In January 2012, the Central Bank of Nigeria (CBN) introduced a policy on cash-based transactions in Lagos (Cash-less Lagos) which levies ‘cash handling charge’ on daily cash withdrawals or cash deposits that exceed N0.5m for Individuals and N3m for Corporate bodies. Banks can no longer offer cash-in-transit lodgement and cash evacuation services to customers or merchants.
Third party cheques above N150K shall no longer be eligible for encashment over the counter. Such cheques shall only be received through lodgements into customer’s account. The charges kicked in on 30 March 2012 after a 3 month cooling off period. The policy was extended to Abuja, the Federal capital and five other states, namely Abia, Anambra, Kano, Ogun and Rivers on 1st July 2013 after the CBN declared the pilot in Lagos State a success.
Nigeria is primarily a cash economy. This article evaluates CBN’s cash-less policy, its implementation, relevance and effectiveness in the context of Nigerian society and psyche and the potential benefits and challenges of the cash-less policy on the cash-poor or largely ‘cashless’ Nigerians.
The Cash-less Policy
The policy on withdrawals & deposits in banks is aimed at reducing the amount of physical cash and encouraging more electronic-based transactions in payments for goods, services and funds transfers.
According to the CBN, the policy was introduced for a number of key reasons:
1. Development and modernise Nigeria payment system in line with the goal of being amongst the top 20 (world) economies by the year 2020. This it says would enable economic growth.
2. To reduce the cost of banking services (including cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach.
3. To improve the effectiveness of monetary policy in managing inflation and driving economic growth.
4. Curb some of the negative consequences associated with the high usage of physical cash in the economy, including volume cash handling, encouragement of robberies and financial loss in the case of fire and flooding incidents. Also reduces cash usage of money outside the formal economy which the CBN says limits the effectiveness of monetary policy in managing inflation and encouraging economic growth. Furthermore, that high cash usage aids corruption, leakages and money laundering.
Expected Benefits Of The New Cash Policy
In the eyes of the CBN, beneficiaries of e-payment can be grouped into 3 categories called stakeholders:
1. Consumers – Increased convenience, more service options, reduced risk of cash-related crimes, cheaper access to (out-of-branch) banking services and access to credit.
2. Corporations – faster access to capital, reduced revenue leakage, and reduced cash handling costs.
3. Government – Increased tax collections, greater financial inclusion and increased economic development.
The CBN believes the policy was a success in Lagos and so decided to extend the policy to few other parts of the Country. CBN said the volume of raw cash in circulation dropped by 10.7 per cent in January 2013 to N1.457 trillion, in contrast to an increase of 4.2 per cent at the end of December 2012. The development, according to the January Economic Report of the CBN, reflected the 11.2 per cent decline in amount of currency outside banks.
The extension to other parts of the country has generated mixed feelings. In Ogun state, the closest state to Lagos where the pilot scheme took off, while some residents of the state laud the policy of the Central Bank, others maintained that the state lacks the infrastructure and enlightenment it takes to implement such a policy.
A Cashless society is that in which purchases of goods or services are made by debit or credit card or electronic funds transfer rather than with cash or cheques. A cashless economy is one that allows for little or very low cash flow in a given society, thus every other purchases and transactions will be made by electronic channels, examples of which are direct debit, electronic funds transfer, mobile payments, multi-functional Automated Teller Machines, internet banking and a significant increase in point of sale (POS) penetration and usage.
According to Global Researchiv, it was announced at the World Economic Forum in Cape Town, South Africa that MasterCard and the Nigerian National Identity Management Commission (NIMC) under the government of Nigeria would form a partnership to distribute a new identity card to every Nigerian citizen.
The purpose of the card is to have all Nigerian citizens participate in the financial services sector under the control of MasterCard, a multinational financial services corporation headquartered in New York, USA. ‘MasterCard is to Power Nigerian Identity Card Program’.
As part of the program, in its first phase, Nigerians 16 years and older, and all residents in the country for more than two years, will get the new multipurpose identity card which has 13 applications including MasterCard’s prepaid payment technology that will provide cardholders with the safety, convenience and reliability of electronic payments.
