Socio-economy & New Tech

    Financial & Social Inclusion

    Modeling & Pricing

Post-Doctoral Fellowships


Encouraging financial inclusion in Nigeria

In Sub-Saharan Africa, a large portion of the population operates in the cash-only informal economy. In Nigeria, approximately 84% of women and 74% of men have no bank accounts. Financial exclusion – a term used to describe lack of access to financial services –, significantly increases the risk of social exclusion and poverty. These marginalized segments of society – mostly comprised of lower income strata, rural producers, workers in the informal sector, and women –, are also more vulnerable to the looming impacts of Climate change in Africa, as they are not covered by long- or short-term insurance products. Aware specifically of the precarious situation in which many Nigerian smallholder farmers find themselves, Dr. Muhammad Bello, a post-doctoral researcher in Economics at the International Institute of Tropical Agriculture, in Ibadan, aims to inform efforts directed at designing suitable financial products tailored to the needs and demands of this segment of the population.
«Nigeria has had significant problems with flooding in the past few years, particularly in the Northern part of the country, Dr. Muhammad Bello reports. Because of political problems, government help is insufficient. In such a context, it is paramount for farmers to have an alternative kind of support, like group insurance for instance or individual insurance». The issue here is therefore to try and encourage uptake. One major hindrance to financial inclusion, the researcher reports, is «the paucity of suitable financial products that are tailored to the demands of the targeted population.» The rationale of the project is that by identifying individual’s preferred combinations of the different attributes of financial services offered, uptake will be facilitated. Basically, what I’m trying to do in this project is determine what is putting rural farmers off from getting insurance. What is it that has excluded these vulnerable segments of the population? What is it that insurance contracts should include in order for them to be more attractive and more efficient? ». In his analysis, Dr. Bello will not only be looking at characteristic features of insurance policies, like price or duration, but also at other more impalpable issues, namely risk perceptions and subjective beliefs. For instance, his experience has shown him that, «most Nigerian farmers believe that even if they pay for the insurance, they won’t receive help if they experience a shock.» «Better understanding of how individuals perceive risks and behave in settings of uncertainty is critical for designing insurance policies and outreach programs,» he insists.

Predicting consumer’s choice behaviour

More specifically, his scientific objective is to develop models that can describe, and consistently examine and predict consumer’s choice behaviour when faced with different financial products or policies. To develop these models, a series of experiments will be conducted on a sample of farm households in all four agro-ecological zones of northern Nigeria (Sahel, Sudan, Northern and Southern guinea savanna regions). The data collected will help evaluate individual decision maker’s preference structures, as well as risk perceptions, risk aversions and subjective beliefs. It is also worth noting that the experiments will be designed to acknowledge gender-based differences: «studies have observed gender differences in a number of different domains, including investment. Thus, I intend to contribute to literature on gender differences in economic experiments by controlling for preference differences between men and women.»

By taking into account risk aversion and subjective beliefs and assessing their effects on insurance purchase decisions, the approach of Dr. Bello’s project is right on target to provide timely answers to one of today’s biggest issue in Nigeria: financial exclusion. Indeed, a customer-oriented approach to understanding financial inclusion in Nigeria is important not only in its own right, « but also in terms of response to the increasing significance of financial services in the agricultural sector and the anticipated growth in the future market for such services », as the researcher puts it himself.



International Institute of Tropical Agriculture