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Cashless Economy: How Sustainable in Nigeria?

In Nigeria, where the informal economy still dominates, cash is still king. Notwithstanding the many advantages a cashless economic policy offers for a country, banks, and people, it also has difficulties in Nigeria. How sustainable is Nigeria’s cashless economic policy?

Akoi Kudi, Ba Kudi, which is Hausa for “there is money? there is no money,” is the current song in Nigeria. Hausa- a lingua franca and a language of trade in West Africa. After the redesign of her currency, Nigeria is expected to transition to a cashless society. New notes are now hard to come by, and money is being traded. Undoubtedly, a cashless economy.

As a piece of knowledge for everyone. In a “cashless economy,” transaction can be done without necessarily carrying physical cash as a means of exchange of transaction but rather with the use of credit or debit card or other electronic media of payment for goods and services. Thus, is not the complete absence of cash; Cashless economy is an economic setting in which goods and services are bought and paid for through electronic media, according to experts.

The Central Bank of Nigeria (CBN) previously announced that Nigeria would start the transition to a cashless economy by January 2012 as part of her goal to be among the top 20 economies by the year 2020. On July 1st, 2013, Rivers, Anambra, Abia, Kano, Ogun, and the Federal Capital all implemented a cashless system. In July 2014, the regulation went into effect across the board. The policy’s principal objective was to decrease, but not entirely abolish, the amount of Naira notes and coins (cash) used in commerce.

The Nigerian Apex Bank continued, “Our economy uses too much cash for transactions for goods and services, especially for buying and selling. This is not how it is done in other progressive countries of the world where there are other payment options like; Debit and Credit Cards, Bank Transfers, Bank Direct Debits, Automated Teller Machines (ATMs), and even Mobile Phone Money. These achievements have been brought about by the changing needs of their people, competition among banks, and other companies, including changes in technology. Our major focus is to increase the volume of all available payments instruments in Nigeria. There is therefore a need to enlighten the public to choose other available payment options instead of the excessive reliance on cash for transactions. This will promote end-to-end electronic payments in Nigeria.”

In the meantime, the cashless policy is aimed at scaling up financial inclusion and reducing cases of armed robbery, kidnapping, terrorism financing, advance fee fraud, graft, ransom payment, extortion and other crimes, according to CBN. The new cash policy was also implemented for a number of important reasons, including:

  • 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. An efficient and modern payment system is positively correlated with economic development, and is a key enabler for economic growth.
  • To reduce the cost of banking services (including cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach.
  • To improve the effectiveness of monetary policy in managing inflation and driving economic growth.

The cash policy also tries to curb some of the negative consequences associated with the high usage of physical cash in the economy, such as:

  • 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 10percent of daily banking transactions are above 150k, but the 10percent account for majority of the high value transactions. This suggests that the entire banking population subsidizes the costs that the tiny minority 10 percent 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.
  • Inefficiency & Corruption: High cash usage enables corruption, leakages and money laundering, amongst other cash-related fraudulent activities.

While numerous advantages are anticipated to result from expanded use of e-payment systems by various stakeholders. They comprise:

  • 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; and reduced cash handling costs.
  • For Government: Increased tax collections; greater financial inclusion; increased economic development. Increased tax collections; greater financial inclusion; increased economic development.

On October 25, 2021, President Muhammadu Buhari formally launched the digital currency, eNaira, at the state house in Abuja. The eNaira is a central bank digital currency (CBDC) backed by law, the full sovereignty of Nigeria, issued by the Central Bank of Nigeria as a legal tender. In his remarks during the rollout, CBN Governor Godwin Emefiele said Nigeria must move from a cash economy to a predominantly cashless one.

“The destination as far as I am concerned is to achieve a 100 percent cashless economy in Nigeria,” he explained.

“I know that those who doubt us will say that 100 percent cashless is unattainable. Yes, it is true! But, Nigeria must move from being a predominantly cash economy to a predominantly cashless economy.” e-Naira would not only revolutionise transactions but also provide citizens more efficient, cheaper and easier means of doing business, Emefiele added.

