Nigeria: Cashless Policy and the Economy

The policy should be faithfully implemented

On 17th September this year, the Central Bank of Nigeria (CBN) issued a circular to Deposit Money Banks (DMBs) to immediately commence the implementation of the cashless policy in six pilot states across the country – Lagos, Ogun, Kano, Abia, Anambra, and Rivers States, as well as the Federal Capital Territory (FCT). The apex bank, however, stated that the nationwide implementation would not take effect until 31st March, 2020. The CBN explained that transactions would attract three per cent processing fees for withdrawals and two per cent processing fees for lodgment of amounts above N500, 000 for individual accounts. Similarly, corporate accounts will attract five per cent processing fees for withdrawals and three per cent processing fee for lodgment of amounts above N3 million.

Introduced to reduce the amount of physical cash used in business transactions in the economy as well as encourage more electronic-based transactions, it is a policy that we endorse even as we hope that the critical stakeholders will be faithful to its implementation. That is very important against the background that the policy could very well facilitate economic development, reduce the cost of banking services and improve the effectiveness of monetary policy in Nigeria.

However, those who oppose the policy do so on the premise that it is another subterranean move to further fleece or short-change bank customers who are already considered overburdened by sundry charges ranging from stamp duty and ATM maintenance fees, among others. In this divide, the argument further flows that asking individual and corporate bank customers to pay an additional charge as processing fee for withdrawals and deposits in excess of certain amounts is an overkill.

Whatever might be the misgivings about the cashless policy, we must hasten to add that it is not new, having been inaugurated in the country in 2012 while the implementation began in 2014 with charges on withdrawals, leaving deposit charges until now. Many have expressed genuine fear that the policy could undermine the financial inclusion drive of the CBN by dissuading people from embracing banking services. In debunking such fears, the CBN had argued that data revealed that close to 95 per cent of cash deposited and withdrawn fall below the threshold of N500,000 and N3 million.

However, the CBN should also be aware of the challenges. Yes, it is true that many Nigerians have already embraced electronic channels and online transaction in market places. But despite what can be seen as the early successes of the cashless policy, there are challenges that limit its efficacy. Such challenges include illiteracy, limited knowledge of computing/use of internet and lack of trust and confidence in the system, among others. Many people are not conversant with using electronic channels and thereby breach security by giving their PINs to strangers to transact on their behalf. In addition, infrastructural challenges persist, internet access remains erratic, ATMs debit accounts without dispensing cash and merchant’s apathy to using POS terminals remain due to a loss in tips.

While we do not intend to underplay the huge advantages inherent in a cashless environment that will engender increased transparency in financial dealings and reduced crimes such as ransom payment and extortion, we nonetheless still urge the CBN to err on the side of caution. In carrying out its mandate under the CBN Act, 2007 (as amended) to promote a sound and stable financial system through credible efficient payment system, the interest of bank depositors must be paramount. And as the implementation of this policy expands, we expect to witness a reduction in cash-related fraud. But in trying to solve a problem, the CBN should be careful not to create a bigger one.

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