Last week, the Central Bank of Nigeria (CBN) announced a new date for the introduction of the cashless policy to other states of the federation. However, responding to the ensuing confusion and uncertainty among the banking community, the apex bank and a number of industry analysts say the hitches encountered in the pilot scheme in Lagos cannot undermine the efficiency of the policy, reports Festus Akanbi
Initial reactions to the decision of the Central Bank of Nigeria (CBN) to suspend the spread of the ongoing cashless policy from Lagos to other parts of the country last week were a combination of it-can-never-be-done-well disposition of some critics of the policy and a wait-and-see attitude of the others, which comprised the management of the apex bank and some financial analysts.
According to the initial timetable drawn for the roll-out of the policy, the pilot scheme, which began in Lagos State last year was expected to spread to other states of the federation as from January this year.
However, the spokesperson for the CBN, Ugo Okorafor, explained that the decision to suspend the plan was to afford CBN the opportunity to correct all the anomalies in the pilot scheme of the policy in the Lagos area in the past one year.
He said, “For now, the CBN has suspended the plan to introduce the policy to other states next year. The test run we did in Lagos showed some problems in the implementation. For instance, people complained there were no enough POS and ATM machines, which we also noticed. The problem of awareness was also there as some people said they were not well informed about the policy
“So before we introduce it to other states, we want to correct the problems. There are some states that do not have enough banks and ATM machines like Lagos and provisions have to be made for the policy to work in those places. It will also afford the banks to upgrade their systems for effective operation of the policy. So when we are convinced those things have been put in place, it will be extended to other states,” the apex bank image maker had said.
Bank Customers Complain
Quite a number of bank customers expressed reservations over the development, which they said merely underscored the hassles being faced in the course of banking in the country in recent times.
A Lagos-based trader, Mr. Adewumi Alao, lamented the abysmal performance of some electronic payment devices in the country these days, saying he was not surprised that the CBN would swallow its pride by reneging on its timetable for the transmission of the cashless policy to other states of the federation.
He regretted that policy makers in Nigeria hardly exhaust all avenues to make such policies fool proof before they rush them down the throats of the people.
Another respondent, a banker, who agreed to speak with THISDAY only on condition of anonymity, said some Nigerian banks were not investing enough on the cashless policy. Although, he acknowledged the fact that infrastructure remains the greatest undoing of the policy, the banker explained that banks are not doing enough in terms of sensitisation of members of the banking community.
No Cause for Alarm, CBN Insists
However, the CBN dismissed the fears that the decision to suspend the introduction of the policy to other states of the federation could have a serious implication on the cashless policy. The CBN Deputy Governor, Operations Directorate, Mr. Tunde Lemo, disclosed that the policy would roll into other states of the federation by July.
Asked to comment on the implications of the postponement of the spread of the cashless policy to other states, Lemo insisted there is “No implication. The cashless Lagos will still continue. We shall roll out nationwide in July. We only need more time in Lagos to tidy up connectivity, bandwidth and other logistical issues. We are happy with the progress in Lagos.”
In what could be described as a vote of confidence on the cashless policy, Lemo said, “ We now record over 15,000 transactions daily on POS valuing over N300m with NIP and WIFT now surpassing cheque volume, both amounting over N60 billion daily.”
Also allaying the fears of members of the banking public, Secretary, Financial Market Dealers Association of Nigeria (FMDAN), Mr. Wale Abe, said there is nothing to fret about.
Justifying why the policy had to start in Lagos, Abe said, “Lagos is where the higher proportion of the cash is. So it is undergoing test-run. So until you get perfect, you will continue to be careful. It is running well in line with the expectations of the policy, it will be foolhardy to start it elsewhere.
“To a large extent, it has solved some problems, while the industry is identifying and implementing challenges that it brought.”
On his part, Managing Director, Financial Derivatives Company, Mr. Bismarck Rewane, said there is nothing to worry about. According to him, it’s a question of having a much more robust deployment of point of sales terminals and other technical issues.
He recalled that in spite of the over 10 years of telecoms technology in Nigeria, Nigerians are yet to get full value for their money because of network issues.
Also commenting on the cashless policy of the CBN, Head, Research and Intelligence, BGL Plc, Mr. Olufemi Ademola, described the policy as a hugely successful story.
“In my opinion, while it may seem a failure on the part of the regulator, I think the policy is generally a success story. A survey conducted by the Lagos Chamber of Commerce & Industry (LCCI) showed that 80% of respondents (including SMEs) are aware of the cashless policy while 76% of them are using one type or another of the cashless mode of business transaction. Based on this statistics especially that of usage, it appears that the policy is gradually being accepted by the populace.
Products are better Market- Driven
“However, it is noteworthy that products development and introduction are better market-driven than regulatory-driven. The introduction of ATMs in the early/mid-2000 was based on market needs. While some banks were cautious of its deployment, banks like UBA were bullish and were rewarded with large customer base and deposit/transaction size. When GT Bank adopted the retail strategy and the crowd in the banking halls multiply overnight, the bank introduced alternative channels, most notably internet banking, to reduce the need to come to the banking hall. These decisions were internally made in reaction to external factors, rather than imposed by regulation. The banks are better able to determine the needs of their customer and seek to deliver that based on their own capacity and understanding of the situation. Several factors like infrastructure requirement, customer enlightenment and financial implications would need to be individually considered by each bank before adopting the policy.
