The recent announcement by the Central Bank of Nigeria that penalties on cash withdrawals and deposits above stipulated limits had kicked in evoked some emotions across the country. KAYODE ADEBOWOLE examines the history, significance and potential of the apex bank’s cashless policy as well as possible impediments.
Recently, the Central Bank of Nigeria announced a new policy on cash-based transactions that stipulates a cash handling charge on daily cash withdrawals and deposits that exceed N500, 000 for individuals and N3m for corporate bodies.
The announcement met an outrage from some stakeholders including members of the House of Representatives, financial experts and National Association of Nigeria Students.
The apex bank had directed that implementation should begin from September 18 in Lagos, Ogun, Kano, Abia, Anambra, and Rivers States, as well as the Federal Capital Territory.
It stated that nationwide implementation of the cashless policy would take effect from March 31, 2020.
Clarifying the directive, the Director, Corporate Communication Department, Mr Isaac Okorafor, said that when an individual deposited N510,000, the two per cent charge would be on the N10,000 excess. This would amount to N200.
He said the same applied to a withdrawal of same amount, adding that the three per cent charge would be on excess of the set limits.
The apex bank aims at reducing and not eliminating physical cash circulating in the economy, and encouraging more electronic-based transactions (payments for goods, services, transfers, among others).
With the move, it is hoped that the nation’s economy would be able to compete favourable with 20 other economies by year 2020 in the cashless economy space.
It is also expected that the move would catalyse the process of financial inclusion.
The PUNCH had reported that currency in circulation in 2019 in the first nine months of the year hovered around N2tn per month.
This implies that the nation’s economy is awash with cash, resulting in a lot of money outside the formal economy. This limits the effectiveness of monetary policy in managing inflation and encouraging economic growth, according to experts.
Statistics obtained from CBN showed that the in 2018, the currency in circulation stood at an average of N1.9tn. This implies that the currency in circulation has been growing despite growth in modern electronic means of payment.
Some of the negative implications of an economy highly saturated with physical currency include corruption, leakages and money laundering, amongst other cash-related fraudulent activities.
The CBN Governor, Mr Godwin Emefiele, says efforts had been geared at driving the cashless initiative across the country.
He said immense efficiency gains would be derived from a cashless policy and that it would have positive impact on the nation’s financial inclusion drive.
Highlighting his five-year plan in June, Emefiele said, “A strong emphasis will also be placed on improving speed and efficiency of payments channels, while working to ensure that digital channels are safe and secure. This will help to build confidence in our nation’s payment system.
“In order to improve the utilisation rate, we will continue to ensure that payment channels are interoperable, which will enable individuals with digital devices to transact across different banks or payment modes.
“Through measures such as the cashless initiative, USSD, mobile banking, agent networks and Payments Service Banks, Nigerians can expect to see significant improvements in the payment systems infrastructure over the next five years.”
How cashless policy started
The CBN in 2012 commenced the cashless policy in Lagos State from January 2012 while the policy took effect in Rivers, Anambra, Abia, Kano, Ogun and the Federal Capital Territory on the July 1, 2013.
The CBN’s cashless policy was applicable to all accounts with exception to government revenue generation accounts, primary mortgage institutions, microfinance banks and embassies.
The aim was to reduce the volume of cash in circulation by transforming the cash-heavy country to a digital electronic cashless country where payments and transactions are not necessarily done with cash but using electronic means of payments such as debit or credit cards (Mastercard, VISA, Verve), Internet banking platforms, online payment platforms or gateways.
The likes of Unstructured Supplementary Service Data, was introduced and banks over the years have improved on its services to fast track instant payment.
Since the introduction, the banking sector had introduced advanced financial technology aimed at easing transaction on mobile phone and Internet.
How is a cash economy hampering growth in Nigeria?
Speaking on challenges hampering the cashless policy in Nigeria, the Managing Director, Enterprises Stockbrokers Limited, Mr Rotimi Fakayejo, said CBN and key stakeholders must put in place mechanism before implementing the policy across the country.
