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Economy

The Implication Of Financial Illiteracy In Nigeria

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Nigeria is a country with a high Gross Domestic Product (GDP) compared to its colleague in the developing yard Bangladesh. Data revealed that with the high GDP, Nigeria harbors 4-time people living below the poverty line than Bangladesh. The reasons can be attributed to the country’s 56 percent income spend on food (highest in the world) as opposed to its counterpart with less than 40 percent. In Nigeria, approximately 60 percent live below the poverty line. In Bangladesh, however, that number is 24.3 percent indicating 55.3 percent likelihood to live below the poverty line in Nigeria compared to Bangladesh.

Source: Country Economy, 2018

Should appropriate financial knowledge (Literacy) solve this discrepancy considering:

  1. The current situation of education curriculum containing only 5% of studied courses about personal finance for non-business students and only 10% studied financial courses in business colleges.
  2. The literacy rate. In Nigeria, the literacy rate is 59.6%. In Bangladesh, it is 72.8% showing a 22.1 percent more likely to be literate in Bangladesh when compared to Nigeria.
  3. The Gross Domestic Product (GDP) of the two economies as shown in the figure below;

Source: Country Economy, 2018

Asides the high GDP in Nigeria compared to Bangladesh, above all others metric, Bangladesh is a better economy owning to Nigeria’s low level of Education and epileptic education structure; education which can increase the level of financial literacy is in shambles. It becomes imperative for the government of the country to devise actionable plans to improve its citizen’s financial literacy which will invariably repress consumption, at the same time, encourage saving and investment. This is based on the assumption that negative relationship exists between literacy level and consumption. In other words, the higher the financial literacy, the more informed the citizens financial decisions are, hence a moderate consumption. As such, it will be concluded upon that high level of is associated with low consumption level. More so, in a study conducted by Adriaan K. et al (2016)[i] to examine the impact of financial literacy on household consumption. It was found that financial literacy of man plays a large role and a higher financial literacy score of the women decreases consumption.

What is Financial Literacy

In simple terms, it is a skill that helps people to make financial decisions effectively. It ensures having the required and appropriate knowledge, skills, and confidence to make responsible financial decisions. Research has found a positive relationship between financial literacy and financial decisions. Putting that into context, a high level of financial literacy translates better financial decisions and its low level equate poor financial decisions in which the latter is attributable to the current situation of the giant of Africa.

Contextually, the position of literature on elucidating a better understanding of financial literacy defines “knowledge as an understanding of personal and broader financial matters; skills as the ability to apply that financial knowledge in everyday life; confidence as having the self-assurance to make important decisions and responsible financial decisions as to the ability of individuals to use the knowledge, skills, and confidence they have gained to make choices appropriate to their own circumstances”.  It gives the twin benefit of protecting from financial frauds as well as planning for financially secured future.

A poor or low financial literacy is often influenced by family background as found by Lusardi(2008) who claimed that 41 percent of required knowledge for better financial decisions usually comes from parenting and home advice. As such, family wealth accumulation lined in the league of factors affecting individual financial decisions. Others factors attributed to poor financial decisions include Education, household income, financial responsibility, and place of residence. The low level of financial literacy has affected and can be attributed to the slow pace with which Nigerians have adopted financial services in rural and urban areas.

Whose Responsibility?

The APEX Bank of Nigeria, Central Bank of Nigeria (The Bank), has released as part of its mandate to improve the level of financial literacy in the country. The bank in a statement stated that:

“An important mandate of the Bank is the promotion of a sound financial system in Nigeria. A key aspect of this function is the entrenchment of effective consumer protection regime that not only protects the rights of consumers but also engenders public confidence in the financial system. Furthermore, the bank added a commitment in 2011 referred to as the MAYA DECLARATION, to reduce the number of financially excluded Nigerians from 46.3 percent in 2010 to 20 percent by the year 2020”.

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The current exclusion rate in 2018 was about 36.8 percent according to a recent report by Enhancing Financial Innovation and Access (EfinA, 2018). To ensure the fulfillment of this obligation.

A National Financial Inclusion Strategy was accordingly developed and launched on October 23, 2012. The strategy identified consumer protection and its constituent pillars of Market Conduct, Dispute Resolution & Consumer Education as critical to the attainment of its objectives.

Understanding the position of the bank, the metric for financial literacy is financial inclusion. It was claimed that 68.2 percent of the population is financially included of which 56 percent of income is spent on consumption. Should a high level of financial literacy not better position saving or investment ahead of consumption?

What is my Position?