Odds between Banked and Unbanked Nigerians

Nigeria, according to Mr. Taiwo Oyedele, the Fiscal Policy Partner and Africa Tax Leader at PricewaterhouseCoopers (an international professional services brand of firms, operating as partnerships under the PwC brand), who recently shared his thoughts on the CBN’s new strategy, is one of the most cashless economies in the world due to the cash in circulation compared to the country’s Gross Domestic Product. According to him, the cash circulation in Nigeria shows that Nigeria does not have too much cash in circulation in terms of currency to GDP to per capita compared to other countries.

When compared to other nations, Nigeria does not have too much cash in circulation, according to him, in terms of currency to GDP per capita. The tax expert said, “The cash circulation in the U.S is about $2.3 billion cash, which is 91.1% of the country’s GDP while the UK has 82 billion pounds of the 3.2% GDP cash in circulation, whereas Nigeria has about $3.2 trillion in cash which is just 1.8% of the country’s population.”

Nevertheless, when government officials and proponents talk about the gains of a cashless economy, they do so as if it is a heaven-packaged programme, tailor-made to solve the many problems of Nigeria, with no adverse consequences. Good as it may be made to look; the system will come at some costs. As Nigerians struggle to access these new notes, the popular refrain — go cashless — has been bandied about. But as the numerous reports of downtimes experienced by banks and PoS networks show, it is easier said than done. Although laudable, this is another example of a poorly executed plan by the CBN.

The issue is whether Nigeria is ready for it to happen. Implementing cashless under these circumstances will only make life harder for the populace because the informal sector makes up a big portion of Nigeria’s economy. “Nigeria’s informal sector accounts for 41.43% of its GDP. (Use of cash is correlated with informality).” In addition, only 47% of males and 35% of women between the ages of 18 and 49, respectively, hold bank accounts or other financial instruments, according to National Bureau of Statistics (NBS), an agency of the Nigerian government that gives statistical information on the country.

The programme was supposed to be implemented gradually, not as it is currently being done in the nation, an economic expert noted. Currently, Nigeria faces challenges that make policy implementation difficult, including the low level of advancement in technology, high level of corruption within and outside the banking sector, poor institutional quality, low level of education and majority of Nigerians are operating under the informal sector of the economy.

Cashless Economy: Technology’s Effects and Nigeria’s Financial System

Yet, the current CBN cashless policy has encouraged the growth of numerous payment methods all around the nation. Let us take a look at the number of Automated Teller Machines (ATMs) that 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. Similarly, data from Shared Agent Network Expansion Facility (SANEF), indicated that the number of active banking agents is over 1.9 million. SANEF serves as an enabler in the Financial Inclusion ecosystem in Nigeria, collaborating with various Stakeholders to expand the frontiers of Financial Inclusion which includes Agent Expansion, Financial Literacy, Public Enlightenment, Policy Advocacy and Technological Solutions for Products and Services to increase Agent Business viability and Agent Network sustainability. It is a project powered by the Central Bank of Nigeria, Deposit Money Banks, Nigeria Inter-Bank Settlement Systems, Chartered Institute of Bankers of Nigeria, licensed Mobile Money Operators and Shared Agents.

FinTech stands for financial technology. It has been a thriving aspect of Technology in the past few years. It is a term used to describe the use of technology to improve financial services. FinTech is a rapidly growing space with a lot of opportunities as finance cannot be dispensed with. The digital transaction involves a constantly evolving way of doing things where  FinTech companies collaborate with various sectors of the economy for the purpose of meeting the increasingly sophisticated demands of the growing tech-savvy users. Until now, according to data from the Nigeria Inter-Bank Settlement System (NIBSS), the total amount of cashless transactions in Nigeria increased by 45.41% year over year in January 2023 to N39.58 trillion.

