Wednesday

According to a Strategy representative, the Covid-19 pandemic accelerated the shift from cash to digital payments by three to five years. Africa is expected to grow by 78% by 2025 and 64% by 2030.

This trend is likely to continue even as banking processes become increasingly technologically sophisticated and, therefore, simplified for end users. Transferring money from one bank to another is becoming easier with the advent of better technologies.

For example, Appzone, an African payment infrastructure company, recently launched ZONE, Africa’s first decentralized blockchain payment network that will process interbank transactions directly between banks without the intervention of any middleman.

Thanks to this infrastructure, problems such as system failures, transfer delays and missing funds, etc. will be cleared and customers can make transfers and rest assured that their money is safe.

Speaking about Zone at the launch event a few months ago, Uzoma Dozie, CEO and Founder of Sparkle, said that “the solution debuted at a time when banks were looking for new ways to make payments transparent and hassle-free for more Nigerians and Africans in general. This is what will bring real change to the market. This will create more adoption in the space.

As the world including Nigeria continues to adopt digital transactions as the preferred method; it becomes easy to make the case for the adoption of digital currency as the key to a financially inclusive Nigeria. However, the big question remains how to leverage this opportunity to reach the unbanked?

Reaching financially excluded people

CBN is also not left out in the race for a digital currency. It launched its central bank digital currency labeled e-Naira in 2021. It is believed that eNaira is expected to bring multiple benefits as the currency spreads.

Among the other benefits listed by the CBN, the main one is to increase financial inclusion. A report by the International Monetary Fund shows that although the eNaira wallet is currently only provided to people with bank accounts, its coverage should eventually extend to anyone with a mobile phone, even if they do not have of bank account.

Many people do not have a bank account (38 million people; 36% of the adult population) and allowing those of them who have a mobile phone to have access to eNaira would increase financial inclusion and would facilitate a more direct and efficient implementation of social transfer programs. This decision is expected to allow 90% of the population to use eNaira.

Technology infrastructure providers like Appzone are also not letting up on the rush to develop best-in-class technologies to enable this space.

The leading payment infrastructure company says its vision is for digital payments and DeFi to replace cash and traditional banking in Africa. They have played a leading role in launching breakthrough technologies to improve the growth and operations of financial players.

There is no doubt that government, CBN and industry players are doing a lot to achieve a fully inclusive society. At this time, we cannot say categorically that adopting digital currency is the way forward, but we do know that it is a valid option worth exploring.

Sylvia B. Polson