Why Nigeria must focus on big data as a gateway to financial inclusion

By Williams Ugbomeh

Nigeria stands at a crossroads. Despite numerous efforts aimed at enhancing financial inclusion, the country is still home to 38 million financially excluded adults, a significant portion of the population. With over 100 million mobile phone users, an ever-expanding internet user base, and an increasingly digital economy, the potential to address this gap is immense.

Big data, the vast amounts of information generated daily through mobile transactions, social media, and digital footprints, offers Nigeria a unique opportunity to revolutionize its financial system and drive greater inclusion. However, for this opportunity to be realized, Nigeria must embrace a data-driven approach to financial inclusion, overcoming the regulatory, infrastructural, and ethical challenges that lie ahead.

Nigeria’s financial inclusion efforts have made strides in recent years, but significant barriers remain. Despite improvements, 36% of Nigerian adults remain completely financially excluded. This exclusion is not limited to access to basic banking services but extends to the lack of access to affordable credit, insurance, and financial security. In 2020, only 2% of Nigerians accessed formal loans, with the rest relying on informal lending sources or completely staying outside the financial system.

The unbanked are largely women, rural dwellers, and residents of the northern part of the country, who are the most vulnerable in terms of access to capital and financial security. Nigeria’s financial institutions remain out of reach for many, as the traditional banking model still demands rigid requirements like collateral and formal credit histories that many do not have. Given these barriers, the need for an innovative solution is urgent.

Big data can be the gateway to financial inclusion by enabling institutions to assess individuals’ creditworthiness through alternative sources of data, such as mobile phone usage, utility payments, and even social media activity. This shift can create a new, inclusive financial landscape in which Nigerians can engage with the financial system without the constraints of traditional banking processes.

At its core, big data is about understanding and leveraging vast amounts of digital information to make informed decisions. This concept is already transforming industries globally, and financial services are no exception. By using data from mobile transactions, call records, utility bills, and even geospatial data, financial institutions can assess a person’s financial behaviour and offer services tailored to their actual needs.

In Nigeria, mobile money services like Paga and OPay are already capturing this data, which is then used to assess the eligibility of users for loans and other financial products. By analysing users’ digital footprints, these platforms can offer credit to individuals without the need for a traditional credit history. One of the most prominent examples of big data’s potential in the financial sector comes from Kenya’s M-Pesa and its subsequent innovations, like M-Shwari. Through M-Pesa, millions of Kenyans gained access to mobile money services, and M-Shwari, a mobile savings and loan platform, uses mobile data to assess the creditworthiness of individuals with no formal credit history. By applying a similar model, Nigeria can overcome the limitations of traditional banking and extend financial services to millions of underserved Nigerians.

Digital lenders like FairMoney and Carbon have demonstrated the transformative power of big data in Nigeria. These companies are using data such as mobile phone usage, transaction history, and even social media behaviour to assess credit risk and offer loans to individuals who would otherwise be excluded from formal credit markets. FairMoney, for example, disbursed over ₦70 billion in loans in 2020, serving over 1.3 million Nigerians. Such innovations show that data-driven financial services are not just a possibility, but a reality for Nigerians.

However, big data does not just provide loans. It creates a full spectrum of financial services that could be designed for different customer needs. Imagine a smallholder farmer in Kaduna being able to access weather insurance or credit to purchase better farming tools simply based on their digital transaction history, without the need for traditional collateral. This type of financial inclusion can extend far beyond banking, offering solutions for insurance, savings, investment, and even pensions for those outside the formal financial system.

While big data offers immense promise, it is not without its challenges. One of the primary concerns is the potential for data bias. The data that is available often comes from mobile phones, internet use, and transaction history, which may not accurately reflect the realities of the rural poor, especially those without access to smartphones or reliable internet. This can create a bias in credit scoring models, where urban users with more digital engagement are favoured over rural, less digitally active individuals. This issue can further marginalize those already excluded from financial services.

To mitigate these risks, it is crucial that data models are designed to be inclusive, ensuring that they account for a broader range of financial behaviours. For example, rural individuals who may not have regular access to mobile banking could still demonstrate creditworthiness through payment histories or regular remittance receipts. Similarly, algorithms must be transparent to ensure that all Nigerians, regardless of their background or location, are given equal opportunities to access financial services.

Infrastructure remains another significant barrier to the widespread use of big data in Nigeria’s financial system. While Nigeria has made strides in expanding mobile phone usage, internet penetration, and digital payment systems, access is still limited in many parts of the country. Poor mobile connectivity in rural areas and high data costs prevent many Nigerians from fully engaging with digital financial services. The National Broadband Plan (2020-2025) aims to expand internet access and reduce costs, but these efforts must be scaled up if data-driven financial inclusion is to reach every corner of Nigeria.
Moreover, digital identity systems are vital for unlocking the full potential of big data in the financial sector. Nigeria’s National Identity Number (NIN) system, which aims to provide a unique ID for all citizens, is a crucial step forward. However, as of 2021, only 70 million Nigerians have registered for the NIN. A universal digital ID system will help financial institutions verify identities and reduce fraud, making it easier to extend credit and other services to previously excluded individuals.

The government must focus on scaling up the NIN registration process and ensuring that it is integrated into the broader financial system. The trust deficit is another challenge. Many Nigerians remain wary of sharing their data with financial institutions, fearing it could be misused or sold to third parties. This trust issue has been compounded by the unethical practices of some predatory lending apps, which have been accused of exploiting borrowers’ data. If Nigeria is to fully embrace big data for financial inclusion, consumer protection laws must be strengthened, and financial literacy campaigns should educate Nigerians on how their data is being used and what their rights are.

For Nigeria to successfully integrate big data into its financial inclusion strategy, it must address several key policy and regulatory challenges. The Central Bank of Nigeria (CBN) and other regulatory bodies need to create clear frameworks for the use of big data in financial services, ensuring that data privacy, fairness, and transparency are prioritized. Policies should be designed to encourage data sharing across sectors (telecommunications, banking, fintech, utilities), so that a more comprehensive view of an individual’s financial activity can be assessed.

Open banking initiatives, which allow data from various financial service providers to be shared securely, should be expanded to include fintechs and telecom companies, which are already collecting vast amounts of data. The Nigeria Data Protection Regulation (NDPR), introduced in 2019, provides a framework for data privacy, but it requires stronger enforcement and broader coverage across sectors. It is essential that Nigerian regulators implement stronger data protection laws, ensuring that customers’ personal data is secure and used responsibly. At the same time, financial institutions must adhere to ethical lending practices by using data to extend credit in ways that do not exploit vulnerable populations.

Government support for data-driven financial inclusion must be part of a broader strategy for digital transformation in Nigeria. This includes improving digital literacy, expanding mobile infrastructure, and incentivizing private-sector innovation. Initiatives like financial literacy programs for rural and low-income populations should be prioritized, helping citizens understand how digital financial services work and how to safely engage with them. The time has come for Nigeria to recognize big data as a gateway to financial inclusion.

By harnessing the vast data generated by mobile phones, digital transactions, and social media, Nigeria can extend financial services to the millions who are currently excluded from the formal system. This is not a mere opportunity; it is a necessity for the country’s future. Big data can unlock new avenues for credit, savings, insurance, and investment, empowering millions of Nigerians to improve their financial security and contribute to the country’s economic growth.