Zik Gbemre,
With recent reports that the Central Bank of Nigeria (CBN), is set to roll out the cash-less policy nationwide from July 1, 2014, many like us, are a bit skeptical with the implementation of the said cashless policy and its implications to the Nigerian masses, especially the common man. Our skepticism is born out of a whole lot of issues and dynamics in the Nigerian society, which we believe will make the said cashless policy not really beneficial to the ordinary Nigerian.
It will be recalled that six states (Abia, Anambra, Lagos, Ogun, Kano, Rivers States), and the Federal Capital Territory (FCT) Abuja, started the scheme on a pilot level some months back. However, the other 30 states of the federation would also receive a concession of several months’ postponement of charges on withdrawal above the stipulated limit during the second phase of the project. According to a statement from CBN, signed by Isaac Okorafor, for the Director of Communications Department, the apex bank noted that having successfully completed phases 1 and 2 of the cash-less policy in six pilot states and the Federal Capital Territory, it is necessary to proceed to the remaining 30 states.
Part of the statement read: “The management of CBN hereby notifies all stakeholders and the general public that phase 3 of the policy’s implementation will commence as scheduled on July 1, 2014, in the remaining 30 States of the Federation. However, as was the case in the Pilot States, a one-year waiver has been granted on the application of withdrawal charges in the 30 states slated for rollout in phase 3. This means that withdrawal charges will continue to apply to transactions above the specified limits in Abia, Anambra, Lagos, Ogun, Kano, Rivers States and the Federal Capital Territory (FCT). Therefore, charges on withdrawals for both individual and corporate account holders will only take effect in the 30 States from July 1, 2015. This waiver is to allow ample time for the deployment of adequate infrastructure needed to support the policy, as well as additional sensitization of various stakeholders on the merits of the policy,” the statement noted.
It was noted that the apex bank, in collaboration with the Nigerian Inter-Bank Settlement System, has long commenced the biometric verification number scheme, a move aimed at strengthening the electronic payment system and mitigating frauds. According to the CBN, the scheme would soon be rolled out as well to all branches, capturing the biometrics of all the banks’ customers. Also, to protect the new ones and existing customers of banks from Automated Teller Machine-related frauds, it has given banks deadline to install anti-seeming device on all their ATMs.
The CBN, in a bid to moderate the cost of cash management and encourage the use of electronic payment channels, had issued a circular about a year ago to the Deposit Money Bank (DMB) pegging the daily cumulative limit of cash withdrawals to N150,000 by individuals and N1million for corporate customers. The said policy would also render third-party cheques above N150,000 invalid for encashment over the counter, thus making the value of such cheques to be received through the clearing house. It pointed out that a contravention of the policy by any DMB would attract a fine of five times the amount the bank waived as a first offender, adding that subsequently, the bank would pay 10 times the charge waived. Other key highlights of the said policy include the payment of respective sums of 10 percent and 20 percent of withdrawals and deposits above the cumulative limits for individuals and corporate customers. In the minds of the Monetary Authorities, they believe that this would monitor the nature of ongoing transactions and reduce money laundering and the menace of corruption in Nigeria.
In as much as we appreciate the obvious global demand and move towards a cashless economy, we were however expecting that the introduced cashless policy in Nigeria should still be ‘experimental’ in some selected states and not going on full scale across the federation. This is hinged on a number of factors. For us, the number one element for the argument on the need to still experiment with the cashless policy in Nigeria, is the simple fact that the Nigerian economy and the majority of the country’s population are “not ready” for an electronic transaction-driven economy. Not ready in the sense that the informed financial sector, which is about 75 percent of the Nigerian economy, is not yet ‘ripe enough’ or developed to the extent that it could accommodate and fully utilize the dynamics of an electronic-driven-transaction-based economy. Aside this, the overwhelming level of illiteracy and poverty in the country has made a huge number of Nigerians in the informal sector ‘unbankable.’ With these somewhat hiccups and bottlenecks, the CBN cashless policy should still be run experimentally until these issues are addressed to a large extent.
Already, mixed reactions from finance analysts and the Nigerian public have been trailing the full roll of that policy across the federation. While some have hailed the move, saying the development would enhance the forensic detection of fraud in that sector of the economy, others like us, have reiterated the fact that the apex bank (CBN) had not recorded enough success in its quest to develop the size of the nation’s informal economy, which is largely cash-based.
According to a financial expert, he noted that while the CBN had invested substantially in human, materials-technologies and policies in developing the electronic payment system in recent times, much work was still needed to be done in bringing greater proportions of the transactions in the informal sector into the formal financial system. He noted that since Nigeria’s informal sector constituted about 70 percent of the total transactions, their financial inclusion must be achieved within the next one year for the policy to be effective without creating other problems. And to make operators of this sector bankable, he called for expanded network of bank branches and Automated Teller Machines (ATMs) as well as Point of Sale Terminals (POST) across the country. But even with this infrastructure in place, there is still the problem of educating the informal financial sector to full understand, accept, and embrace the technicalities and financial dynamics of a cashless economy.
