Financial Services Often Overlook Ethnicity

Fintechs rely on scalable growth. Offering products at scale favors dividing markets into broadly addressable cohorts or clusters such as age, smartphone penetration, income, and financial services acumen. What is often overlooked is the role of ethnicity and culture, and this can be a critical mistake. This is perhaps most easily observed in emerging and frontier markets, but also holds true in developed markets as well (LatinX and Black Lives Matter anybody?).
Not accounting for ethnicity and cultural nuances betrays the historical and frequently myopic approach in which (incumbent) banks offered financial services; basically taking products and services designed for affluent countries and societies and pasting them into new markets. It is easy to take a swing at incumbent financial institutions, but many “woke” fintechs could do more to be sincerely and truly aware of the importance of ethnicity in the use and adoption of financial services.
For many fintechs, ethnic and cultural awareness rarely goes beyond good marketing. We think there is room to understand how religion, culture, and ethnicity affect the use of financial products. To this end, we want to share some insights about Nigeria, and more specifically Lagos. And even more specifically showcase the use of financial products in Alaba, one of Lagos’ largest open markets.

Nigeria, a Basket of Diversity

First, a little socio-demographic background about Nigeria (no one is expected to know all of this, and this is precisely the point: knowing this could improve efficacy of growth and investment in Nigerian fintechs and financial products). Nigeria has three major ethnic groups: the Hausa/Fulani in the North, the Yoruba in Southwest, and the Igbo in the Southeast. There are also many other smaller tribes dotted around the country. Lagos state harbors the city of Lagos, the commercial capital of Nigeria and home to over 15 million people. It is home to every ethnic group in the country and a reflection of the diversity found in Nigeria.

Lagos is a great way to illustrate the dangers of treating a city as a homogeneous reflection of Nigeria. It is obviously the economic hub of the country and a bustling opportunity for business of all types. Its rich landscape of small businesses, high mobile penetration, and comparative consumer affluence is offset by a low financial service penetration rate of 41%1. Great opportunity for fintech disruptors who see the world as a cup that is half (59%) full. But by being an amalgam of Nigeria’s different regions, this also means that marketing, uptake, use, and customer expectations vary widely across ethnic groups. And this is where the fun starts.

Image 1. Financial exclusion map of Nigeria2 and Estimated 2020 regional population of Nigeria

Open Markets, an Integral Part of Nigeria’s Local Economy

For the uninitiated, “open markets” are large street markets consisting of hundreds or thousands of merchants selling their goods in small to medium-sized shops or in an open field. These open markets represent an integral part of the local economy and frequently reflect the particular ethnicity of the shop owners and customers who have migrated to Lagos from other regions of Nigeria.
The lifeline of these markets are the Traders — also known as micropreneurs, hustlers, moms and pops, or simply SMEs. In Nigeria, SMEs account for 96%3 of businesses, 80% of employment, and contribute nearly 50% to the GDP.

Interesting Statistics Percentage
MSME contribution to business in Nigeria 96%
MSME contribution to Nigeria’s GDP 50%
MSME contribution to employment in Nigeria 80%

Weight of MSMEs in Nigeria
Alaba International Market is one of the largest open markets in Lagos. It is estimated to harbor transactions between 550,000 persons every day. Alaba is a great showcase illustrating the role of ethnicity in the adoption and use of financial products.

Alaba International Market, Lagos: A Challenge for Financial Services

Alaba International Market, Lagos (AIML) is a popular hub for new and used electronics and electrical products. Most new electronic products are imported from China and used products are imported from US and Europe. Merchants either import directly from these geographies or buy locally from importers and resell to end users. Most businesses in AIML are structured as sole proprietorships whose barrier to entry is high because merchants require substantial capital to stock products. With the need for working capital coupled with an addressable market size of 550,000 persons, it is easy to assume that this is a good spot to sell a savings, credit, and payments product — but looks are deceptive.

Interesting Statistics Alaba International Market, Lagos (AIML)
Addressable markets 550,000
Merchants 150,000
Apprentices, salesgirls and assistants 150,000
Buyers / daily footfall 250,000
Estimated annual trade volume in Alaba International Market, Lagos US$ 500M

Weight of opportunity in AIML

Low Uptake of Financial Services in AIML is Steeped in Ethnic Habits

AIML is a male-dominant market predominantly controlled by the Igbo ethnic group. When recruiting male workers, most Igbo merchants in AIML adopt the apprenticeship system5. In this scenario, a merchant known as the Oga6 takes on an apprentice, a young male, to assist him in trade by learning from him. This is called Imu-Ahia7 and entails working for the Oga for no financial reward until the end of the agreed period (mostly between 5 to 7 years). In most cases, the apprentice resides with the Oga in his home and doubles as domestic staff. The Oga can have as many apprentices as he sees fit, and in turn is responsible for the apprentice’s general welfare, feeding, medical expenses, and general financial needs. At the end of the apprenticeship period, the Oga “settles”8 the apprentice by setting him up with a business through cash infusion (usually within the range of US$ 2,000 to US$ 5,000). The Oga can also opt to pay rent for the apprentice’s shop during the first year and/or provide him with goods on credit for him to sell and split the profit. So, what does this mean for the sales of bank products?

