The redesign of the naira notes by the Central Bank of Nigeria (CBN) may lead to a sharp increase in the use of electronic banking channels for financial transactions, analysts say.
Last week, the CBN said it would redesign, produce, and circulate new series of banknotes at N100, N200, N500, and N1, 000 levels.
Damilola Adewale, a Lagos-based economic analyst, fears it might lead to people limiting the amount of cash they carry along and that it may spur electronic transactions.
“People will most likely limit the amount of cash at hand by adopting e-channels for their transactions because the expiry date for the existing notes is January 2023,” Damilola Adewale, a Lagos-based economic analyst said.
“Though the new notes will be injected on December 15, however, it will take to two-three months for them to be widely circulated. So we might see an upsurge in the volume of electronic payments in the near term,” Adewale further said.
Godwin Emefeile, governor of the CBN, said the management of the CBN sought and obtained the approval of President Muhammadu Buhari for the redesign initiative.
“The new and existing currencies shall remain legal tender and circulate together until January 31, 2023 when the existing currencies shall cease to be legal tender,” Emefeile further said.
He also said that customers of banks are enjoined to begin paying into their bank accounts the existing currency to enable them withdraw the new banknotes once circulation begins in mid-December 2022.
Read also: How CBN Naira redesigning may affect politicians’ calculations
Taiwo Oyedele, head of tax and corporate advisory services at PwC said the Nigerian economy is still largely cash-based, with a large number of people not financially included.
“The currency redesigning should help to bring some of these funds into the financial system but addressing the fundamental reasons people keep and transact largely in cash needs to be addressed to achieve a better outcome,” Oyedele said.
Over the years, Nigerian banks have exposed NIP through their various channels, including internet banking, bank branch, kiosks, mobile apps, USSD, POS, and ATM, to their customers, according to Nigeria Interbank Settlement System (NIBSS).
Data from NIBSS shows the volume of mobile transfers surged by a 132.3 percent increase to 438.3 million in the first nine months of 2022 from 188.7 million in the same period of 2021.
In terms of value, it recorded an increase rate of 152.9 percent year-on-year from N5.1 trillion to N12.9 trillion.
The volume of Nigeria Instant Payment (NIP) platform transactions also rose to 3.6 billion in the nine months, showing a 50 percent increase from 2.4 billion recorded in the same period of last year.
A 2021 Global Findex report by the World Bank states that higher adoption of mobile money is driving the growth of account ownership in financial institutions particularly in Sub-Saharan Africa (SSA) countries like Nigeria.
The report showed that the country’s banked population increased by 15.6 percentage points to 45.3 percent in 2021, the highest in 10 years from 29.7 percent in 2011.
Apart from increasing electronic transactions, Omobola Adu, investment research analyst at Afrinvest Research & Consulting said the policy could also spur financial inclusion as more bank accounts would be created.
“People that don’t have accounts will be forced to open bank accounts to deposit their old notes and get the new ones but it might just be for a short period of time,” he said.
Ayorinde Akinloye, investor relations analyst at Seplat Energy Plc said in order to sustain the momentum, the CBN should embark on a lot of campaigns particularly in the rural areas.
“Enlightenment forums should be taken to these areas to make them aware of the need and importance of having a bank account,”Akinloye said.
Nigeria’s financial inclusion rate grew to 64.1 percent in 2020 from 63.2 percent in 2018, data from Enhancing Financial Innovation and Access (EFInA) states.
The 2020 figure is below the Central Bank of Nigeria (CBN)’s 80 percent financial inclusion target for the year 2020.
Although the inclusion rate dropped marginally from 36.8 percent in 2018 to 35.9 percent in 2020, the excluded adult population of 38.1 million reported in 2020 was higher than the 36.6 million recorded in 2018, meaning 1.5 million adults fell into the exclusion circle in the last two years to 2020.
