As Nigeria prepares for a future in which banks would no longer give citizens more than N20,000 cash per day and N100,000 per week, with most transactions being conducted through digital banking channels, BusinessDay looks back at how far it has come.
Although the Central Bank of Nigeria (CBN) introduced its first cashless policy in December 2011 and it kicked off in Lagos in January 2012, the CBN’s journey to cashless started in 2009 and is intertwined with financial inclusion.
In 2007, the global economy had gone into one of the worst meltdowns ever seen since the Great Depression. This was largely driven by the failure of the United States government to efficiently regulate its financial industry and tackle toxic mortgage lending. The shock of the global economic decline was felt around the world including in Nigeria.
As part of efforts to address the impact of the shock on the country’s economy, Sanusi Lamido Sanusi, the then governor of the CBN, authored a letter in 2009 where he addressed the impact of the global recession on the Nigerian capital market both in the short and long term. Among his recommendations was to expand financial services to Nigerians who previously were excluded due to proximity to bank branches and limited Automated Teller Machines (ATMs). The recommendation was part of a strategy to reduce banks’ exposure to the capital market.
For instance, the country’s external reserves declined from $64 billion in August 2008 to $58 billion as of March 2009, representing a 27 percent decrease, mainly due to the flight of hedge funds in reaction to the global economic recession. The sudden withdrawal of hedge funds created panic among exposed banks, making frantic efforts to cut their losses from the capital market.
It was the belief of the Sanusi-led CBN that increasing the overall participation of the citizenry in the financial system would open up new revenue streams for the financial players and the economy. However, this would have to be done using digital technology. A 2010 report by Enhancing Financial Innovation & Access, an economic think-tank financed by the United Kingdom, showed that only 25.4 million Nigerians were banked, representing 30 percent of the adult population at the time.
The CBN’s response was to launch the National Financial Inclusion Strategy and the cashless policy.
Read also: Has the CBN been arbitrary in its policies?
In the first cashless policy, the CBN set daily limits of cumulative withdrawals and lodgments of N150,000 for individuals and N1 million for corporate customers. According to a report, the operation of the system did not mean the individual or corporate organisation could not hold cash in excess of N150,000 and N1 million respectively at any single point in time but that their cumulative cash transactions with the bank must not exceed these limits over a period of one day. The system is targeted at encouraging electronic means of making payments and is not aimed at discouraging cash holdings.
Since the first policy was launched, the CBN has reviewed the cash withdrawal limits on different occasions. For instance, individual withdrawals were increased to N500,000, and corporate withdrawals to N3 million in 2012. The processing fee for withdrawals above the limit for individual customers was reviewed downwards from 10 percent to 3 percent while the processing fee for withdrawals above the limit for corporate bodies was reviewed downwards from 20 percent to 5 percent.
The latest policy announcement is seen by many as the most drastic step the CBN is taking to push the country towards a cashless economy. It has the support of many fintech founders.
“I commend the CBN for its vision to digitise Nigeria’s economy. Tech has shown a lot of what’s possible when it comes to financial innovation. The world will go cashless; therefore, the goal makes sense even if there are concerns about the approach,” said Tayo Oviosu, CEO of Paga Communication, a fintech company, said.
The CBN’s cashless policy has led to the expansion of various payment channels across the country. For example, the number of ATMs rose from 10,865 in 2011 to 19,355 in 2021. The number of Point of Sale (PoS) terminals rose from around 155,000 to 1.1 million as of April 2022.
But experts say the pace of investment in digital and financial infrastructure is not keeping up with the rising demand for digital payment services. This is responsible for the many glitches experienced by customers. While bank branches are reducing (from 5,392 branches in 2019 to 5158 branches in 2020), the queues at the banks or their ATMs are not reducing as projected. Many customers say banks are now taking longer time in resolving complaints. PoS transaction failures, for instance, take between 8 to 10 days to get resolved.
In October 2018, the CBN released a circular (Regulation on Instant (Inter-bank) Electronic Funds Transfer Services) in which it directed all financial institutions to ensure the resolution of failed NIP transactions within 24 hours or face an N10,000 penalty. Despite the existence of regulation, customers continue to report delays.
Also, existing financial and digital infrastructure is concentrated heavily in the urban centres to the detriment of rural dwellers. There are already fears that the potential shortage of the naira the policy would cause could lead to reselling of the currency in the black market. A Twitter user narrated an experience on Thursday in which people are already beginning to trade the new naira notes.
“Today, I came across this guy at a popular bus stop changing the new naira notes for people with interest. I approached him and asked how much he was changing it, he said new N1000 is N1500, N500 is N700, while N200 is N300 and people are changing it,” said the user who goes by the name Omotayo Classique.
The policy has also been criticised for being anti-PoS operations, with members of the Association of Mobile Money and Banking Agents of Nigeria threatening to go on strike should the CBN fail to reverse the policy.
However, Adewale Adetugbo, a financial technology expert, said there is a need for the CBN to be firm in punishing banks that continue to delay the resolution of failed transactions.
“CBN should announce that it will start enforcing the sanctions for transfers that do not ‘reflect’ within five minutes. This will provide the economic incentive for banks to prepare their systems for January,” Adetugbo said.
He also recommends that banks should consider contracting their original equipment manufacturers for the remedial work in increasing capacity ahead of the kick-off of the new cash withdrawal limit policy.
“Remember, you are looking at 4x to 10x volume increases. You are in danger of losing share to fintechs and neobanks,” he said.