The program could move Nigeria into a cash-less society and enable economic growth and create a more financially inclusive economy but at what cost?. At its current level of development, would Nigeria be placing its destiny in the hands of a multinational headquartered in a foreign land? In advanced cash-less societies, the provision of facilities is not in the control of any single organisation. Why should Nigeria? Nigeria may be trying to walk before it can crawl or putting the cart before the horse on cashless society.
Implementation of CBN Cash-less policy
Globally, implementation has been bolstered, mainly by proper regulations, infrastructure upgrade and security networks, especially in advanced nations. The CBN stressed among other things, the need to provide financial inclusion for the over 80 million Nigerians who have never owned bank accounts before and to reduce huge cash handling by making e-payment channels available were the major thrust of the initiative. CBN contents full implemented should ultimately shift Nigeria to a cashless society in the 21st century knowledge economy (BTXperts).
The CBN ran a set of targeted stakeholder engagement sessions as a first stage of its planned communication campaign, targeting key groups that will be most impacted by the cash policy, with the objective of creating awareness and providing opportunity for them to raise issues and concerns (CBN). Stakeholders followed by Mass communication campaign.
Hiccups were reported, including tariff structure imposed by the Nigerian Customs Service on the imported POS terminals which CBN considered was on the high side. CBN deputy governor informed that in a bid to meet the objective of deploying 40,000 POS in preparation for the January take-off However, In June 2013, House of Representatives observed that CBN has not achieved the needed 40 percent expansion of Automated Teller Machines (ATMs), Point of Sale, mobile banking and other medium even in the urban areas.
Relevance and effectiveness in the context of Nigeria
Developed economies like USA and Europe or emerging markets like Brazil have in-country developed and maintained structures supporting own cash-less economy but “when you a have a powerful financial institution issuing payments electronically (MasterCard) that is under the control of a foreign government (USA), the control of Nigerian government, citizens and economy by a foreign power becomes inevitable”. Point of Sale (POS) terminals and other equipments to implement the policy will be imported.
Cash-less economy has its downside. It is not by coincidence that African economies are enjoying double-digit growth at a time when most developed economies are having to cope with economic downturn. Cash-less economies could and do become overheated from too much reliance on credits.
The readiness of Nigeria as cash-less Society In June 2013, the House of Representatives, directed the CBN to implement its ongoing cashless policy in stages, moving from cash-based to cash-less and then cashlessv. According to the lawmakers, this has become imperative because the required technical and financial infrastructure needed to drive the policy is not yet in place in the country.
The member leading the debate (Hon Dogara), argued that the cashless policy as being practiced in Nigeria has possible implication of cost saving in the financial sector but does not necessarily imply real sector growth and does not have human development as a focus of an economic development. He expressed concern that the financial infrastructure in the country is grossly inadequate to carry the demands of a cashless society.
The members believe that the issue is further compounded by the fact that the CBN has not achieved the needed 40 percent expansion of Automated Teller Machines (ATMs), Point of Sale, mobile banking and other medium even in the urban areas. Members were “worried about the absence of the required technological investment to prevent operational disruptions and the manpower development necessary for a cashless society” Some argued that large parts of their constituencies are not connected to the national grid and that Nigeria lacks the capacity to fight internet fraud, which has become so rampant and thousands of Nigerians have lost huge sums of money through ATM and internet related crimes.
The CBN itself is worried about the level of dud (bounced) cheques to the extent that it issued directives. In a circular FPR/DIR/CIR/GEN/03/005 dated 5 July 2013, CBN directed all Banks to advise all customers against issuing Dud Cheques to 3rd parties against unfunded account. CBN says the volume of dishonoured cheques in the financial system is on the increase and has shown no signs of declining.
This results in low confidence in the acceptance of cheques and adversely affects the cash-light policy aimed at reducing the volume of cash based transactions in Nigeria. Banks are to identify customers who have issued dud cheques on 3 instances with effect from 5th of July 2013 for forwarding to the Economic and Financial Crimes Commission (EFCC) via CBN for further investigation. Issuing bounced cheque in Nigeria is a crime under the Dishonoured Cheques (Offences) Act.
The Realities of a Cash-less society in the context of Nigeria
There are inherent challenges facing implementation of the CBN policy (Odior 2012). They concluded that the policy is as beautiful as it faces great challenges. A few of these inherent challenges they say are:
1. Infrastructure deficit – the financial infrastructure in Nigeria is not adequate to carry the load of a cashless society. ATM’s, Point of Sales system, mobile banking and other mediums have to dramatically expand to at least 40% of the economy before meaningful effect can be achieved.