The dominance of financial mistakes will not come as a surprise; this is due to the relative inadequate financial knowledge among households. High level of financial literacy is what differentiates the two countries mentioned earlier. As long as a larger portion of income is spent on consumption, the poor will remain poor.

As such, Quality Education in all sectors of the economy becomes imperative which includes

  1. Review of Education Curriculum to include 30 percent of financial related knowledge.
  2. Provision of incentives to promote savings and investments through financial institutions.
  3. Public sensitization and awareness on the need for better financial decisions through instilled financial knowledge which could involve partnership with media houses and agencies.

In all, a conscious effort must be made to scale financial inclusion in the country, through financial literacy. An increased level and quality of education can enhance better financial literacy.

Worth noting in a country with a high level of illiteracy is that financial knowledge will be abysmally low and higher proportion of the income will be spent on consumption

This poor knowledge will lead to low savings and investment and the cycle of poverty ensues. The implication of illiteracy can never be overemphasized on nation’s economy.

 

[i]Milena Dinkova, AdriaanKalwij, & Rob Alssie (2016), The impact of financial literacy on household consumption

Credit: Taiwo Oyekanmi

Economy

Leveraging Digitized Social Welfare Programs to Deepen Female Financial Inclusion in Africa

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(Image credit: jumo.world)

Global economies- from Nairobi to Beijing- are undergoing a rapid
transformation, with digital technologies changing the way people
communicate, work, bank, and access information.

Today, previously unbanked households in Nigeria, Kenya and other nations of Africa can now access instant credit over their mobile phones.

Rural households in Senegal are lighting their homes by linking their bank accounts to off-grid solar energy systems. Government officials in India are combining digital payment and ID technologies to deposit money directly into the accounts of citizens living in distant villages, increasing the transparency and efficiency of social welfare programs.

These and other digital innovations are creating opportunities for countries to build more inclusive, productive, and prosperous societies.

The McKinsey Global Institute estimates that widespread adoption and use of digital payments and financial services could increase the GDP of all emerging markets by $3.7 trillion by 2025. This additional GDP could create up to 95 million new jobs, raise overall productivity and investment levels, and make government spending more efficient.

Interestingly, no one stands to benefit more from this growth than women. It is a fact beyond argument that women and girls shoulder the global burden of poverty. Decades of research show that poverty deprives women of vital health, education, and socioeconomic opportunities throughout their lives. As a result, women earn less, own fewer assets, and are underrepresented in economic and political decision-making. This inequality means they experience fewer benefits from economic growth and suffer more of the challenges of life lived in poverty.

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For women in low- and middle-income countries, digital savings, credit, and payments services can provide them with a critical link to the formal economy and a gateway to greater economic security and personal empowerment.

An emerging body of evidence shows this also pays dividends for their families in the form of better health and education. When women-headed households in Kenya adopted mobile money accounts, poverty dropped, savings rose, and 185,000 women left agricultural jobs for more reliable, higher paying positions in business or retail.

In Niger, distributing government benefit payments through a mobile
phone instead of cash helped give women who received the transfers
more decision-making power in their households.

Overall, strong progress has been made with financial inclusion in many (African) countries. And many of these countries have also experienced a sharp uptick in financial inclusion rates among women. Between 2011 and 2017, the number of women with their own account doubled in Kenya and Ghana and increased seven-fold in Senegal. And crucially, in several African countries, mobile money has emerged as an equalizing force, and can further help more and more (African) women towards financial inclusion.

However, digital financial exclusion is not merely an access problem. Although digital technologies hold vast potential to improve human welfare, they also pose considerable risks, from the establishment of digital monopolies to cyberattacks to digital fraud.

In light of that, as previously excluded women become first-time users of digital technologies, they are particularly exposed to these and other risks, such as new forms of gender-based violence, abuse, and harassment in digital contexts.

Our global challenge, therefore, is not merely to close the digital (financial) divide, but also to establish sound regulatory and supervisory frameworks to ensure that women and vulnerable citizens reap the benefits from digital technologies without suffering from their potential adverse effects.

Written By: Onyeka Akpaida, Founder at Rendra Foundation

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Economy

Thomas Pays, CEO of Ozow: SA’s economic revival depends on digital inclusion

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Thomas Pays, CEO and co-founder Ozow

Unless we ensure digital inclusion for all South Africans, any efforts to build a vibrant and growing economy will fall flat.

South African consumers and businesses need safe, convenient and accessible cash alternatives that simplify the payments process. As it stands, too many are excluded from online and other value-added services simply because they lack access to a bank card. While there are lower levels of banking services penetration in other African countries, 80% of South African citizens are banked, a commendable increase from only 46% in 2004. However, only one in eight adults have access to a credit card. For the rest, many online services remain inaccessible. The over-reliance on card payments to facilitate online and other transactions continues to exclude a large portion of the country’s consumer market. 

