What is a Cashless policy?
A cashless policy is a policy that discourages the use of huge raw cash for transactions but encourages the use of bank transfers, debit and credit cards, POS, and other financial instruments in exchange of cash transactions.
In 2012, the Sanusi Lamido-led Central Bank of Nigeria (CBN) introduced a cashless policy to reduce the quantum of physical cash being used in the economy to cut down on cash handling expenses of banks. The policy was also targeted at getting more of the money in circulation back into the system as well as tracking money laundering activities.
In November 2022, the Central Bank of Nigeria redesigned the naira note and in December 2022, announced the minimum cash withdrawal across the counter and from ATMs and PoS for individuals and corporate organizations. According to CBN, individuals are to withdraw not more than N500,000 per week, while corporate organizations will not be allowed to withdraw more than N5 million per week. The Apex bank placed a bank surcharge for any withdrawal above this limit.
Implementation of Cashless Policy
The new cash policy was introduced for a number of key reasons, including:
- To drive the development and modernization of our payment system in line with Nigeria’s vision 2020 goal of being among 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.
- 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.
- To improve the effectiveness of monetary policy in managing inflation and driving economic growth.
The CBN Governor announced the full implementation of the cashless policy effective Monday, January 9, 2023, which places a stricter limit compared to the initial limits placed when the policy was introduced in 2012 and when the pilot stage was implemented nationwide in 2019. According to the new directive which took effect on Monday, January 9, 2023, individual bank customers cannot withdraw more than N100,000 in cash over the counter, through ATMs or POS in a day. This amounts to N500,000 every week or N2 million in a month. For corporate customers, the withdrawal limit was placed at N5 million per week, translating to N20 million per month.
Whilst the amount of cash that can be withdrawn over the counter had been capped at N100,000 in a day, the amount that can be taken from ATMs and Point of sale was limited to N20,000 in a day.
Impact of cashless policy on Nigeria Economy
The CBN cashless policy and redesigned Naira notes has led to the expansion of various payment channels across the country, the impact of cashless policy on Nigeria Economy includes the following:
Reduction in cash handling: 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.
According to different reports, about 90 percent of transactions are still carried out in cash despite the introduction of various electronic modes of payments, including banking agents, Universal Supplementary System Data (USSD), Point of Sale (PoS), mobile bank transfers, mobile money, and QR codes.
Cashless policy would improve tax base: This is possible because the majority of transactions can now be traced by the government.
It would scale up financial inclusion, this implies the unbanked population would have access to financial services.
Cashless policy would reduce the crime rate, money laundering and terrorism financing, advance fee fraud, random payment and other crimes in Nigeria.
Challenges of Cashless policy
Some of the challenges of the cashless policy include the following:
Infrastructure: The financial infrastructure in Nigeria today is not adequate for full cashless policy implementation, hence an increase in disputed and failed transactions.
Financial literacy: one of the major challenges hindering financial inclusion in Nigeria is financial literacy. There is a need to educate the masses on alternative E-channels platforms and also to sensitize them to build trust on Echannels platforms available in Nigeria and also save money with Deposit Money Banks.
E-Fraud: The prevalence of e-fraud through e-banking is a challenge, which the entire banking industry must address and resolve to the barest minimal before cashless policy can be effective;
Recommendation
Investment in Infrastructure by CBN: Central Bank is advised to invest in infrastructure and effective internet and telecommunications to support E-Banking in Nigeria.
There is a need to educate people to trust the system to increase public acceptance. Education and sensitization would result to financial literacy.
Enhanced Data protection to avoid fraud: Data protection is key in the E-Banking space to avoid fraud.
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