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It is time to ask the Central Bank to conduct an urgent evaluation of how the financial inclusion policy affects people at the last mile of its execution. This evaluation will in all probability lead to enforcement actions designed to save the poor from the exploitation that the policy is becoming in the hands of POS agents in our villages and inner cities.
Two incidents brought the exploitation home to me. In the first, I engaged on a running battle with my bank over charges that I considered an extortion. Although this was not a financial inclusion issue, it prominentized what was bothering me about the second incident. This second story is an eyewitness account of a transaction at a point of sale terminal on the outskirts of Abuja. A manual worker (you
could tell from his clothes) came to withdraw N500.
“Charge the account or you’re paying cash?” the agent asked.
“How much?” the man asked.
“It’s N100” she replied.
I looked at the man’s face; it showed a mix of anger and disgust. But he needed his N500 money and so asked the operator to charge the commission to his account. She immediately billed him N600. I whipped out my phone to calculate this commission. It was 20 percent! I could not believe it. Days later, was back to the same agent and witnessed more people coming to draw N1,000, N1,500, and N2,000.
The highest I ever saw was N6,000 where the drawer paid N200 as commission. This was when it hit me; we always mess up every good policy at their points of implementation.
Mind you, the middle class and the rich are not immune to the expropriation that happens in Nigeria’s financial transactions. The first time that I borrowed airtime credit of N1,500 from MTN, I got the following message:
“Y’ello! Your account has been credited with NGN 1500.00 MTN XtraTime advance which will be deducted from your next recharge. A service fee NGN 225.00 (includes VAT) has been deducted for this transaction. Thank you!” When I checked my balance, I saw that I was credited N1,275. In other words, the phone company and the government shared 15 percent as charges for the loan. But this was not my worry. It was the first time that I witnessed a facility where charges and tax were deducted from principal loan amount.
When I witnessed what happened to the manual worker, I remembered this airtime loan and wondered which of the two acts of exploitation was more bearable. I will return to this point shortly.
After a few more visits to the same operator, I understood how the last mile operators were undermining the financial inclusion policy. To speak bluntly, the financial inclusion policy leads to further exploitation of the poor among us. I make this judgement not as an economist or accountant, which I am not, but as a consumer who watches people feeling the pinch as they struggle to key into a good policy gone bad.
I understand perfectly that POS operation is only a tiny part of the financial inclusion policy. Overall, the policy seeks to ease transactions and payments for those who live and work far away from their deposit banks. And those with no prior banking relationship. POS agents ideally introduce the unbanked to the cashless society envisaged by the policy. They assist individuals and SME owners to open bank accounts and obtain debit cards. It is therefore a good policy that seeks to create equal access to financial products and services that meet the needs of individuals and small businesses. The products and services on offer include financial transactions, payments, savings, credit, and insurance. However, the policy appears to have lost a critical element that should make it work for the poor. The policy delivers in an expensive and therefore irresponsible and unsustainable way. The culprits are the last mile POS agents who successfully rigged the system to further exploit and impoverish.
How so?
Inclusion policy arrived because majority of citizens live in remote locations and depend mostly on cash transactions. They have no access to insurance or loans to take care of their health or support business growth. It is debatable whether the policy has delivered on insurance and credit for the poor. What it achieved are transactions and payments at the last mile. But at what cost? At various points of sale (POS) terminals, the commission charged per transaction is, in practice, between two and 10 percent for withdrawals and deposits. The sad part is that, in principle, transactions below N5,000 should attract a commission of 50 naira (0.05%). In other words, CBN pegs the commission at between 0.01% and 0.05% for minimum transactions of N5,000 and less.
So, there we have it. If a customer withdraws, say N1,000, they pay N100 commission on the withdrawal. Therefore, the manual worker who withdrew N500 paid a commission of N100.
Transactions between N5,001 and N10,000 attract a charge of 200 naira. What this means is that if anyone of the people withdrawing less than N1,000 make 10 transactions (for N5,000), they will lose N1,000 to the agents. That is a whopping 10 percent commission overall. This payment is different from the service charge that they bank will apply on the transaction.
The policy thrusts the poor in a cycle off exploitation rather than make life easy for them.
This however is not peculiar to the poor. Every service provider looks for ways to ensure that Nigerians do not enjoy the benefits of their services. The case of DST V is a matter that comes up frequently in public discourse. The telecom companies are also in on it. And so are the banks. My experience with the banks is that any time we deposit money in our company account, one of our bankers ensures that the money immediately loses value. This happens because they automatically apply a charge on the deposit.
In addition, this bank was also charging us N12,000+ per month for keeping our funds with them! It took us a while to discover that the bank opened a peculiar checking account that warranted automated monthly withdrawals on the account. We got them to revert to regular checking and the deductions stopped.
What we did with the bank marks the difference between those served at the outskirts of our cities and those like us who do business in city centres. The difference is that those in the cities will contest anything that looks suspicious. Unfortunately, disadvantaged people at the grassroots do not know that they can fight for it. This is what makes them disadvantaged and vulnerable. And they need help with the shylocks milking them dry in the name of POS agentry.
There are two things that the Central Bank could do. It could, as suggested in the beginning, launch an enforcement drive to ensure that the agents halt the exploitation. Or it can educate people to understand what their rights are, including commission thresholds so that everyone can assert their rights when confronted by the unscrupulous roadside agents.
