Cash limit: CBN should rethink this policy for informal economy

Still smarting from the shock and uncertainties arising from its sudden announcement of the redesigning of the Naira, the Central Bank of Nigeria (CBN) has served Nigerians yet another kettle of fish which, many believe, is a subtle way of sounding death knell for the informal economy.

On Tuesday last week, the apex bank announced that it has put a limit on cash withdrawal made by individuals and organizations either from deposit banks or electronic payment channels such as Automated Teller Machines (ATMs) or Point of Sale (PoS).

With effect from January 9, 2023, over-the-counter cash withdrawals by individuals and corporate entities will not exceed N100,000 and N500,000, respectively, per week or N20,000 and N50,000 per day, respectively.

The CBN stated further that where an individual or organization has need/reason to withdraw more than these stated amounts, such individual or organization will be required to pay 5 percent and 10 percent, respectively, as surcharge.

For that reason, we believe that this cash withdrawal limits, if implemented across the country, will ultimately push small businesses in these rural communities that depend on the few PoS terminals to the brink of collapse

Since the announcement of this policy, it has generated debates and controversies at different levels of socio-economic and political discourse as Nigerians ponder on the policy’s possible impact on individuals, organizations, small businesses and the economy as a whole.

Though the CBN’s letter conveying the policy did not state the reason for it, Nigerians are speculating that besides boosting the cashless economy, bringing more people into the financial system, the policy may also be aimed at reducing vote buying during the February 2023 elections.

To a very large extent and for good reasons, we agree with all of this, especially the latter, given our kind of electoral system which is a kind of bazaar, where the highest bidder carries the day.

But we are not in anywhere distracted from the fact that the policy portends danger for all of us, at least in the short term. We are particularly worried by the possible impact of the policy on the informal economy, which is an integral part of the larger economy, constituting a significant percentage of the economies of developing countries like Nigeria.

We are just wondering aloud what will become the faith of PoS agents whose capital outlay will be drastically reduced by this policy; the fish seller in Oyingbo Market who does not even have a bank account. Ditto for vulcanisers, carpenters, barbers, food vendors, and other small businesses if this policy sails through.

Godwin Emefiele, the governor of the central bank, may mean well with all the policies he is putting in place to tame the galloping inflation and defend the Naira which has been on a free fall in the last five years, but he seems not to have spent enough time to think through this particular policy.

We find objectionable the governor’s insistence that the policy must go on despite widespread arguments against it. This, in our view, presents him as someone who is insensitive and impervious to even constructive criticism, which he shouldn’t be as a public servant.

Part of the argument against this policy is the timing which we consider too short. Another is that the banking system in Nigeria is yet to develop to the point where this policy can work effectively as most rural parts of the country have no banking facilities. Above all, the CBN has said that only N200 notes will be uploaded in the ATM vaults. And that, in itself, will be a heavy load to carry after withdrawal.

Read also: New CBN policy on cash withdrawal limit

This means that businesses in the rural areas will either spend all the days in the week going to the city centres to make withdrawals or close shop altogether.

It was exciting hearing the CBN governor explain why now is the time to implement this policy. He said that after 10 years, the country has built enough infrastructure to make this happen.

But it is pertinent for us to observe that if there is anything to point to in this direction, it is the growth in the use of PoS, which is still largely urban-based even though it is meant to serve the rural communities where banking services are non-existent.

Between 2017 and 2022, the number of PoS terminals in Nigeria has grown significantly from around 155,000 to 1.1 million as of April 2022, but the infrastructure remains largely inadequate.

For that reason, the distribution of the PoS agents is still in favour of the big cities, mainly Lagos, Abuja and Port Harcourt, which explains why as against 281,631 PoS agents in Lagos, Yobe State, with largely rural dwellers, has the lowest number of agents at 8,194.

Yobe, as far as we are concerned, is not an isolated case. There are numerous other locations in the country where these inadequacies also exist and both people and businesses here must survive.

For that reason, we believe that this cash withdrawal limits, if implemented across the country, will ultimately push small businesses in these rural communities that depend on the few PoS terminals to the brink of collapse.

The apex bank has said that “in compelling circumstances, not exceeding once a month, where cash withdrawals above the prescribed limits would be required for legitimate purposes, such cash withdrawals shall not exceed N5 million and N10 million for individuals and corporate organisations, respectively.

This is fair, but the conditions attached to such withdrawals, in our opinion, are too stringent, especially for businesses and their operators who may not have all the time or the luxury of all the times in demand.

Asking for valid means of identification of the payee such as National Identity Card, International Passport, Drivers Licence; Bank Verification Number of the payee; notarised customer declaration of the purpose for the cash withdrawal; senior management approval for the withdrawal by the managing director of the drawee, and approval in writing by the MD/CEO of the bank authorising the withdrawal, are overly too much for one bank transaction.

On the strength of the above, therefore, we join other Nigerians, including members of the National Assembly, to urge the CBN to rethink this policy in the interest of everybody, particularly those operating in the informal sector. It’s still early days to get this done and we advise it is done today.

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