As the name implies, Cashless Policy means you can carry out financial transactions without the use of banknotes.
The Cashless Policy introduced the use of debit or credit card as well as electronic transfer in financial transactions.
In 2012, the CBN introduced the cashless policy programme as a pilot scheme in Lagos. The policy stipulated a ‘cash handling charge’ on daily cash withdrawals that exceed N500,000 for individuals and N3,000,000 for corporate bodies. This was under the leadership of the leadership of the Emir of Kano, Sanusi Lamido. The policy was effective in Lagos which led to the CBN extending it to six other states; Kano, Rivers, Anambra, Abia, Ogun and Abuja in 2013 and then in July 2014 it was rolled out nationwide.
Cashless Policy in Nigeria: How It All Started
In 2015, the Central Bank of Nigeria issued a notice to all banks that began collecting charges on withdrawals above the threshold in the remaining 30 states. The banks were directed to put a hold on these charges until a directive is given by the CBN.
According to the circular, the following decisions were made:
- Charges on deposits have been reintroduced.
- Charges on deposits and withdrawals have been reviewed.
- The new charges will take effect from the 1st of April 2017 in the following states: Lagos, Ogun, Kano, Abia, Anambra, Rivers and the FCT.
- The policy shall be implemented with the charges taking effect on 1st May 2017 in the following states; Bauchi, Bayelsa, Delta, Enugu, Gombe, Imo, Kaduna, Ondo, Osun and Plateau.
- The policy shall be implemented with the charges taking effect on 1st August 2017 in the following states Edo, Katsina, Jigawa, Niger, Oyo, Adamawa, Akwa-Ibom, Ebonyi, Taraba and Nasarawa.
- The policy shall be implemented with the charges taking effect on 1st October 2017 in the following states Bornu, Benue, Ekiti, Cross-River, Kebbi, Kogi, Kwara, Yobe, Sokoto and Zamfara.
- The income generated from the processing fees charged above the allowable cash transaction limits shall be shared between the CBN and the banks in the ratio 40:60.
- Existing exemptions remains sustained for:
- Revenue generating accounts of the federal, state and local government (lodgements only).
- Embassies, diplomatic missions, multilateral and Aid donor agencies in Nigeria are exempted from all processing fees relating to the cash-less policy implementation
Implementation of the cashless policy comes with several benefits. For instance, people and companies can convert their paper money to bank deposit which means that more people use banking services thereby reducing the cost of these services.
Also, the cashless policy can help improve the effectiveness of the monetary policy in managing inflation and driving economic growth. As an efficient and modern payment system has been associated with economic development
Furthermore, the policy can curb criminality usually associated with travelling around with a lot of physical cash. In situations like fire and flood, you’re sure to keep your money safe because it doesn’t exist in physical cash.
The cashless policy is also a means of combating corruption, leakages and money laundering, among other cash-related fraudulent activities.
Overall, we’ve highlighted the prospects of the cashless policy below:
Prospects of Cashless Policy in Nigeria
- Convenience: You just need your mobile phone or debit card to make payment these days.
- Reduction in cash handling and transport cost: The cashless policy makes the process of payment seamless hence there would no longer be the need to move large sums in expensive high-level security vehicles.
- Boost tax base: This is possible because majority of transactions can now be traced by the government.
- Conversion of savings into consumption or investment: this can help boost the country’s GDP and reduce unemployment rate
- However, the cashless policy is not without its faults, some of these include:
- Illiteracy rate: The illiteracy rate is still on the high side which may affect the total implementation of the cashless policy.
- However, this can be solved by sensitizing and educating the populace on the benefits of going cashless and showing them how to adopt it.
- Lack of economic data and indicators: The absence of these data and tool can make it difficult to analyze the actual impact of the policy on the economy.
- Increased cost: Apart from the problem of theft, paper money cost nothing to keep but depositing your money in the bank comes with charges which may lead to a loss of a part of your money
- Accessibility to bank: Many poor people especially those in rural Nigeria don’t have access to the banking system which can make the cashless policy difficult to adopt.
Additionally, electronic transactions are not immune to unpleasant events like extensive power outage, cyberattack and cascading bank failure which can stall the transaction process.
Overall, enforcement of the cashless policy will only succeed if the Federal Government bans cash transactions and defaulters should be penalized.
Recommendations to make cashless policy succeed in Nigeria:
- Periodic review of the policy to iron out grey areas.
- Embarking on intensive awareness campaign and sensitization of the citizenry.
- Putting adequate security mechanisms in place to forestall fraudulent practices.
- Making the public power supply work efficiently and
- Exempting cash lodgements and public holidays from cash management charges
Unfortunately, the Central Bank of Nigeria after commencing the nationwide implementation of the cashless policy on the 1st of April 2017 had to suspend the process 3 weeks later in 30 states of the federation.
The announcement came with the reversal to the old charges. Also, the CBN mandated that customers who had been debited for withdrawing and making cash deposits above the limits allowed under the policy be refunded.
It would be recalled that the CBN in line with the announcement of new charges on deposits and withdrawals above a threshold of N500000 for individuals and N3m for corporate organisations.
The bank had fixed 1.5% and 2% for deposits above N500000 and N1m in the individual category.