The Central Bank of Nigeria (CBN) introduced a new policy on cash-based transactions which stipulates a "cash handling charge" on daily cash withdrawals that exceed ₦500,000 for Individuals and ₦3,000,000 for Corporate bodies.
The paper examines the cashless policy of the Central Bank of Nigeria (CBN) introduced in 2011, and on April 1, 2012, it commenced operation in Lagos as a pilot project.
Central Bank of Nigeria
Objectives of the Cashless Policy
To drive development and modernization of our payment system in line with Nigeria's vision 2020 goal of being amongst the top 20 economies by the year 2020.
The policy aims at shifting the Nigerian economy from a cash-based economy to a cashless one, with a view to among others, achieving the requirements of Nigeria’s vision 20:20 20 development agenda; reducing the cost of banking services; and improving the effectiveness of monetary policy in managing inflation and driving economic growth.
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To improve the effectiveness of monetary policy in managing inflation and driving economic growth.
Key Components of the Policy
- Only CIT licensed companies are allowed to provide cash pick-up services.
- Banks will cease cash in transit lodgment services rendered to merchant-customers in Lagos State from December 31st, 2011.
- 3rd party cheques above ₦150,000 shall not be eligible for encashment over the counter.
- The service charge took effect from March 30th, 2012, this gave people time to migrate to electronic channels and experience the infrastructure that has been put in place.
- The pilot was run in Lagos State from January 2012 while the policy took effect in Rivers, Anambra, Abia, Kano, Ogun and the Federal Capital Territory (FCT) on the 1st July, 2013.
- The cash-policy applies to all accounts with exception to Government revenue generation account, Primary Mortgage Institutions, Microfinance Banks and Embassies.
The limits are cumulative daily limits each for withdrawal(e.g. The limits apply to the account so far as it involves cash, irrespective of channel (e.g. over the counter, ATM, 3rd party cheques encashed over the counter, etc) in which cash is withdrawn (e.g. if an individual withdraws ₦450,000 over the counter, and ₦150,000 from the ATM on the same day, the total amount withdrawn by the customer is ₦600,000, and the service charge will apply on ₦100,000 the amount above the daily free limit).
The charges started to apply from March 30th, 2012 in Lagos, October 1st, 2013 in Rivers, Abia, Anambra, Ogun, Kano and the FCT.
Given the policy’s objectives, the paper x-rays the associated benefits of the policy as well as the attendant challenges that may encumber the successful achievement of the policy’s objectives.
The paper therefore makes some suggestions that will make the policy succeed.
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Benefits of the Cashless Policy
A variety of benefits are expected to be derived by various stakeholders from an increased utilization of e-payment systems.
For Consumers:
- Increased convenience.
- More service options.
- Reduced risk of cash-related crimes.
- Cheaper access to (out-of-branch) banking services.
- Access to credit and financial inclusion.
For Corporations:
- Faster access to capital.
- Reduced revenue leakage.
- Reduced cash handling costs.
For Government:
- Increased tax collections.
- Greater financial inclusion.
- Increased economic development.
Nigeria small businesses not ready for CBN cashless policy
Challenges Addressed by the Policy
- High cost of cash: There is a high cost of cash along the value chain - from the CBN & the banks, to corporations and traders; everyone bears the high costs associated with volume cash handling.
- High risk of using cash: Cash encourages robberies and other cash-related crimes. It also can lead to financial loss in the case of fire and flooding incidents.
- High subsidy: CBN analysis showed that only 10 per cent of daily banking transactions are above ₦150,000 but the 10 per cent account for majority of the high value transactions. This suggests that the entire banking population subsidizes the costs that the tiny minority 10 per cent incur in terms of high cash usage.
- Informal Economy: High cash usage results in a lot of money outside the formal economy, thus limiting the effectiveness of monetary policy in managing inflation and encouraging economic growth.
Stakeholder Engagement
The CBN has been running targeted stakeholder engagement sessions for key groups that will be most impacted by the cash policy as a first stage of its planned communication campaign, with the objective of creating awareness and providing an opportunity for stakeholders to raise issues and get on the spot clarifications.
These stakeholders includes markets, associations, professional bodies, religious bodies etc. These stakeholder sessions have run nationwide while the media campaign will continue.
Trend analysis of cashless transactions in Nigeria
Analytical Approach and Recommendations
This study examines the implications of cashless banking, with a view to exposing the possible challenges and prospects it poses to the Nigerian economy whilst employing aggregated approach.
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Analytically, this study employs descriptive statistical to highlights/overview the effectiveness of the cash-less policy of the CBN in Nigeria.
This study was informed by the rising doubts as regards the effectiveness of various economic policies in achieving developmental goals of Nigeria.
Moreover, the recent evolution of electronic money poses interesting questions of policy makers all over the world.
This study also seeks to evaluate policies of the Central Bank of Nigeria as well as proffer valuable recommendations on the execution of cashless banking in Nigeria.
The study presented significant recommendations: availability of sufficient and well-functioning infrastructural facilities (notably electricity), harmonization of fiscal and monetary policy, regular assessment of the performance of cashless banking channels (individually and collectively), consideration of the present state and structure of the economy, redesign of monetary policy framework and greater efforts towards economic growth whilst managing inflation.
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