Cash still dominates the South African economy. Even though it is still growing change is sweeping through the ecosystem. Market-led payments companies are introducing new innovations that enable non-card users to transact safely and conveniently, greatly improving digital inclusion especially in underserved markets. Judging by recent developments, government is also searching for solutions that replace cash with more convenient and safer forms of electronic payment, and bring opportunities for underserved communities to access new payment and financial services options.

Digital inclusion a national priority

The South African government has set its sights on fostering greater digital inclusion, as is evident in the President’s State of the Nation address in February, which highlighted the need for improved digital literacy among the country’s citizens. The SA Reserve Bank’s Vision 2025 has also emerged as a roadmap to establishing a vibrant open banking ecosystem in the country.

In a bold step earlier this year, regulators instructed South Africa’s mobile operators to adjust their pricing in order to reduce inequality in digital inclusion. The Competition Commission found that lower-income mobile users were disproportionately disadvantaged by higher per-MB costs than larger data bundles for higher-income users. This will certainly aid greater adoption of online services and alternative payment types among the country’s large middle- to lower-income groups, who were previously unable to afford high ad-hoc data costs.

Solutions to low adoption of new payment types

In a 2019 global report, McKinsey identified cloud-based, API-driven architectures built on open banking principles as accelerators of innovation and competition in the payments industry. And that’s one vital role Thomas Pays believe companies such as Ozow fulfil in the African market: combining new technologies and new thinking to offer simplified payments to all. This is evident in how some of the main barriers – lack of data, low-end smartphones – are being overcome with innovative workarounds.

While South Africa’s smartphone penetration is currently over 80%, a lack of data means many consumers are often locked out of using online services and alternative payment methods such as QR code based payments. One solution is to zero-rate mobile data costs. In our experience, this helps ensure consumers can make electronic, mobile or app-based payments even when they have no data on their devices, and directly contributes to greater adoption and usage.

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Many of the smartphones used by lower-income consumers also lack sufficient space for the growing list of apps used to facilitate electronic payments. Here, offering the option of a progressive web app that can be accessed via a browser allows consumers to pay without having to permanently store a native app.

South Africa – and the rest of Africa – needs to put concerted effort into driving digital inclusion among the continent’s 1.3 billion citizens. I’d suggest starting with improving access to simple, safe payment options that remove the reliance on cash.

By: Thomas Pays, CEO and co-founder Ozow

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Economy

Egypt, PRL sign train engines contracts worth $466.3M

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CAIRO – 16 November 2019: The Egyptian Railway Authority (ERA) signed with PRL (Progress Rail Automotives) a number of contracts worth $466.3 million after a meeting with President Abdel Fatah al-Sisi that took place last week.

The American company will supply 50 train engines over 22 months, carry out long-term maintenance for 41 engines by June 30, and upgrade 50 others within 30 months since the conclusion of the deal. The company will also provide maintenance services and spare parts for those 141 train engines for 15 years. The value of contracts will be secured through soft loans, except for $27 million that will be paid by ERA’s treasury.

In July, ERA endorsed the technical specifications of two passenger railcars to be supplied by Transmashholding in September. Those are part of a contract to supply 1,300 railcars. One of the railcars will be tested in Hungary, so it will be granted the safety certification by the European Railway Agency. The other will be tested in Egypt. Afterwards, the first batch of railcars in the contract will be delivered in accordance with the timeline set by both parties.

The contract states that 650 railcars will be supplied from Hungary, 500 will be delivered by Russia, and 150 will be manufactured by Egypt under the supervision of Transmashholding. An Egyptian locomotive factory will be established as part of a plan to localize the locomotive industry in Egypt and transfer the know-how to workers, technicians, and engineers in the sector. The factory will produce the 150 railcars and also provide maintenance services.

The representatives of ERA and Transmashholding agreed to hold further visits and meetings to study the possibility of cooperation in rail infrastructure, mobile rail, workshops, new lines, and maintenance of existing railcars.

In the same month, an official source told Egypt Today that ERA needs 12 rail test machines to detect and repair defects in railroads revealing that contracts to purchase eight of those are being finalized.

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ERA will receive four rail test machines worth €8.5 million by the end of 2020 supplied by an Austrian company with which a contract was signed a few months ago. The machines will enable the authority to better diagnose defects in the railroads which would increase the safety, and inhibit derailment accidents.

Egypt Today

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