When the Nigerian Bankers Committee muted the idea of a cashless economy, many thought it would be the global practice of financial inclusion which attempts to take banking to the doorsteps of both the rich and the poor. As it turned out, the policy that the apex bank came up with was simply a minute aspect of financial inclusion aimed mainly at those with cash deposits in banks. The policy instead of providing incentive to would- be users, prescribed harsh punishment for those who fall foul of the policy prescription.
It sets a limit of cash withdrawal of N150, 000 for the individual and N1 million for corporate bodies. Any individual who withdraws more than the limit will pay N100 per thousand and for corporate bodies, N200 per thousand. As the take-off date of the policy (December 1st for Lagos, Port Harcourt and Kano) draws near, there is becoming an observable trend which is playing out in the foreign exchange market which calls to question the integrity of the policy itself.
It is the fact that most well-to-do Nigerians, be they politicians, government functionaries, business executives etc., carry now with them wherever they go, foreign currencies, precisely dollar bills. Most make payments in dollars. The CBN cannot say it is not aware of this development because its officials are also involved. What this simply means is that Nigerians who can and have access to foreign exchange will buy and keep dollar at home for spending to circumvent the so-called cash withdrawal limit.
Ironically, the wealth distribution disparity, the gap between the rich and the poor in the country has continued to widen as indicated in the 2010 Annual Report of the Nigeria Deposit Insurance Corporation, NDIC, which indicated that a mere 6 per cent depositors owned a whopping 94 per cent of banks’ deposits in Nigeria last year. This is the group the CBN and the Bankers Committee are targeting with the policy. They are the ones that can store dollar at home.
According to the NDIC report, the total deposits of the 24 banks amounted to N10.837 trillion which was 36.74 per cent of the Gross Domestic Product, GPD. The corporation said that 44.439 million depositors owned the N10.837 trillion out of which N1.310 trillion is fully covered under the N500,000 limits. Nigerians, whose deposits in banks are N500, 000 and below are 41.926 million or 94 per cent. The remaining bulk of deposit of N9.526 trillion belonged to 2.512 million depositors which represented 6 per cent.
Any time these high net worth individuals need cash well above the CBN withdrawal limit, they will simply exchange dollar in the open market. The cash the CBN wants less of in the economy, will circulate more than ever. The question is, who is this policy targeting if the upper class can go around the country with dollars in their pocket and use it to obtain naira whenever they need it in the open market? The CBN has not in its desire to rid the banking industry of undesirable practices, clamp down on those who trade in foreign exchange in the open. Even clean naira notes are sold in major parks across the country with the apex bank doing nothing about it.
Recently, a friend told me how a multi-million naira advert placement in Nigeria newspapers and television stations were paid for in dollars. But the CBN cash limit policy has not addressed this leakage because it affects the powerful and the affluent in the society as it is busy defending the same naira, thus making it easier for those who buy and keep the dollar to acquire. What may eventually happen is that most people will join the queue of obtaining the dollar and converting it to naira in the open market any time they want to make substantial purchases or cash payment that is above the limit imposed by the CBN. If the trend continues, the naira may lose its general acceptability, as the populace will lose confidence in the naira, which is the first and major quality of a legal tender. It is only in Nigeria that a foreign currency has gained such prominence and the monetary authority is indirectly aiding and abetting its usage in the confines of a sovereign state.
For the cashless economy aspiration of the Bankers Committee to work, the CBN should have offered some incentives in addition to the negative incentive or penalties that it has imposed because by providing incentives to the citizenry, Nigerians would embrace it faster. In South Korea, when they wanted to transit from cash to cards, the government instituted incentive programmes to encourage the use and acceptance of payment cards. What many Nigerians expected the CBN to have done is provide incentives which can come by way of giving discount on VAT to merchants, and the merchants would now become champions of e-payment. A similar thing has been done in South Korea, which has made it the second most active cards country per capita, coming next to the United States. It was by government deliberately instituting an incentive programme, by telling the merchants, ‘if you accept cards, you will get discount on your taxes, but if you accept cash, you will still pay the ten per cent or five per cent VAT.’ And pretty soon, everybody was embracing it. So, all the merchants and even small one man stores were actually asking for their banks to provide them with a PoS terminal.
Another thing they did was that during the Asian financial crises in the 1990s, they instituted a monthly lottery of about a million dollars or its equivalent and the one million dollars was split into two or three bits, the citizens did not buy a ticket to qualify, they just used their cards. They just used Visa or Mastercard to enter, and every month, the government draws from transactions and it is only PoS transactions that were entered. So the citizens also became encouraged. The merchants on one hand had incentives for accepting transactions and the government also had incentive for the users, and the citizens also became heavy users. So that created a country that became more active than all other economies in the world except the United States.
But instead of copying the right thing, the CBN has visited account holders with punitive measures that amount to dictatorship in the midst of democracy. In Kenya that is so much talked about by Nigerian bankers, their system evolved from service providing which as of today is not regulated. In April 2007, Safaricom, Kenya’s dominant mobile phone provider, launched Kenya’s first mobile phone account, M-PESA1. M-PESA accounts for the lion’s share of the growth in access to formal financial services since 2006. Close to half of its customers are in the formally included category exclusively on the basis of being registered M-PESA users. M-PESA had the highest penetration among the formally employed, and lowest among farmers, pastoralists, fishers and dependents.
In attempting to drive financial inclusion in Nigeria, there is a framework and foundation that the CBN should have explored and save the nation the trouble of the impending implosion in the financial service sector. In Nigeria, there is the rotatory credit system in place. Many market women, villagers and others on daily basis make contribution to one person. It is rotated until it gets to the last person. Those who practice it know each other and the default is low. In attempting a financial inclusion, a creative monetary authority and the entire banking system will research into this and see how it can be integrated into the banking system. Secondly, the telecom industry has provided some form of financial transfer of some sort. Many Nigerians living in the cities send money to their relatives by text through recharge cards. Such recharge cards are sold and the money collected by the beneficiaries. This is how Kenya that has become a reference point for Nigeria bankers started theirs.