The implication is that most male apprentices in AIML are not allowed to acquire savings products or bank accounts. They are not expected to have any money of their own until their settlement.

Once they start off on their own and stabilize, they repeat the cycle by getting apprentices to assist them while they become an Oga. An apprentice who opens a bank account without the consent of the Oga presupposes that he has money. Since his only employment is with his Oga who does not pay him, having a bank account may be interpreted as stealing from the Oga. Suspicion of theft would likely result in the apprentice being discharged. Not only is this deep loss of face, it also means that there will be no severance compensation,  irrespective of how long he has assisted the Oga. As a result, these male apprentices are unlikely to buy any savings products.
On the other hand, female workers in the Igbo culture ­— commonly called salesgirls9 — are contracted formally as employees and are paid a monthly salary. But their salaries are paid mostly in cash and use of bank accounts is low.
The particularities of these gender-derived practices have meant that the efforts of banks and fintechs to sign-up people for savings accounts has had little to no success. The banks must figure out a way to allay the fears of the Oga while securing the future cash flow of the apprentice-upon his settlement. So what to do?

Thoughts on How to Design Ethnically Considerate Financial Products in AIML

A potential way to look at the problem is to target the Oga instead of the apprentice and thereby amplify the prestigious role the Oga plays as a guardian to his apprentice and the weight this carries in his community. Savings accounts for the apprentice should be positioned on the Oga as a tool of transparency, empowerment, convenience, and reward.

Transparency: Leaning on the Isusu Tradition to Create Trust in Financial Products

The contract between the Oga and the apprentice has an implicitly deep level of trust attached. If positioned as a tool that keeps the apprentice honest and also protects the Oga against slander, a savings account has much to offer. Contribution to informal savings and credit associations for mutual benefit is already a common form of cooperation in Nigeria, known as Isusu10 by the Igbo. Although this form of financial collaboration is mostly seen in cooperatives, aspects of it can be adapted to the Imu-Ahia tradition in AIML.
Foremost is the ability to have a public ledger of records that is open for review. Having a product that is open to both parties favors honesty by both sides. In the case of the Imu-Ahia practice, it protects the apprentice from undue exploitation and the Oga from slander. If positioned correctly, no Oga should refuse because it would imply that he has something to hide. The crux of the matter is to allow the Oga to supervise the apprentice’s account and be a co-signer until the apprentice’s settlement.  Inversely, the apprentice can call upon a third party — let’s assume the bank or fintech or other Ogas — to arbitrate in case of disputes.
This type of product might seem unorthodox in many Western countries. Consider that this type of practice is common in traditional financial relationships in Nigeria. This should be enough justification by itself while considering importing characteristics from traditional11 forms of financial cooperation as complements to modern products. If it still seems odd to the Western eye, consider changing the nomenclature and shifting the optics ever so slightly. In doing so you might find yourself in the familiar territory of an adult guardian on a child’s saving’s account, the role of a trust-fund lawyer, or executor of a will.

Empowerment: Leveraging Patriarchal Paternalism as a Door into Financial Literacy

Much like weekly allowances are meant to teach children how to handle money responsibly and independently, a co-signatory account over which the Oga can approve withdrawals and pre-set limits can be similarly positioned to teaching financial literacy and ensuring responsible use of the settlement grant at the end of the apprenticeship. This not only speaks to the role of the Oga as a patriarch and principal provider, but it also addresses the matter of gradually empowering the apprentice while also providing them with a financial history.

Much like the savings accounts or subordinate debit cards of a minor offered by Western banks, an Oga-supervised co-signed account can be used to teach the apprentice to control spendings along the way.  Having a financial product that caters to this dynamic is simply a de-facto admission of reality. In an account-less Imu-Ahia dynamic, the Oga is already controlling how much cash to give his apprentice for matters such as food, transportation, and medical expenses.

A co-signatory-based product would not seek to replace the Imu-Ahia practice, but instead focus on migrating the cash component (more on this in a moment). Each deposit made by the Oga can be used to create a record of income for future financial references. And the end of the apprentice’s service, the monetary reward given as settlement can be paid into the account. Until that moment, and to nurture peace of mind and cater to the Oga’s desire for supervision — transaction controls — already common characteristics of SME credit cards in the West — can help address practical issues such as fear of misspending and theft.

Convenience: Addressing Cash Via NIBBS RTP

We said we would address the matter of cash. Indeed, cash is the predominant method of payment between shop owners and buyers in AIML, and it is how Ogas pay settlement to apprentices and provide them pocket money. Until recently, displacing cash would be considered impossible. But cash is loosening its grip in AIML and conceding ground to an increasingly popular mode of payment: electronic transfers built on NIBBS real-time payment rails.

