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Pass-Through Insurance strategy to boost financial inclusion


With well over 36.9 million adults currently been excluded from financial services in Nigeria, feelers from the regulatory authorities have shown that the framework for ‘Pass through Insurance’ scheme when finalized would greatly boost the nation’s financial inclusion strategy.
The Nigeria Deposit Insurance Corporation (NDIC) who confirmed this said that the framework for making the ‘Pass-through insurance’ scheme operational in Nigeria is currently being finalized by the Corporation.
Daily Champion recalled that when in 2010 the Central Bank of Nigeria (CBN) launched the mobile money service; it was widely believed that the channel of payment would record huge success in short period of time following the increasing number in the usage of mobile phones and the rate at which telecommunication operators are penetrating most rural areas in the country.
According to data from the Nigeria Communications Commission (NCC), there are over 120 million active mobile phone subscribers in Nigeria with a population of about 170 million people and 25 million bank accounts.
Industry watcher had maintained that the nation’s financial inclusion strategy would soon witness a boost as there are virtually no locations were mobile phones are not currently used in Nigeria today.
The ‘Pass-through Insurance’ scheme for Mobile Money Operators (MMOs) will encourage the mobile payment system and enhance financial inclusion and further engender public confidence in the financial system thereby promote financial stability.
However, the establishment of ‘Pass-Through Insurance’ for subscribers of MMOs becomes necessary following the cases of bank failures and the need to ensure that confidence is adequately restored in the nation’s financial services sector.
On the contrary, payout burden on the Corporation would be more if the subscribers are individually recognized in the event of bank failure but would be minimized by the concept of aggregation.
With the pass-through insurance, MMO pool account would not just be regarded as single accounts, but benefits of the deposit insurance would be enjoyed by the individual subscribers of the MMO pool account.
The Mobile Money Operation is currently been promoted by the Central Bank of Nigeria (CBN) to enhance the nation’s financial inclusion strategy.
There are four main participants in the Nigeria Mobile Payout scheme, namely the MMOs, Payment Agent, Banks and the subscribers. The MMO is the entrepreneur licensed by the CBN to carry out the business of mobile payments, while the mobile money operators appoint the payment agents who receives money at various locations on its behalf.
With mobile money, customers can convert cash to and from electronic value, e-money, and they can use mobile money to perform transfers or make payments. Traditional “bricks and mortar” banking infrastructure struggles to make the business model work to serve low-income customers, particularly in rural areas.
It would be recalled that the (CBN) issued a regulatory framework for Mobile Money Payment services in 2009 as a measure which would aid in the reduction of number of the unbanked Nigerians. The apex bank also granted licenses to 21 MMOs in Nigeria comprising 15 non operators and six banks bank operator as at January 2013.
Interestingly, among the major discussions at the 2014 NDIC’s three-day workshop for Business Editors and members of the Finance Correspondents Association of Nigeria (FICAN) in Katsina State was the importance of deposit insurance to mobile money subscribers in order to build confidence in the MMO which is believed would effectively boost the financial inclusion strategy in Nigeria.
Managing Director of NDIC, Alhaji Umaru Ibrahim while speaking at the workshop maintained that in order to engender confidence of the public in subscribing the products of mobile money operators, the NDIC has considered as imperative the extension of deposit insurance of the MMOs in the form of Pass-Through Deposit Insurance.
In order to engender confidence of the public in subscribing the products of the MMOs, the NDIC boss said the corporation had considered as imperative the extension of deposit insurance to the individual subscribers of the MMOs in the form of ‘Pass-through deposit Insurance’.
Ibrahim at the event revealed that the framework for making the Pass-Through Insurance scheme operational is currently being finalized by the Corporation.
“NDIC is providing a ‘Pass through Insurance’ because the customers don’t know the agents too well. I can assure you that Mobile Money operation is safe in Nigeria; there is no location that mobile phones are not used. If we allow Telcos to run the mobile banking, some of the banks would be out of business; about 10-15 banks in Nigeria would close shop,” he said.
According to him, the Pass through Insurance scheme would enable Corporation see people who are behind the account and provide insurance for them.
He equally maintained that the concept of agency banking would ensure confidence, adding that agents are key to the successful implementation of mobile banking in Nigeria.
He recalled that the CBN had also granted licenses to 21 MMOs in Nigeria, comprising 15 non-bank operators as at January 2013.
On his own, Deputy Director, Research, Policy and International Relations Department of NDIC, Kingsley Nwaigwe, opined that each customer of the mobile money scheme as a subscriber to the MMO pool account would be covered to the insured maximum amount for deposit money banks.
In his paper titled, “The Role and Challenges of Deposit Insurance in Mobile Payment Environment”, Nwaigwe explained that the adoption of pass-through insurance would enable the Corporation extend deposit insurance coverage to mobile payments subscribers, and would also help to fulfill the NDIC public policy objective of engendering public confidence in the banking system.
According to him, extension of deposit insurance cover to subscribers of mobile money would encourage the use of mobile money platform, thereby contributing to financial inclusion and ensuring financial system stability in Nigeria.
He said, “MMO maintains adequate Fidelity Insurance Cover. Relationship between MMO and Mobile Money Subscribers, MPSs is that of ‘bare trust’. Bare trust are viewed as if each beneficiary holds a separate deposit and is entitled to full protection within the scheme. Other trusts are viewed as if the trustees hold the deposits as a single depositor, distribution between bare trust and other trusts.
However, the CBN in a document posted on its website explained that any institution that wish to be licensed as a super agent should submit an application for approval to the central bank.
A super agent is an agent, under the agent banking system that has been contracted by the principal and thereafter may sub-contract other agents in a network while retaining overall responsibility for the agency relationship.
The apex bank also stated that such an agent among other things, must be a company with an existing business, operational for at least 12 months, must be registered with the Corporate Affairs Commission (CAC), and must have a minimum shareholders’ fund unimpaired by losses of N50m and must have a minimum of 50 agents.
“The super agents’ platform shall be for the management and monitoring of the activities of their agents only and shall not hold electronic money value, whereas, the financial institution, shall provide and operate the mobile money platform and hold electronic money value and the platform shall be enabled to communicate with all its agents and have visibility of their mobile money transactions on the, platform The financial institution shall grant access to the super-agent to enable them have access to real-time information of its agents.
“A super agent’s platform shall integrate with that of the Nigerian Interbank Settlement System, NIBSS. For Over-The-Counter (OTC), transactions, the period for holding funds not withdrawn by a receiving customer shall be 30 days. Thereafter, it shall be reversed to the sender,” the apex bank stated.

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