Cash junkies: Nigeria battles to wean citizens off cash

The bid to implement cashless policy has faced serious resistance

On Tuesday, January 31st, 2023, the lower chamber of Nigeria’s National Assembly invited and grilled the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele.

This was after months of playing hide and seek with the legislative committee and the latter threatening to issue a warrant of arrest.

During the session, Mr. Emefiele answered many questions bothering on the apex bank’s policy to redesign the Naira and its impact on the economy.

However, the cause of disagreement was the scarcity of the new naira note and the limits that the apex bank has placed on cash transactions.

Backlash over Naira redesign

The lawmakers had accused the governor of attempting to disrupt economic activities by imposing an impossible deadline for the return of the old Naira notes while releasing a limited supply of the new notes.

Mr. Emefiele was quick to assure the angry lawmakers that indeed their old naira note would be accepted by banks even after the February 10 deadline.

Earlier, the Presidential candidate of the ruling All Progressives Congress, APC Mr. Bola Tinubu had lamented that the redesign of the naira was part of orchestrated efforts to sabotage his presidential bid.

Another chieftain of the party, Femi Fani Kayode said Emefiele wanted “to cause a crisis, provoke a people’s uprising, derail our democracy and pave the way for an Interim National Government” with his naira redesign policy.

Even the main opposition People Democratic Party, PDP candidate Mr. Atiku Abubakar called for an extension of the legal tender status of the old naira note citing extreme discomfort for the citizens.

The attack on the apex bank has become a clear indication of the people’s resistance to the clampdown on their favoured means of payment – cash.

Read also, CBN hauls N1.9 trillion into banking system in 90 days, hunts for extra N900B with 10-day window

Although the Nigerian government introduced a cashless policy over a decade ago, the appetite for cash transactions has more than doubled within the period.

In fact, at the time the CBN announced the redesign of the currency ahead of full implementation of the cashless policy in October 2022, currency in circulation had risen to N3.2 trillion, from N1.4 trillion in 2015 – more than 85% of which is raw cash outside the banking system.

Cash means real money for many

But why does Nigeria love cash so much?

Nigerians love to touch and feel their money. And in a class-conscious society like Nigeria, a man making his way up on the social ladder would definitely feel penniless unless he is able to touch and feel a substantial part of his wealth – the cash. Displaying a wad or two and spraying them at parties can do so much for the health of his ego much more than digital zeros in the account balance.

However, beyond the emotional and cultural affinity to cash, there is a more sinister motive for the heavy reliance on cash. Fraudulent transactions, especially money laundering has thrived on cash.

Cash fuels criminality

In recent times, the spate of kidnappings has skyrocketed with the raw cash in circulation facilitating untraceable ransom payment. Worse, politicians have relied on cash to induce voters during elections.

But the preference for cash is also because Nigeria is a low-trust environment. There have been stories of car dealers who have been paid with fake credit alerts. The underdeveloped payment infrastructure means that electronic transactions have not been very reliable.

The banks have all launched mobile banking applications but it is not a guarantee that a user will not be stranded despite having a well-funded account. The Automated Teller Machines do not always work, and recently, failure rates of point-of-sale transactions have skyrocketed. In all these instances, cash becomes the last resort – proving to be the most reliable payment option.

Financial exclusion drag

But it gets more complicated when you add the financially excluded in the country. More than 36% of Nigerians have no Bank accounts. For them, it has been cash and it always has to be cash. The Central Bank of Nigeria set an 80% financial inclusion target in 2020. It failed. It is now hoped that the full implementation of the cashless policy will force them into the financial system.

Too many transactions in the informal sector

However, supposing Nigeria achieves a 100% financial inclusion rate, it still has to contend with the volume of cash that the informal sector relies on. Nigeria’s informal economy is estimated to be 57.7%, which represents approximately $1.2 billion – more than half of transactions in this sector are cash-based. A campaign to bring more players into the formal sector has yielded little result.

Can Nigeria go cashless fully?

Despite these challenges, it does appear that the Central Bank of Nigeria is not backing down this time on its quest to get the economy to go cashless completely. The redesigning of the naira has enabled the apex bank to reclaim at least 75% of the total cash that circulated outside the banking system, about 1.9 trillion Naira.

Over the past three years, it has licenced tens of mobile money operators to boost access to digital transactions. It has even had to licence telcos whose network has penetrated Nigeria’s rural hinterlands to provide financial services to the hitherto excluded.

Even the apex bank had to launch its own initiative, a national domestic card recently to add to the bouquet of digital payment options.

However, for most Nigerians, while going completely cashless will require time to adjust their habit and emotionally detach from cash, the authorities must invest more in upgrading the payment infrastructure to make digital payment a more reliable option.