The Impact of CBN Cashless Policy on the Development of the Banking Sector of Nigeria
Chapter One
OBJECTIVE OF THE STUDY
The broad objective of this study is to establish the relationship between CBN’s Cashless policy and the development of the financial sector and the Nigerian economy. This broad objective is broken down to the following specific objectives which are;
- To ascertain the relationship between Cashless policy and accessibility to customers’ accounts.
- To investigate the relationship between Cashless policy and queue-ups in banking halls.
- Ascertain the relationship between Cashless policy and the promptness of bank-related transactions.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
Cash-less banking is that banking system which aims at reducing, but not eliminating, the volume of physical cash circulating in the economy whilst encouraging more electronic based transactions. In other words, it is a combination of e-banking and cash-based system. It is essentially a mobile payment system which allows users to make payment through GSM phones with or without internet facilities (Odior and Banuso, 2012; Akhalumeh and Ohiokha, 2012). In 2011, it was estimated that 99% of over 215 million customer transactions in Nigeria banks were through ATM and over-the-counter, and this was valued at about N2.1 trillion. It is estimated that an average Nigerian transacts about N65 in cash out of N100 income earned (Princewell and Anuforo, 2013) The operation of the cash based system has been at a significant cost to the Nigerian economy. The estimate shows that cash distribution cost accounts for 60% overheads in the banking industry while cash management operations require up to 80% of the industry’s infrastructure base and staff strength (CBN, 2012). Furthermore, the direct cost of transporting, processing and storing (vault) huge volume of cash borne by the financial system was valued at N114.5 billion in 2009 and it was estimated to rise to N192 billion by the end of 2012. Again, heavy cash users (i.e. those with transaction value above N150, 000) account for only 10% of transaction volume but 71% of the transaction value. It appears therefore, that implicit cash holding costs for the minority class of cash users are being subsidized by the majority (Nweke, 2012). In response to this trend, the Central Bank of Nigeria by its legal mandate initiated the policy shift from cash-based system to cash-less one. In 2005, the CBN initiated the National Payment Systems (NPS) specifically to achieve the objectives of promoting efficiency and effectiveness of payment system, promoting safe and sound banking practices and protection against systemic risks. It also set the objective of migrating to cash-less mode of payment, such as electronic debit/credit instruments, credit/debit cards, ATM – sharing Electronic Fund Transfer at Point of Sales and Real Time Gross Settlement System (RTGS). Other objectives of NPS include; to ensure payment system audit transparency and full transaction reporting and to achieve acceptance and confidence through information dissemination, customer convenience and total quality delivery (Princewell and Anuforo, 2013). Eventually, the NPS initiative metamorphosed into the cash-less policy in April 20, 2011. According to CBN, the cash-less policy aims at reducing the amount of physical cash in circulation and to encourage more electronic based transactions. The policy came into effect in January 1, 2012 with partial implementation in Lagos State and later moved into full execution in that State in April 1, 2012. Thereafter, the policy was extended to five states (Kano, Ogun, Rivers, Anambra, and Abia) and Abuja on October 1, 2013 and to the entire country in July 1, 2014. The cardinal objectives of the policy are: (i) to drive development and modernization of Nigeria payment system in line with vision 2020 goal of Nigeria becoming one of the top twenty economies of the world by year 2020, (ii) to reduce the cost of banking services (including the cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach, (iii) to limit high cash usage outside the formal sector and thereby improve the effectiveness of monetary policy in managing inflation and encouraging economic growth, and (iv) to curb some of the negative consequences associated with high physical cash usage, including high cost of cash: robberies, corruption and leakages through money laundering, fraud and cash-related crimes (Central Bank of Nigeria, 2011; Odior and Banuso, 2012; Shonubi, 2012). However, the following are vital issues of the cash-less policy. First, there is a threshold of daily cumulative cash of N500, 000 and N3 million on cash withdrawals and lodgments by individual and corporate bodies respectively free of processing fees. At the conception of the policy in 2011, these were pegged at N150, 000 and N1 million but were later reviewed. This limit applies to all account so far as it involves cash, irrespective of the channel used. Second, there are processing fees for withdrawals above the limit, and it is 3% for individual and 5% for corporate bodies. Lodgment above the limit attracts 2% and 3% processing fee for individual and corporate bodies respectively. These processing fees are subject to review every six months. Thirdly, these fees do not apply to accounts operated by Ministries, Departments and Agencies of the Federal and State Governments, solely meant for the purpose of revenue collections. Exemptions are also extended to Embassies, Diplomatic Missions and Multi-lateral and Aiddonor Agencies, as well as Micro Finance Banks and Primary Mortgage Institutions (CBN, 2012) Reducing the huge population of Nigerians who do not have access to financial services is one of the major targets of the CBN. A survey on enhancing financial innovation and access in 2010, revealed a marginal increase of those served by formal financial market from 35% in 2005 to 36.3% in 2010; five years after the launch of Micro finance policy which was thought could massively mobilize rural Nigerians into formal financial services (Onyinye, 2012). The survey attributed the reasons why most Nigerians do not have or maintain a bank account to unsteady income, unemployment and distance to bank branches. Accordingly, the CBN targeted to increase the number of Nigerians in the formal sector from its figure of 36.3% in 2010 to above 70% by 2020 (The Nigerian Voice, 2013; The Nation, 2013). In pursuant of the foregoing, the CBN has undertaken a number of strategic initiatives, including a commitment at the 2011 Alliance for Financial Inclusion Global Forum held in Mexico to reduce Nigeria’s financial exclusion from 46.3% to 20% by 2020. One way to realizing this is to facilitate access to the otherwise disadvantaged groups like the farmers, aged citizens, self-employed, jobless school leavers and SMEs considered by banks a costly, risky and unviable bankable population (Onyinye, 2012). Also, the introduction of mobile money services by the CBN is seen as a veritable tool to create payment access to those unbanked Nigerians in the rural areas, and also help drive financial inclusion in the country. Financial analysts are of the view that the high level of mobile telecommunications usage in the country is expected to translate into increase in bankable Nigerians if perfectly harnessed (Amaka, 2012)