Interestingly, lack of trust drives the use of real-time payments and counterintuitively, it is sprouting between Ogas and apprentices. Trust is at the heart of the matter. In situations where the Oga is absent and the apprentice is increasingly asked to have the customer send money to the Oga, and merchandise is released upon confirmation by the Oga. The practice is quick and reduces the possibility of theft, loss, and graft. The apprentice is pleased because it keeps him away from suspicion and offloads the responsibility of keeping the cash safe until the Oga’s return. The Oga is happy to be able to have more control and make better use of his time while the customer gains an added proof of payment in case there is an issue with the merchandise. Since everything happens in a matter of minutes, the need for cash is reduced.

Items- Nigeria Percentage Breakdown of Electronic payment- 202012 Percentage
Bank Penetration 40% Payment by electronic transfer13 80%
POS device Penetration –(475,494)* 14 5% Payment by POS device 9%
QR Code Penetration in Nigeria 0.5% Mobile Payment via USSD transfer 15 7%
Card penetration rate in Nigeria 23%    
NIBBS Instant Payment value in 2021 $637
million (Value)

Weight of electronic payment in Nigeria

Reward: Practical Benefits for All

It will be important to motivate modifications in behavior, and again the role of the Oga is paramount.  Rewards need to work on two levels: Immediate tangible benefits and rewards that recompense long term behaviors and loyalty.

In the immediate term, potential rewards include providing the Oga referral fees paid into a bank account for every apprentice account he opens. Similar commissions or discounts could be considered for cross-sell of services such as medical care (via Healthcare Management Organizations), utilities or online purchases. Access to financing for smart phones is another benefit that has generated wide interest in Nigeria. The number of examples to pull from are vast and bound by the level of creativeness of participants.  In some countries, for example, we have seen lottery tickets being bought on behalf of account holders for every activity the issuer wants to reward.

There is also room to develop longer-term rewards that encourage loyalty, and the most likely pain point to address is the lack of access to formal credit sources. The unstructured nature of most businesses in AIML makes assessing bank or digital lending products difficult. Their lack of financial inclusion keeps most Ogas and apprentices on the fringes of formal credit.  Nonetheless, their financial acumen, although not formal, is quite high. The Oga must juggle volatile sales cycles, often procures from abroad and makes cross-border payments, manages currency devaluations, and administers high amounts of working capital being locked into valuable inventory.

The payment transactions attached to buying and selling inventory can be complimented with the data derived from payments to apprentices and salesgirls. Leveraging alternative credit scoring models and these data flows can provide Ogas with a means of accessing non-collateralized credit.
Financial Inclusion in Nigeria

Items Percentage of population
Borrowers who borrowed from formal financial institution or a mobile money account 7.04%
Individuals who have an account product 45.32%
Individuals who saved at Financial Institution 17.92%

Source: Global Findex Data 2021

A container truck offloading used electronics section in Alaba International Market, Lagos

Closing Thoughts Regarding the Role of Ethnicity and Financial Services

At KoreFusion, we’ve observed that the number of foreign fintechs entering a developing market account for a whooping 25% to 55% of all players in the ecosystem. If measured in terms of origin of capital, it is an astounding 80% to 90%. These statistics, coupled with fintechs’ ravenous appetite to scale often means the nuances of ethnicity are overlooked or deliberately set aside.

Our point is not how we think financial services should be developed and marketed in AIML in particular.  What we do want to emphasize is that to have a higher chance of success, new players must understand and respect cultural and ethnic nuances, and this means going beyond convenient cohort groupings for marketing purposes. It means wanting to understand and cater to the ethnic and cultural habits that drive or influence local buying behavior and use of financial products.

# A Quick Checklist to Ethnicity and Financial Services
1 Understand the reason behind financial exclusion rate and what motivates the financially included to maintain their account.
2 Understand the influence of the traditional rulership, religion, and power for partnership purposes.  Use these insights to develop value propositions that speak to key traditional stakeholders.
3 Leverage traditional forms of financial services and incorporate them into the mainstream by digitally enabling them.
4 Understand the regulator influence and capitalize on it, particularly in matters related to substitution of cash.
5 Understand that the majority of citizens have low consumption power and rewards should be tangible and provide both short- and long-term value.


Our team at KoreFusion is ethnically diverse and has a rich background working and developing financial product strategy in 75 countries. We enjoy understanding how people use financial services and pay for things, be it in the open markets of Lagos, the farmers’ markets of Cambodia, or the shopping malls of Singapore.

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Ifunanya is a Senior Consultant at KoreFusion. Based in Hong Kong, Ifunanya built her career working in Nigeria across retail, commercial, and corporate banking. More recently her experience includes being a pioneer employee for Nigeria’s fintech sector and working in Hong Kong’s fintech scene.