“By imposing the policy and setting a deadline for its full implementation, not meeting the target is failure on the part of the CBN and will have serious implication for future policy initiatives. However, as stated earlier, I think the cashless initiative on its own cannot be considered a failure,” the BGL official said.
Is there anything wrong with the cashless policy in a country like Nigeria?, Ademola explained that the full adoption of cashless policy in Nigeria will take some time as it did in several other countries too. Like Nigeria, several other countries too were cash-based before the introduction of other cashless channels of transaction. It took some time and the trust of the consumers before the use of alternative channels became a norm. People will need to believe the products and trust the service providers to accept the policy. The revelation of the rot in the Nigerian banking sector has made existing and potential customers to be wary of banking relationships and products. Therefore in the aftermath banking reform, renewing the level of trust with the customers will help the acceptance of the banks’ products.”
He is of the opinion that “Building trust is not only by the banking sector but by the entire country. Government, leaders, markets and the society in general need to help in this regard. If the people believe in their governments, leaders and markets to look out for them, they will be trusting and accept whatever the markets offer. They will be assured that if the products fail, it is a genuine failure and they will be compensated. They believe the government has their backs, the market ombudsmen are there to fight for them and the justice system will protect them.
“But in Nigeria, we are not there yet. We don’t trust the government and everybody is for himself/herself only. And to compound the problem, the leaders impose everything on the regardless of the implication. So in my opinion, this is what is wrong with most policies in Nigeria; not only the cashless policy.
Another source of worry is the level of infrastructure in the country. Ademola said: “Infrastructure is an enhancer in the delivery of products to the consumers. There is no doubt that adequate infrastructure is required to drive the cashless policy of the CBN. While it appears that the present level of infrastructure in the country may not make cashless policy a reality in Nigeria, the available infrastructure is also not put to optimum use. This again might be as a result of lack of trust in the system. I am aware that several small traders in Lagos have acquired the POS machine from the banks but they never even attempt to use the service because they do not trust that it will work. On the flip side, even the buyers were afraid that the machines may charge their cards but not complete the transactions (as experienced on ATMs), leaving them cash-strapped for several days before they are refunded. With the success recorded in the use of ATMs even in sub-urban areas, I will conclude that while we need significant improvement in the level of infrastructure to make cashless policy a reality in the country, we also need to optimise the use of the present infrastructure through good service delivery.”
Chief Executive, GTB Securities Limited, Mr. John Ogar listed the benefit of the cashless policy to include need to “drive development and modernisation the nation’s payment system in line with Nigeria’s vision 2020 goal of being amongst the top 20 economies by the year 2020.
He pointed out that an efficient and modern payment system is positively correlated with economic development, and is a key enabler for economic growth. Some of the challenges confronting the operation of the cashless policy in Nigeria, according to Ogar, include “Poor banking culture amongst Nigerians (due to concentration of banking services amongst the urban elites to the detriment of rural dwellers)
Another challenge listed include hasty implementation (albeit on a pilot test basis) without adequate engagement with all stakeholders, not only in the pilot area but across the country by the Central Bank of Nigeria (CBN). Policies that are meant to fundamentally alter the banking habits of people with a big population such as Nigeria’s require not only widespread engagement, but also a long period for a test run (and refinements from the test run) before roll-out across the country.
Ogar also cited the poor state of infrastructure and the ICT backbone to drive the electronic payment systems on which the cashless system is being based.
“Whilst the number of POS terminals/machines may have increased from 5,000 to 200,000 since the implementation of the policy began as reported in the Press recently, this increase might look huge on paper but many are not functional or efficient. For example, if you went with your electronic card to pay for petrol at a filling station or to effect payment for merchandise at a shop, you might be surprised to find that either there is no connection established or the machine might just not function and some of these outlets have had to put them aside and demand payment in cash,” he said.
He explained that preference for cash as a medium of payment amongst traders, businessmen, politicians, etc. because of ease of cash. “In order to overcome some of these challenges, the CBN needs to re-think the policy and allow adequate time, better communication and sensitization plan, work with relevant stakeholders to overcome the parlous state of infrastructure and the low ICT penetration, amongst other critical factors that will enhance the cashless society policy,” Ogar suggested.
The Cashless Policy
The Central Bank of Nigeria (CBN) had introduced a new policy on cash-based transactions which stipulates a ‘cash handling charge’ on daily cash withdrawals or cash deposits that exceed N500, 000 for Individuals and N3, 000,000 for corporate bodies. The new policy on cash-based transactions (withdrawals & deposits) in banks, aims at reducing (not eliminating) the amount of physical cash (coins and notes) circulating in the economy, and encouraging more electronic-based transactions (payments for goods, services, transfers, etc.)
According to the apex bank, the new cash policy was introduced for a number of key reasons, including the need to drive development and modernisation 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.
The policy is also aimed at reducing the cost of banking services (including cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach.
It is to improve the effectiveness of monetary policy in managing inflation and driving economic growth.
In addition, the cash policy aims to curb some of the negative consequences associated with the high usage of physical cash in the economy, including:
The CBN explained that 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.
Experience has also shown that cash encourages robberies and other cash-related crimes. It also can lead to financial loss in the case of fire and flooding incidents.
CBN analysis showed that only 10percent of daily banking transactions are above N150, 000, 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 10percent incurs in terms of high cash usage.