Using the Nigeria Instant Payment (NIP) system and Point of Sales terminals, the NIBSS keeps an eye on cashless transactions. NIP transactions as a whole increased throughout the time by 45.52 percent y-o-y, from N26.65 trillion in January 2022 to N38.77 trillion in January 2023.

From 438.48 million to 638 million transactions were made through electronic channels in the time period under study, a 45.50% y-o-y increase.

Similarly, the global smartphone penetration rate was estimated at 67 percent in 2021, the same value since 2018. This is based on an estimated 6.3 billion smartphone subscriptions worldwide and a global population of around 7.4 billion, according to Statista, an online platform specialized in market and consumer data. Further supporting Nigeria’s cashless policy is the country’s high mobile phone adoption rate. Information from the Nigerian Communications Commission (NCC) stated that, 319 million telephone lines have been linked by mobile network operators (MNOs) in more than two decades, but only 222 million of those lines have been in use. Moreover, only about 10% to 20% of people in the country today use smartphones.

A public analyst states, “The expansion is also expected to grow with the latest policy of redesigned Naira notes, a situation that has led to the volume of cash in the market dropping drastically, affecting many small businesses and individuals that depend on cash for transactions. With the new Naira notes unavailable, many more people are turning to electronic payment to conduct their transactions.”

Normally, the most populous country in Africa relies heavily on fuel and a financial sector with inadequate infrastructure to support a cashless society. What could be more essential than cash? While most Nigerians continue to utilize cash because they reside in rural areas without banks. The central bank announced in January 2023 the commencement of a cash swap programme that will introduce a new version of the local currency, the naira, in an effort to encourage “financial inclusion” in rural areas.

Nigerian economist and public policy researcher Gozie Irogboli stated, “The economy is contracting because of low productivity domestically occasioned by insecurity and mismanagement of state resources and exacerbated by excessive borrowing by the current regime. So, the focus of the CBN should have been on how to boost local productivity by incentivising the relevant critical sectors. However, manipulating monetary aggregates in an underdeveloped economy like Nigeria with over 60 per cent unbanked and under-banked population, without properly integrating this critical segment would be a daunting task.”

It is distressing to observe long lines of Nigerians waiting to cash their checks at ATMs in order to complete their transactions and keep money in reserve. It’s unfortunate that certain people have been arbitraging. You can always count on Nigerians to find a way to make light of any circumstance. Some claim that it is simpler to obtain dollars in Nigeria than higher denominations of our legal tender, while others inquire as to what the rate of exchange for naira is on the black market.

In contrast, sole proprietorship is frequently the ownership and registration status of small businesses in Nigeria with the Corporate Affairs Commission (CAC). As already indicated, there are typically a lot of transactions made through cash channels. Lack of IT understanding, lack of ICT availability, fear of online fraud, lack of PoS availability, distance to ATMs, cost of internet, inconsistent network, and ICT phobia are some of their issues. Many small firms have very bad financial practices. Since their transactions are heavily dependent on “Cash and Carry basis,” using an ATM or doing banking online means little to them.

The only 100% cashless economy in the world, according to Nigerian commentator Aliyu Nuhu, is Sweden, with account ownership of 99.69%. The entire country is covered by 100% broadband connection. A global average of 121 countries is 65% account ownership. How can Nigeria be a digital economy with this uncomfortable statistic. “CBN is walking the whole journey alone without carrying along the major stakeholders, Ministry of Communication and Digital Economy and Ministry of Finance. There is no way for Nigeria to go cashless without broadband coverage. There is no way for Nigeria to go digital without account ownership. There is a lot of job to be done, “he claimed.

To put it another way. “Despite my unwavering support for the cashless policy’s goals, I believed that its implementation is detrimental for three reasons,” another Nigerian, entrepreneur Adamu Tilde, who is based in the country’s northern region, mentioned. “One is that the economy’s need for cash was underestimated. Its assumption of a one-size-fits-all execution strategy. This is completely incorrect on many levels. For instance, Lagos alone has 144 branches of Zenith Bank. This represents roughly half of all bank branches in the northeast. It is absurd to assume that what is successful in Lagos will be successful in Damaturu. Level of exposure, knowledge, access to banks, distribution of banks, etc. all differ.”

