2 January 2012

Nigeria: As the Cash-Less Economy Begins in Lagos...

Lagos — The cash-less economy test-run started yesterday in Lagos. Our correspondent in this report looks at the policy, the efforts of stakeholders to ensure a smooth run and how the users are receiving it.

Yesterday marked yet another turning point in Nigeria's financial system. The cash-lite (cash-less) economy policy introduced by the Central Bank of Nigeria (CBN) in conjunction with the Bankers Committee kicked off in Lagos. Though, it has commenced on a test-run basis, the success or failure of the policy in Lagos will shape how the policy is to be executed in other parts of the country by June when it would roll-out across the country. The cash-lite policy aims to reduce the preponderance of cash transactions in Nigeria.

The policy puts a cap to daily transactions. It sets the limit to include the cumulative daily limits for cash withdrawal and lodgment. For individuals, the daily withdrawal limit is N150,000, while the daily deposit is N150,000. For corporate organisations, the limit is for both withdrawal and deposit is N1 million. Any transaction above these limits attracts N100 penalty on every N1000 above the N150,000 limit for individuals and N200 for every additional N1000 withdrawn or deposited by a corporate organisation. However, the charges will take effect from March 31, 2012.

The primary purpose of the policy is to reduce cost of cash management, cost of banking operations and enhance quick payment system.

The CBN in 2009 put the cost of cash management at N114.5 billion and projected that the cost would rise to some N192 billion by 2012 if Nigeria does not move away from cash transactions.

The CBN's Head, Shared Services Department, Mrs. Eyitope St. Matthew-Daniel said while speaking at a breakfast meeting recently organised by the Committee of Chief Inspectors of Banks in Nigeria (CCIBN) that the cost of lending would reduce significantly if the banks save the N192 billion that would be used to manage cash by adopting the use of e-payment platforms.

She said 99 percent of current banking activities are cash-based rather than electronic transactions as obtained in other economies. She hopes that with the introduction of cash-less economy, the cost of banking will be reduced by 30 percent in the first instance and reduced even more going forward.

The CBN's deputy governor, Mr. Tunde Lemo said five key areas have been identified for cost saving in banks. They include; cash management; payments system transformation; shared IT infrastructure; and services, IT standards and industrialization and shared back office operations.

The payment systems transformation, he said, is a major priority, given that it represents about 60 percent of the industry's operating cost.

Lemo also noted that the application of mobile technology for financial services especially in rural areas will ensure that a large percentage of the population outside the formal banking system would have access to financial services using one of the three models of card-based, account-based and virtual account.

Mr. Chuma Ezirim of the Committee of e-Banking Industry Heads in Nigeria (CeBIH) said Nigeria's economy is tipped to grow by at least one percent when it significantly shifts its payment system from paper based to electronic payment regime.

He said: "Recent academic findings based on empirical data revealed that shifting from paper-based payments to electronic ones could entail yearly savings to a country's economy of about 1 percent of its GDP.

He that Nigeria's economy can grow with cash-less economy.

"This is mainly explained by the realization of economies of scale in the provision of electronic payments, the overall increase in the total number of payment transactions, a greater reliance on cost-efficient service delivery channels as well as impact on the technological change in terms of lower telecommunication and processing costs," he said.

He thus urged Nigerians to embrace the policy. He said that the policy offers a lot of benefits for the country and for the citizens.

He noted that the examples of other countries show that transiting from cash to electronic payment leads to one per cent increase in economic growth.

"We therefore believe that the recent policy by the CBN to reduce the number of transactions settled with cash in the country is very laudable and should be supported by all well-meaning Nigerians," he said.

For the cash-less Lagos project, about 40,000 POS devices have been deployed within Lagos State to cater for settlement of transactions, alongside other electronic payment options.

The CBN sets a target of deploying 150,000 POS by end December 2012 which will be scaled up to 375,000 POS by end 2015 when Nigeria hopes to have attained a benchmark POS penetration of 2,247 POS per 100,000 adult population as obtainable currently in Brazil.

ATMs are also being encouraged, although to drive more cashless transactions as opposed to its traditional cash dispensing functions. ATMs are now equipped to facilitate electronic payments of bills and account to account transfers. Banks are therefore poised to deploy additional 75,000 ATMs by December 2015.


Currently there are about 25 million active bank accounts in Nigeria, largely operated by city dwellers. Majority of rural Nigerians are under-banked. This poses significant threat to the success of the policy but promoters said the mobile payment option would suffice. Statistics say about 60 million out of about 150 million Nigerians are now active phone users. Illiteracy and ignorance are obvious obstacles even with the mobile payment option.

Though the CBN has supported operators to deploy 40,000 POS in Lagos alone, the number is still largely inadequate going by the volume of businesses and population in Lagos.

Issues on the integrity of transactions are germane as potential users' of the policy have consistently risen.

But Tunde Lemo has assured of the security of the transactions. The CBN is "also mindful of the infrastructure and the security challenges posed by this ambitious programme. We have therefore progressed in forging effective partnership with telecommunication companies with the cooperation of the NCC while ensuring that structural impediments such as un-interoperability of payments networks of stakeholders are removed," he assured.

How are Lagosians receiving the policy?

Our correspondent speaks to the ordinary Lagosians on their feelings about the policy. They expressed mixed reactions. While some are excited about it, others are simply not comfortable with the policy.

Chinedu Ekunamiri, an IT consultant, said the policy is good and should be embraced as it would make transactions easy and convenient.

Kate Adubor, a manager with Rachbuk Supermarket Ojodu, said she is excited about the policy because the risk of handling huge cash at the supermarket would reduce.

According to her, in 2011, her supermarket suffered two armed robbery attacks and the policy would eliminate the risks of robberies.

She also noted that her supermarket has acquired the POS terminals and is ready for the cash-less policy.

Mr. Victor Ekuma, a spare parts dealer said though he likes the policy but he still doesn't know how it would work. He said, he is still not too comfortable with the policy because he knows little or nothing about it.

Mr. Bola Alake, a patent medicine dealer at Ojodu, also said he is not disposed to it. He said he is more comfortable with cash.

As it appears now, the implementation of the cash-less policy has begun in Lagos. The next few weeks will tell how successful or not the policy will be. The success of the cashless Lagos would inform its adoption in other parts of the country.

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