Buhari legacy

CBN cash limit chokes informal businesses

The Central Bank of Nigeria’s (CBN) clampdown on cash economy is hurting informal businesses that are heavily reliant on cash, BusinessDay’s findings show.

The cash withdrawal limit that came into force on January 9, 2023, aimed at curbing the use of cash and driving digital payments is affecting many informal businesses at nano and micro stages in the agricultural sector.

“I buy my goods mainly from the farms and farmers do not accept transfers, so I pay in cash and I need nothing less than N700,000 weekly for my business,” said Janet Agbota, an aggregator of yam tubers.

“I only operate a savings account and the new policy allows me to only withdraw N500,000, which is not enough for me to make weekly purchases for my business,” she said.

Agbota’s business is not registered, and so she cannot open a corporate account that will enable her to withdraw a larger sum of money weekly.

“To find a way around the policy, I only deposit N500,000 and travel with the extra money to where I make my purchase,” she said.

Following the redesign of N200, N500 and N1,000 notes, the CBN introduced a new policy limiting over-the-counter cash withdrawals by individuals and corporate entities to N500,000 and N5 million, respectively, per week, with withdrawals above the range attracting a three and five percent charges.

The CBN expects this policy to encourage a cashless economy, stave off cash hoarding, and lower kidnapping rates and terrorism.

Jimoh Balogun, a cattle trader at Iddo Market who buys his cattle herds mainly from the North, said he now keeps his money at home as he only operates a savings account that allows him to withdraw just a third of his capital.

“I need N1.5 million weekly to make purchases and I can only withdraw N500,000 based on the new CBN withdrawal limit for individuals since I don’t have a business account,” Balogun said.

“I wanted to convert my savings to a business account, but my bank asked me to submit a business registration certificate which I don’t have as my business is not yet registered; so I resorted to keeping my capital as cash,” he added.

About 70 percent of businesses in Africa’s biggest economy are informal with overwhelmingly cash-based transactions.

“Micro enterprises and artisans that operate in the informal sector without any inclusion in the financial system are finding it difficult to make their usual transactions of paying and receiving cash,” said Chinyere Almona, director-general of Lagos Chamber of Commerce and Industry.

Africanfarmer Mogaji, chief executive of X-Ray Farms Consulting, said the rural economy is 100 percent cash owing to the limited number of financial institutions in the rural areas.

He added that Point of Sale centres and Automatic Teller Machines in rural communities are located in places most rural dwellers cannot easily access.

The World Bank’s 2021 global findex report showed that Nigeria’s banked population increased by 15.6 percentage points to 45.3 percent.

This implies that almost 56 percent of Nigerians are unbanked and they are mostly in rural communities and are heavily involved in the agricultural sector.

“We have been receiving a lot of complaints about the withdrawal limit,” said Abdulrasid Yarima, president and chairman of the governing council of the Nigerian Association of Small and Medium Enterprises.

“The networks in the rural areas are weak, and there are issues of integrity and trust in the electronic payments systems,” he said.

Yarima described the timing of the withdrawal limit policy as wrong, saying proper engagements with stakeholders are crucial to find other ways.

“Create a lot of initiatives for people to really come on board and also work with the network operators.”

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Ibrahim Tajudeen, director of research and strategy at Chapel Hill Denham, said the cash withdrawal limit would bring some sort of challenges in the rural areas but that over time, these challenges will be turned into opportunities by companies in the telecommunication sector as well as fintech and payment service subsectors.

Agriculture is a major contributor to Nigeria’s Gross Domestic Product and more than 80 percent of farmers in the country are smallholder farmers in rural areas, implying that they play a dominant role in the economy.

The rural areas where land for agricultural enterprise is available in abundance are bedevilled by challenges that limit financial access to millions of Nigerians living in these areas.

Data from a 2021 Enhancing Financial Innovation & Access report show that while 71 percent of urban adults have bank accounts, only 40 percent of those in rural areas have a formal account.

“In the light of these challenges, this policy might further increase the divide around financial inclusion,” said a policy paper on the revised withdrawal limit by Fate Foundation.

“Given that many nano businesses still operate a cash economy, this policy might further impede financial inclusion particularly for those operating in rural areas and at the bottom of the pyramid,” it said.