CASHLESS POLICY
The cashless policy which took effect from April 1, 2012 in Lagos as a pilot project pegs daily cash transactions over the counter for individuals and corporate bodies at one hundred and fifty thousand naira (N150,000) and one million naira (N1,000,000) respectively. However, these amounts were later reviewed upward to five hundred thousand naira (N500, 000) and three million (N3, 000,000) for individuals and corporate organizations respectively. Any over the counter (OTC) cash transactions above the aforementioned amount for individuals and corporate organizations attract a charge. The essence of the policy is to shift the economy from a cash-based economy to a cashless one. Thus it is geared towards engendering an efficient payment system anchored on electronic based transactions. Electronic based transaction seeks to drive the development and modernization of Nigeria’s payment system in line with her vision 20:20 20 goal of being among the top 20 economies of the world by the year 2020 (Central Bank of Nigeria, 2011). It is a truism that an efficient and modern payment system is a key enabler and a sine qua non for driving growth and development. The policy also aims at improving the effectiveness of monetary policy in managing inflation in the economy. The cashless policy applies to all accounts, including collection accounts and the cash limits apply to an account irrespective of channel (i.e. whether it is over the counter, ATM, third party cheques cashed over the counter etc). As far as cash is involved, any withdrawal or deposit that exceeds the limits attracts a service charge (Central Bank of Nigeria, 2011). The charge is borne by the account holder and is about N100 per every 1000 in bank charges (This day Live 2012, April 25). The limit however does not prevent customers from withdrawing or depositing beyond the pegged limits but such customers should be prepared to pay the aforementioned penal fee. The implementation of the policy which is currently undergoing a test run in Lagos is expected to be extended to other states of the federation from January 1, 2013. However, contrary to the initial plan to introduce the policy to all states of the federation by January 1, 2013, the apex bank has now decided to pursue the implementation process in stages, beginning from five additional states and the Federal Capital Territory. These states are Kano, Ogun, Anambra, Rivers, a state in the North Eastern zone of the country and the Federal Capital Territory (FCT), Oketola (2012, July 30). Desirous of making the policy succeed, the apex bank has introduced a number of financial services which among others include mobile money payment system, point of sale terminals, Alerts and Automated Teller Machines (ATM).
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to the impact of CBN cashless policy on the development of the banking sector of Nigeria
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information the impact of CBN cashless policy on the development of the banking sector of Nigeria. 200 staff of CBN in Enugu State was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the impact of CBN cashless policy on the development of the banking sector of Nigeria
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of the impact of CBN cashless policy on the development of the banking sector of Nigeria
Summary
This study was on the impact of CBN cashless policy on the development of the banking sector of Nigeria. Three objectives were raised which included: To ascertain the relationship between Cashless policy and accessibility to customers’ accounts, to investigate the relationship between Cashless policy and queue-ups in banking halls. Ascertain the relationship between Cashless policy and the promptness of bank-related transactions. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of CBN in Enugu State. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up human resource managers, accountants, customer care officers and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
This study shows that the introduction of cashless economy in Nigeria can be seen as a step in the right direction. It is expected that its impact will be felt in modernization of Nigeria payment system, reduction in the cost of banking services as well as reduction in high security and safety risks. This should also include curbing banking related corruptions and fostering transparency. It is also assumed that the introduction of cashless policy in Nigeria will help to reduce the amount of bills and notes circulating in the economy. This should, therefore, reduce handling operation cost incurred on conventional money, as well as reduction in cash related crimes. It should also help to provide easy access to banking services for Nigerians
Recommendation
The cash-less policy should however not been seen as having no consequences. For instance, the use of POS in cash-less setting will attract special charges that do not go with cash transactions as shown in the data analysis section. To mitigate the challenges of the cash-less policy it is recommended that power and electricity infrastructures should be put in place to provide support for electronic banking equipment. Situations where banks have to provide own power supply practically every working day (like the banks in Abraka environs) will increase overhead costs and diminish the gains accruable to them. Legal and regulatory framework that will check electronic fraud should be put in place by the government. The mandate of anti-graft agencies like the Economic and Financial Crimes Commission (EFCC) should be expanded to cover fraudulent practices that are associated with operations of cash-less economy. In addition, the policy should have local content by ensuring that it is in tune with fundamental economic policy of Nigeria founded on socio-cultural ideals of Nigerians. A situation where foreign banking culture is imported and imposed should not be associated with the cash-less policy. Finally, the CBN should embark on public enlightenment to educate the populace on the nitty-gritty of the cash-less system. This will raise the level of awareness and reduce possible resistance by the banking public.
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