2. Power – power must be improved dramatically to accommodate for smooth operations of financial activities.
3. Prevalence of e-fraud/Consumer Protection – if the process is rushed and the economy losses confidence in the system due to high level of fraudulent activities, it will be devastating to the Nigeria economy.
4. Literacy Levels (“Numeracy” versus literacy) – literacy rate in Nigeria is still very low and people prefer to keep their money at home, especially where the nearest bank is more than a day’s journey.
5. Religious beliefs – Some Nigerians may not fully embrace the cash-less society due to psychological and religious belief.
6. Availability of real data – Proper and accurate identification of account holders must be maintained and shared when necessary by all financial institutions.
7. Investments – CBN must be ready to invest heavily to make these transitions possible.
8. Security – CBN must partner and work with the National Assembly and enforcement agencies to ensure proper legislation is formulated and implemented.
9. Communications – ability to guarantee network availability and quality at all times.
10. Lack of Trust and the Bounced-Cheque Syndrome – trust is lacking in Nigeria‘s business environment. As a result, business operatives believe in cash and shun use of Cheques.
There is no stopping the evolution to a cashless society. It will be a convergence of the internet, credit/ debit cards, PayPal, Smartphone and other emerging e-payment systems. The proponents of e-payments say these will eventually say good bye to cash and consign it to the dustbin of history.
The aim of the CBN cash-less policy is threefold, to reduce the use of cash, to achieve financial inclusion and help in achieving Vision 20:2020. The benefits of cashless banking policy are enormous but it must be anchored on well resourced and functioning infrastructural facilities for the country to achieve a sustained financial and socially desirable effects on the economy. Nigeria does not yet have adequate system to support the policy. Power is sporadic and non-existent in a majority of cases and we generally have bastardise mindset on financial impropriety.
Telephone subscription rate is 1 per 100 and the Internet host is 936 (2010 estimate) with country’s comparison position to the world is 172. Policy of rural banking embarked in the past was not successful even though the major cities are overbanked, rural areas are still under-banked (CIA YearBook 2013).
Implementation should not be rushed but introduced in phases. It will be catastrophic if the process is rushed and confidence in the system is lost due to high level of fraudulent activities. No economy in the world is cashless and Nigeria would be making a mistake to think it can achieve a cashless status economy overnight.
The gradual phase should be from cash economy to cash-less and then to cashless. The timing of the phases should not be driven by political dogma but based on realistic frequent evaluation and assessment of the country’s readiness in terms of adequate infrastructure etc. “There are still many challenges, ranging from Broadband Infrastructure, Human Skill Capacities, Call-centre Backbone, Consumers profile data, Data Protection as well as security that is needed to be put in place.”
It is recommended that the CBN reviews its deposit charging policy. Lateef Kazeemix argues that while customers’ withdrawal above certain limit should be charged in order to discourage withdrawal of cash, he contends that CBN should encourage the almost 70 per cent un-banked Nigerian population into the formal banking system and not penalising them with deposit charges. Discouraging cash deposit with penalties will have the opposite effects of reducing cash in the economy.
Omusa Baba Ohyoma BA(Hons), MBA, FCCA, ACA is Chairman of the Institute of Chartered Accountants of Nigeria (ICAN) UK District, Financial Secretary of the Nigerians in Diaspora Europe (NIDOE) UK South and founding member/former Vice Chairman of the Central Association of Nigerians in the UK (CANUK).
i CBN website, ‘Further Clarifications On Cash-Less Lagos Project’
ii The Leadership Newspaper, 7th July 2013.
iii BTXperts, Consulting, Automation, Cloud and web solutions
iv Article by Timothy Alexander Guzman published in Global Research, 16 May 2013
v THE WILL Newspaper, 27 June 2013.
vi CASHLESS BANKING IN NIGERIA: CHALLENGES, BENEFITS AND POLICY IMPLICATIONS by Ernest Simeon Odior, PhD
and Fadiya Bamidele Banuso, both of the University of Lagos (European Scientific Journal, volume 8, No. 12 (2012)
viii BTXperts/Nigeria Guardian Newspaper.
ix Why deposits into bank accounts should not be charged, article published in Nigeria Punch 5 January 2012