The one year that the cashless policy was piloted in five states and the FCT, is not enough to address and inculcate the informal sector’s financial bearings. When we consider the magnitude of business transactions in the informal financial system; especially in transactions involving wages for manual labour and those daily observed in most markets across the country like the Alaba Onitsha Market, Aba Market, Balogun Market, Dugbe Market, Kaduna Market, Kano Market, Warri Main Market, etc; then we would realize that the CBN’s policy will not have a smooth ride at the moment in the country. Also, when we now consider the level of illiteracy in this informal sector, that has made many ‘unbankable’, we would realize that the CBN needs to refocus its policies to address these ‘realities’ in the informal transaction sector before their new policy would make any sense.
The truth is that the negative implications/effects of the policy surmount its objectives in the first place. A national poll conducted in 2010 indicated that 62 percent of Nigerian adults of bankable age have no formal relationship with the banking system. With this anomaly, the task therefore for the Monetary Authority is to do whatever that needs to be done to reduce this proportion, before they can now come up with that policy on cash withdrawal.
An example of the negative effect the policy has on the informal sector, is the case of a building Contractor who has to pay a daily wage of N2,000 each to 500 labourers that live on the daily wage. The Contractor has to force the labourers to open bank accounts through which the payments will be effected against the practice of on-site cash distribution. If he fails to convince them to own bank accounts or they are unbankable by virtue of their status, the contractor would have to withdraw cash of N1 million and incur the additional cost of N100,000 to get his workers paid (N200,000 if it were to be a company). With this sort of bottlenecks, the CBN’s policy would obviously create problems for everyone than it is trying to address.
WITH about a week (as at the time of writing this article), to the nationwide spread of the Central Bank of Nigeria’s cash-less economy initiative, a sensitization survey conducted by the Electronic Payment Providers Association of Nigeria (EPPAN) has put the readiness of Nigerians for the scheme at 40 per cent. Besides, further investigations by some national tabloids has also shown huge infrastructure deficit, especially technology capacity that will propel the traffic. Already, some telecommunications firms in the country have declared that electronic payment channels are putting serious pressure on their respective networks, by so doing constituting a major drawback to the overall success of the scheme. EPPAN’s Chief Executive Officer, Mrs. Onajite Regha at a meeting with some ICT journalists recently in Lagos, informed that two years into the cash-less economy initiative, only about forty per cent of Nigerians are ready for the major shift. Regha, who based this fact on the recent survey of cash-less sensitization in various states including the Federal Capital Territory, Abuja, Abia, Anambra, Bayelsa, Delta, Ekiti, Lagos, Ogun, Oyo, Osun, and Ondo, said EPPAN is in collaboration with CBN to ensure effective result of the policy. This is just a glimpse of the problems the said cashless policy initiative is bringing.
We would recall when the CBN first introduced this cashless policy, members of the House of Representatives opposed to it, stating that the Nation’s economy was not yet ripe for it. It was also noted that majority of traders were yet to embrace banking culture because of perceived long protocols, and that they will abandon the thoughts altogether if the CBN policy should become fully operational. The CBN should realize that if the policy should take effect, small scale businesses will automatically collapse, agro allied businesses will remain stagnant, thereby making the banking sector to completely suffer patronage. Without a doubt, those in the informal sector like cattle sellers, petty traders, butchers, tomatoes sellers, market women, and so on, should be put into consideration before such policy will make any sense.
We are also wondering ‘why the rush’ by the CBN to implement the said cashless policy across the federation. Developed countries in Europe that actually have everything it takes to go full scale on the implementation of the cashless policy in their economy, are still taking their time to ensure the entire populace embraces the policy before forging ahead. In the entire Britain for instance, it was only recently that all the shops on one High street in Manchester suburb, decided to accept only cards for just a day to test whether Britain could become a cash-free country or not. The report noted that as part of a “social experiment”, shops along fashionable Beech Road in Chorlton will only take payments on plastic (i.e Credit Cards).This came on account of a research in Britain which showed that people are increasingly using cards instead of notes and coins. Although, it was revealed by the British Retail Consortium (BRC) that cash use has fallen by 14% in the last five years, and that card use is increasing rapidly, with debit cards currently being used for 32% of transactions compared to 30% last year, however we could see that the cashless policy is still being experimented in different parts of Britain. In fact, some British experts predict physical currency will cease to exist within the next 20 years.
Now, if highly developed countries like Britain can make such 20 year projections, and gradually introduce and still experiment the ‘transition’ to a cashless economy, who are we as Nigerians, to rush the process within three years? The living standard, poverty and literacy level in Nigeria is not yet where they are supposed to be for us to be talking about a full scale cashless policy across the country.
It is not enough for the CBN to sit down in their air-conditioned offices and dish out policies that are only focused on improving the formal financial system without holistically taking into consideration those in the informal financial system that are much more in number. They need to come to terms with the realities on ground in the Nigerian economy and population, and not get carried away with the dynamics of the financial system around the globe in their bid to become competitive or recognized. We need to set our priorities right in the country’s financial system with the ‘right policies’ that are relevant for now but would prepare us for the future. Let the right thing be done, this we urge.