According to him, technology was capable of truncating the policy.
He said the cashless policy would reduce cost of transactions, cost in print of naira and improve transparency in the banking sector.
According to him, “the cashless policy is also to help government in tracking money in circulation.”
He urged the CBN to introduce new incentive and follow it up with public awareness programmes.
He said that apart from imposing penalty, the CBN should have started form incentivising banks customer by not charging for six months.
After six months, he suggested that a penalty should be introduced on cash withdrawals and deposits exceeding the stipulated limits.
Experts say cash comes at a high cost to governments, businesses and consumers, placing unnecessary strain on the nation’s economy.
Mastercard, a United States-based financial payment solutions firm, said in 2014 that Nigeria spends an estimated $5.1bn, about N816bn yearly on printing and handling cash.
The impact is even greater if the costs associated with fighting illegal activity, fraud, corruption and the shadow economy – all of which are fuelled by cash – are taken into consideration.
While several socio-economic reasons have been for the need to reduce cash in circulation including insecurity and the high risk of moving hard currency and maintaining economic stability by controlling inflation, the most critical point is reducing the cost of minting and circulating adequate cash across the country.
The proportion of adults in sub-Saharan Africa having a credit card is less and 80 per cent using no formal or semiformal banking facilities, according to a report.
African countries are ranked among the lowest economic impact of electronic payments. Africa’s most advanced financial markets are also best-placed to take advantage of cashless payments.
South Africa’s sophisticated business environment allows cashless payment providers to introduce advanced products and services that add convenience to consumers’ lives while driving business value across the value chain.
Global System for Mobile Communications Association disclosed that Kenya, Tanzania, Uganda, Côte d’Ivoire, Egypt, Nigeria and South Africa are bellwethers of cashless payment use in Africa.
However, the challenges facing the cashless policy in Nigeria include power supply, poor network services from telecommunication operators, lack of interest, exorbitant charges from banks, lack of education, and ATM malfunctioning.
Expected benefits of the policy
An economist, Dr Boniface Chizea, says Nigeria as a country stands to benefit a lot from the cashless policy of the CBN.
He said, “Money laundering in Nigeria is done through cash and not by transfer within the banking system. Nigerians do not want to develop in all ramifications. We can’t develop in a certain area and abandon others.
“If we want to develop, we must match up to what is obtainable elsewhere.
“When you talk about efficiency and effectiveness of monetary policy, it is also important that you curb currency in circulation.
“Our mentality is that our people do not like anything attached to bank charges. They think the banks are making huge profit from them without paying back.
“As far as House of Representatives is intervening with fiscal authority, we will continue to remain where we are. Unemployment rate, infrastructure deficit and corruption will continue to grow since we are not doing the right thing.”
A variety of benefits are expected to be derived by various stakeholders from an increased utilisation of e-payment systems.
These are more service options available to customers; reduced risk of cash-related crimes; cheaper access to (out-of-branch) banking services, access to credit and financial inclusion.
For corporations, it is easier access to capital, reduce revenue leakage and reduce cash handling costs.
For the government, the policy is expected to increase tax collections, lead to greater financial inclusion and increase economic development.
Some finance experts recommend that the apex bank should curb excessive bank charges and place a standard bank charge across all banks.
Also, some recommend that a strong independent government body to be set up to oversee all digital transactions, provide security measures and curb fraudulent activities even before they occur.
The Managing Director of CitiBank Nigeria Limited, Mr Akin Dawodu, seemed to have captured the stand of the banks when he spoke to journalists at the end of Bankers Committee meeting in Abuja on Thursday.
Dawodu said that the initiative was needed to improve financial inclusion.
He added that in a bid to ensure the successful implementation of the policy, banks had agreed to address the potential challenges that would mitigate its progress.
All stakeholders would be waiting and watching to see that the banks fulfil this pledge.