He went on to describe further: “the unhelpful conduct of banks make it difficult to open a corporate account. For instance, the utility bill’s requirement is a foolish prerequisite for opening a corporate account. This requirement did not take into cognizance the peculiarities of villages with no electricity or water. Where would they find the utility bills? Banks should make opening a corporate account seamless. Alternatively, CBN would have invested time in pushing for the adoption of the e-Naira rather than rushing to execute a cashless policy for a nation that is not yet ready.”

Including that “The policy is being opposed because it causes the average person greater misery. Businesses and livelihoods have been put at a standstill in the last two weeks because policymakers believe we all have smartphones and live in areas where there is always access to networks. I purchase goods from remote areas, and the majority of these communities lack banks, therefore we must travel there with cash to purchase these goods. While I will always welcome policies that would integrate people into the mainstream economy, policies should be implemented with a milk of human kindness.”

The shortage of Naira, the early rejection of old notes, which has since been overturned by Nigeria’s Supreme Court, and inadequate payment methods have brought the currency redesign and cashless policy gap to a new level. Nigerians are now unable to pay for basic necessities like hospital bills.

In Kano, a city in northern Nigeria and the capital of Kano State, for instance, a 43-year-old man named Bello Ali Baffa describes how his 32-year-old pregnant wife, Shemau Sani Labaran, bled to death after the Kano State Specialist Hospital refused to accept outdated notes she had presented to pay her bill.

Bello bemoaned in a news article: “She was about to deliver our fourth baby and they rejected my old notes and no PoS was available except transfer. I spent hours waiting for the cashier to confirm receipt of 8,528 for drugs and they insisted they will not attend to her until they saw alert. I was told to pay another four thousand despite my relatives donating blood to save my wife.” “I have taken it as faith as a Muslim but the about three hour delay they wasted in confirming the transfer was instrumental in my wife’s death.” This story is one of many that recounts tragic occurrences brought on by the current Naira shortage in Nigeria.

Towards Sustainable Cashless Economy in Nigeria

In the meantime, sustainability is also essential in an expanding economy like Nigeria’s. The majority of Nigerians have not embraced the cashless policy for obvious reasons: the challenges associated with it are enormous for a mismanaged economy like ours with high indexes of underdevelopment. According to economic experts, a cashless economy can only be achieved when credible substitutes are developed and made available. Even though Nigeria’s payment systems have made tremendous strides in recent years, some transactions still use cash.

Nonetheless, experts assert that Nigeria has the necessary infrastructure in place to carry out the idea. Since a bigger portion of Nigeria’s population lacks banking accounts, there is a need to raise awareness to encourage small companies, as going cashless will inevitably draw more people into the banking system. The majority of Nigerians are slow to adopt electronic payments because they are unaware of their advantages. Also, top bank management and the rest of the cadre must receive training in order for the banks to push e-payments. The economy’s strategic sectors, particularly the unbanked one, should therefore receive attention initially. In this manner, the goal of decreasing the unbanked will be accomplished gradually and methodically.

Lastly, if properly implemented, the cashless policy will aid the CBN in achieving its goal of enhancing, deepening, and modernizing Nigeria’s payment system. It will also energise the CBN to ensure that Nigeria ranks among the top 20 economies in the world in accordance with the country’s vision 2020 goals. The strategy will also dismantle the long-standing obstacles that prevent millions of Nigerians from having access to financial services by bringing affordable, secure, and convenient financial services to urban, semi-urban, and rural areas nationwide, particularly through mobile payment services. Thus, it is suggested that Nigerians, businesses, banks, and other stakeholders support this initiative.

Oyebamiji Adesoji Usman writes from Western, Nigeria.

Cover Image: Lagos, Nigeria
drum market (blue water containers). Photo: Alfred Gillman | Flickr

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