16 Nov Financial Inclusion in Nigeria – Central Bank of Nigeria (CBN) Guidelines for Licensing & Regulation of Payment Service Banks (PSB) in Nigeria

In its 2012 National Financial Inclusion Strategy (NFIS), the CBN defined financial inclusion as “…when adult Nigerians have easy access to a broad range of formal financial services that meet their needs at an affordable cost.” These services may include payments, savings, loans, insurance, and pension products.

There is global consensus that financial sector development makes two mutually reinforcing contributions to poverty alleviation through its impact on economic growth (finance for growth) and direct benefits to the poor using financial services.

For Nigeria specifically, past research shows the potential economic benefits of digital financial services (DFS). These benefits include: greater financial inclusion, GDP boost, new deposits, new credit, new jobs and reduction in government leakage annually. As such, financial inclusion is critical to the economic recovery and growth of Nigeria.

In July, 2018, the CBN released a refreshed National Financial Inclusion Strategy. The updated strategy recognised the value of innovation and the need to create an environment in which innovation that advances financial inclusion can exist and thrive, whilst being managed appropriately.

In a letter addressed to all banks, telecommunication companies, mobile money operators, banking agents and the Nigerian Communications Commission, the CBN introduced the draft of guidelines that will regulate and facilitate license issuance of Payment Services Banks.

The Payment Service Bank (PSB) licensing is part of CBN’s efforts at promoting financial inclusion and enhancing access to financial services for low income earners and unbanked segments of the society. PSBs are expected to leverage on mobile and digital services to enhance financial inclusion and stimulate economic activities at grassroot level through the provision of financial services.

The PSBs are to operate mostly in the rural areas and unbanked locations, targeting financially excluded persons, with not less than 50% physical access points in such rural areas as defined by the CBN from time to time.

The core vison of the PSB is to facilitate high-volume low-value transactions in remittance services, micro-savings and withdrawal services in a secured technology-driven environment to further deepen financial inclusion. This is aimed at attaining the policy objective of 80% inclusion rate by 2020

The Financial System Strategy (FSS2020) identified six stakeholders within the financial sector. These were the providers of financial services, which are regarded as the suppliers in the value-chain of financial inclusion. The group included the banking institutions, non-bank financial institutions, insurance companies, capital market players, pension institutions, and technology providers together with their regulatory bodies, all important to the process of financial inclusion.

The PSB Guideline is issued pursuant to powers conferred on the CBN Governor by the CBN Act 2007 and Banks and Other Financial Institutions Act (BOFIA) 1991 (as amended). It covers the definition; objectives; eligible promoters; licensing requirements; corporate governance; business conduct; and permissible activities. The requirements for prudential regulation; supervision; Know Your Customer (KYC), consumer, Risk Management of the proposed PSB and Revocation of license are also covered.

Highlighted below are some of the salient provisions in the Guideline.

1. Requirement for application

• Applications for selection as PSB operators shall be accompanied with a non-refundable application fee of N500,000 in bank draft to the CBN;
• Evidence of minimum capital deposit of N5,000,000,000 (Five Billion),
• Capital contribution by each shareholder,
• Name reservation with the Corporate Affairs Commission (CAC)
• A detailed business plan or feasibility report.
• To secure a final license, the guidelines stipulate not later than six months after obtaining the approval-in-principle, PSB promoters must submit application to the CBN, with a non-refundable licensing fee of N2 million in bank draft.
• The application would be accompanied with the Certified True Copy (CTC) of Certificate of Incorporation of the bank.

2. The Permissible Activities of the PSB’s include:

• Maintaining savings accounts and accepting deposits from individuals and small businesses. Such deposits must be covered by the deposit insurance scheme;
• Carrying out payments and remittance (including inbound cross-border personal remittances) services through various channels within Nigeria;
• Issue of debit and pre-paid cards;
• Operation of the electronic purse; render financial advisory services;
• Investment in Federal Government of Nigeria and CBN securities;
• Deployment of automated teller machines (ATMs) and point of sale (POS) devices in rural areas;
• They would also be free to operate through banking agents and roll out agent networks with the prior approval of the CBN, while other channels, including electronic platforms, would be used to reach-out to customers; and
• Carry out such other activities as may be prescribed by the CBN from time to time.

3. The Non-Permissible Activities of PSB’s are:

• PSB operators are barred from granting any form of loans, advances and guarantees (directly or indirectly);
• Trading in the foreign exchange market;
• Undertaking Insurance underwriting;
• Undertaking any other transaction which is not prescribed by the PSB guidelines;
• Issuance of credit cards;
• Establish any subsidiary except as prescribed in the CBN Regulation on the Scope of Banking and Ancillary Matters, No 3, 2010.
• The PSBs’ are restricted to the use of “Payment Service Bank” in their name to differentiate it from other banks.

4. The Eligible Promoters of PSBs’ are:

• Banking Agents;
• Telecommunications Companies (Telcos)through subsidiaries;
• Retail chains (Supermarkets); and
• Mobile Money Operators who desire to convert to Payment Service Banks subject to compliance with the requirement of the Guideline.

Following from the above, below are some of the envisaged impacts and probable challenges of PSB licensing:

• It is envisaged that there will be a lower cost of operations as PSBs’ are expected to rely on technology to provide financial services to the rural and unbanked customers.
• There will be deposit safety as all PSB deposits will be insured by the Nigerian Deposit Insurance Corporation (NDIC).
• Limitation of risks given the restriction of PSBs from issuing loans and granting credit facilities.
• Promotion of the CBN Cashless policy.
• It is also assumed that the PSBs’ will enhance the reach of Social Investment Programmes in the rural areas.
• The inability of PSBs’ to lend/give credit may limit their earning potential.
• The limited infrastructure in the country (i.e. power, technology, telecoms and other requisite infrastructure may increase the cost of PSBs which may adversely reduce the intended reach to the unbanked.

• Please note that the guideline is an exposure draft and CBN is currently awaiting comments & observation of stakeholders on same.
• The CBN published an exposure draft of the NFIS Refresh on 6^th July, 2018. Definition of financial inclusion remains unchanged in 2018 NFIS Refresh
• CBN may vary the PSB licensing requirements from time to time.