The Unbanked Four-Fifths: Informality and Barriers to Financial Services in Nigeria
Estimates from the Finscope surveys suggest that in Africa, the proportion of the population without access to formal financial services ranges from 44 percent in South Africa to 92 percent in Mozambique (see Honohan and King 2012). Nigeria, the most populous country in Africa, lies at the higher end of this scale with 79 percent, approximately four-fifths of the adult population, estimated to be ‘unbanked’.
Despite economic theory and an increasing body of empirical research suggesting that access to savings, payment, and credit services facilitates consumption smoothing, helps insure against risk, and allows investment in education and other forms of capital, little is known about the relative importance of different barriers to financial services. Disentangling the roles played by demand constraints, such as income insufficiency, poor education, informality and financial illiteracy, and supply constraints, such as distance and high cost, is a crucial first step for attempts to design effective policies to broaden the reach of formal financial services.