Towards a Cashless Economy

Sanusi Lamido Sanusi, governor of the Central Bank of Nigeria, announces new policy measures designed to reduce excessive use of cash in the economy

In recent times, the bankers, committee meeting has become a forum where the Central Bank of Nigeria, CBN, unveils its monetary policies, especially those affecting the banking sector. It was at that forum that Sanusi Lamido Sanusi, governor of the CBN, announced the sacking of chief executives of eight banks that were pronounced technically distressed. It was, therefore, not surprising that Sanusi chose the April 28, monthly meeting of the bankers’ committee to announce new guidelines on cash withdrawals from banks.

Under the new CBN policy contained in a circular titled: ‘Industry Policy on Retail Cash Collection and Lodgement; signed by Mohammed Nda, CBN director, Currency Operations Department, individuals can only withdraw or lodge a maximum of N150,000 cash per day while the limit for companies is put at N1 million per day with effect from June I, 2012.

The guidelines spell out sanction, for individuals and companies that flout the new cash policy. For individuals that make cash transactions above the daily limit, they would be surcharged N100 per every N1000 while the penalty for a corporate organisation that exceeds the one million daily withdrawal limit is pegged at N200 per every N1000.

The new policy also directs banks to cease cash-in-transit lodgement services hitherto rendered to merchant customers. The banks are, instead, to engage the services of the CBN licenced cash-in-transit,CIT, companies to aid cash movements to and from their banks at mutually agreed terms. The sanction for any bank that flouts the ban on cash-in-transit lodgement services is one million Naira per specie movement.

To achieve effective inter-operation ability of local currency point of sales, POS, transactions, the CBN has removed the exclusivity clause by any financial services providers. What this implies is that no card scheme, whether foreign or local, shall be permitted to operate exclusive acquirer agreement or contract in Nigeria with effect from the stipulated implementation date.

The CBN also spelt out penalties for defaulting payments scheme, processors and switching companies that would fail to adhere strictly to the new order. According to the apex bank, any payment scheme, processors, switching company, service provider or banks that contravenes the no-exclusivity policy, risks suspension for a minimum of one month in the first instance and a possible withdrawal of its licence if the contravention is repeated.

Also third party cheques above N150, 000 shall not be eligible for encashment over the counter as from June 1, 2012 as the value for such cheques shall be received through the clearing house. The policy says where any bank that allows third party cheque encashment above the limit, shall be liable to a sanction of whichever is higher of 10 percent of the face value of the cheque or N100 ,000.

The new policy shall apply to both public and private sector transactions and ,therefore, the CBN directs all financial institutions including Mortgage and Microfinance Banks as well as cash-in-transit companies, payments system service providers, interswitch, card acquirers, issuers and providers to take appropriate measures to ensure compliance. The apex bank has instructed the Banking Supervision Department and other Financial Institutions Supervision Department to monitor compliance with the policy by the relevant institutions. Banks are also advised to carry out public awareness programmes to enlighten their customers about the policy and to also educate them on alternative electronic payment channels available to them.

Under the implementation guidelines, the pilot phase of the policy shall be in force in Lagos, Port Harcourt, Kano, Aba and the Federal Capital Territory before its extension to other parts of the country.

According to the CBN, the policy is aimed at reducing high usage of cash, moderate its cost management and encourage the use of electronic channels. It explained that the new policy was premised on the increasing dominance of cash in the economy with its implication for cost of cash management to the banking industry, security and money laundering.

Expectedly, the new CBN policy is currently generating sharp reactions from Nigerians. Businessmen, private and public servants see the new policy as a bitter pill to swallow. Chinedu Ozor, who deals in electronics in Alaba market, feels the new policy would hurt traders more given the fact that their business is on a cash-and-carry basis. “My brother, on a daily basis we need lots of cash to transact our business and so that means I cannot withdraw more than N150,000 when, in some occasions, I need up to N5 million to take delivery of my products.”

Edwin Asemota, managing director of Esaco Ventures, is equally worried over the new policy. He said his staff emolument alone takes more than four million Naira and in most cases, he needs up to N10 million to transact business. With the new policy on cash withdrawal, he laments that doing business would be difficult since he would be surcharged for any time he withdraws more than the stipulated amount.

Joseph Chibundu, a trader at Ladipo market, Lagos, has also found the policy unrealistic. His quarrel is not really with the merit of the policy but with the stipulated limits for individuals and corporate account holders which he described as too low. He would want the CBN to raise the limit for individual from N150, 000 to N500, 000 and corporate account from one to two million Naira.

Another area of concern by many Nigerians is the electronic money transfer scheme that was introduced into the country almost a decade ago. Bamidele Olusegun, a former bank examiner, foresees a problem in the area of money transfer. He argues that eventhough the CBN stated that the policy is aimed at checking money laundering and also to add value to Naira in the face of the growing two digit inflationary  ratio in the country, the policy could be abused as is the case with beneficiaries of Western Union who end up being short-changed by operating banks.

Those who have also frowned at the policy argue that the high level of illiteracy in the country, low level of banking population and porous e-banking system are factors that would work against its success of the scheme. For instance, many have argued that if the idea is to promote e-banking by encouraging the use of e-payment channels like Automated Teller Machines, ATM, the wide-scale fraud associated with its use would make the policy counter productive. Olufemi Timothy, president, Renaissance Shareholders’ Association, said the policy could further dampen the savings culture in the country.

Bismark Rewane, managing director of Financial Derivatives Company Limited, wants Sanusi to tread with caution because if the policy is rushed like the way it is done now with just a year before implementation, it would turn out to be counter productive. He noted that the transformation from a cash-centric to a plastic economy, which is the intention of CBN, it will need a longer period than one year. He prefers a gradual introduction to enable the fundamental structures to be put in place.

However, some Nigerians have applauded the policy. Akin Akeredolu, public relations officer, Association of Stock broking Houses of Nigeria, ASHON, says the policy is laudable and healthy for the nation’s development. He faults insinuations that the policy would discourage saving culture.

Since his appointment, Sanusi, a renowed risk management expert, has not hidden his desire to make Nigeria a cashless economy as one of the strategies to reduce inflation in the country. Before the new policy was announced, the CBN had disclosed its intention to introduce a mobile payment scheme in the country by next month. Mobile payment is the means of payment for goods and services with such mobile devices such as phones.

In recent times, banks have encouraged their customers to use ATM cards. And in order to enforce the use of e-payment cards for transactions so as to discourage congestion in the banking halls, some banks have even introduced surcharge on withdrawals over the counter.