The Implication Of Covid-19 On Financial Inclusion And Financial Literacy

The COVID-19 pandemic is generating an unprecedented global health crisis, which has critical implications on the financial system both in content and context. The global population that has become vulnerable due to the health crisis would also be mostly affected by the brewing financial crisis if not properly managed and protected through deliberate and conscientious financial education and enlightenment. As some parts of the world celebrate world financial literacy month, Consumer Awareness and Financial Enlightenment Initiative (CAFEi) uses this opportunity to assess the implication of the COVID-19 pandemic on Financial Inclusion and Financial Literacy.

Financial Inclusion is undoubtedly an integral component of the Sustainable Development Goals which is a cliché to enhance the growth standards of the developing world. However, the breakout of the COVID-19 pandemic has shown the importance and necessity of Financial Inclusion in today’s world of governance and business of financial services.

At the beginning of the COVID-19 pandemic, the Nigerian government experienced difficulties planning and segmenting its citizenry qualified to benefit from its social support programs. This challenge was majorly as a result of an absence of financial data on the entire population, which greatly affected the impact of various government intervention schemes at both the State and Federal Levels. The Federal government activated the conditional Cash Transfer Scheme and the Food Distribution scheme as measures to cushion the effect of the lockdown on the population. In the case of the Conditional Cash Transfer scheme, the lack of comprehensive financial data created a problem in identifying the poorest of the poor, while in the case of food supply, it was difficult to plan for those in actual need of these palliatives. Nigeria has an ambitious financial inclusion strategy to include 70% of the population in the formal financial system by 2020 (Central Bank of Nigeria, 2012, and Box 1, and Table 1). However, the country is yet to meet this target. Therefore, Financial Inclusion needs to be taken more seriously by the government during and in the post COVID-19 Era to guarantee sustainable growth and development

It was also obvious that Financial Literacy was paid less attention to than Financial Inclusion in the Pre-COVID-19 Era. However, the COVID-19 pandemic has brought key financial literacy issues such as savings, taxation, access to credit and use of digital platforms back as topical and germane for debates and implementation. The Pandemic has exposed government resources as dwindling and unlikely to support in any future crisis. This is because the government is faced with an increasing debt profile and excessive expenditure. CAFEi, before the advent of the COVID-19 pandemic attempted to bring to the fore the importance of Saving by publishing articles on the subject matter and celebrating World Savings day with the international community. We often highlighted the importance of savings before spending rather than spending before saving. Somehow during the current pandemic majority of households that were unable to save were lucky and able to rely on food banks and generous donors of palliatives to survive. The next emergency may be worse, and so there is a need for proper re-orientation and education on the importance of savings. The COVID-19 experience has taught us that we must now prioritize our spending and save more for an uncertain future.

Furthermore, the effect of the COVID-19 pandemic has put a strain on government sources of revenue as evident in the decline in crude oil prices. Therefore, the government is likely to take issues such as taxation more seriously as it seeks to diversify its revenue base from crude oil. Taxation as a financial literacy issue needs to be given a refocus in the post COVID-19 era. People need to understand their obligations as individuals and their expectations from the government.

In addition to the points earlier raised, another key area in financial literacy that needs to be looked into is access to credit. Small businesses are the engine room of the economy, but majority of them are struggling. The directive given by the CBN to increase loan to deposit ratio of Banks to 65% has increased the opportunity to lend to SMEs and save the economy. Therefore, small businesses need to understand the terms and conditions of credit contracts and also when to and when not to borrow. In addition, there needs to be more awareness for SMEs on their obligations, expectations and avenues for dispute resolution in loan agreements.

Lastly, another key aspect of Financial Literacy that needs more consciousness is the importance of familiarizing with alternative means of banking. The closure of banks during the pandemic and the hesitation to use cash because of its capacity to serve as a form of virus transmission brought to the fore the importance of using alternative modes of banking like online banking and mobile banking. Nigeria’s premier bank, FirstBank, recorded a record 38.5 million transactions from alternative modes of banking in the first week of the lockdown.This is an indication that the future lies in alternative modes of banking. There is no doubt that the perception of Financial Literacy and Financial Inclusion after the COVID-19 pandemic will no longer be the same. Governments in the Post COVID-19 Era need to treat targets for financial inclusion more seriously and also campaign aggressively for financial literacy.