…Nigerians share experiences
…Stakeholders say CBN largely culpable
…Digital banking services to facilitate easier transition – Kuda
By Seyi John Salau and Iniobong Iwok
Expectation was high that the new administration of President Bola Ahmed Tinubu would correct the mess his predecessor made with the monetary policy, but that doesn’t seem to be happening 11 months in the saddle.
Through the Godwin Emefiele-led Central Bank of Nigeria (CBN), Nigerians suffered immensely in an attempt by the then government to change the old currency.
Nearly one year after inauguration, the current administration has continued with a policy, which the then president said was to check fraudulent politicians from inducing voters in the last general election.
On the surface, the then CBN said the policy was intended to help deepen the country’s financial inclusion by bridging the gap between the banked and unbanked population of the country.
Read also: Cash outside banks drop by N190bn in one month
However, stakeholders believed it was poorly managed by Emefiele, as such a policy intended to promote financial inclusion ended up pushing more Nigerians away from the financial sector; thereby creating financial exclusion that caused serious trouble for the economy.
Similarly, the banking public is not finding it easy walking into any of the financial banks for cash transactions. While most banks do not allow daily withdrawal from personal accounts beyond N20, 000, Nigerians find it difficult to withdraw cash from Automated Teller Machines (ATMs) across the country.
This has forced them to revert to the pre-banking era of keeping their money at home instead of using services rendered by the banking sector.
It is even more alarming to note that while money in circulation is increasing, according to data from the CBN, the cash flow no longer passes through the banking sector.
“The level of money in our economy is unbelievable and these funds are actually not in the banking sector,” said Mayodele David, managing partner, US Africa Business Forum.
Read also: Customers’ frustrations grow on no-dollars via money transfer
David is trying to raise $15 million to help small businesses bridge funding gaps through Crocslake Business Pitch Marathon to fund projects in their local communities. “When they fund it, where does the money go? The money goes back into the banking sector.
“We are trying to say let’s find a way to get our money back into the banking system so that the banks will be able to fund businesses,” David said.
Nosa Oyegun, VP, product innovation strategy, Kuda, told BusinessDay SUNDAY that as Nigeria pivot towards a digital economy, the country should focus on replicating and enhancing the attributes of digital banking services to facilitate an easier transition for Nigerians.
“At Kuda, we recognise the intrinsic value of cash in our daily transactions—its cost-effectiveness, immediacy, and reliability are qualities that have long sustained its usage,” he said.
He further said that to address the cost concerns that typically accompany digital transactions, Kuda Microfinance Bank offers 25 free transfers each month to personal banking customers. According to him, understanding the financial burden on businesses transitioning to digital platforms, led the bank to provide physical PoS terminals with payment options and free virtual PoS terminals.
Nigerians share personal experiences
A bank staff, who spoke to BusinessDay on condition of anonymity, noted that they had to adopt the strategy to ration cash because they did not have enough cash.
“Of course, there is rationing of cash, such a policy came from the CBN and we don’t have enough cash right now,” he said.
Another staff of a different bank in one of the branches in Isolo, Lagos State, said that the bank had not loaded its ATMs for two days (at the time he spoke) now because of a cash rationing strategy.
“It is true, we don’t have money in the ATMs here; we have not loaded for two days now and I don’t know when they would load, but you can withdraw at the counter. People have been coming and going away,” the banker, who also spoke on the condition of anonymity said.
As the cash rationing bites harder, a lot of Nigerians said they regularly visit PoS operators to withdraw money for their daily transactions because banks ATMs had failed them in recent times.
“I often use PoS beside my house, they may not be safe, but I have a woman I trust,” Amaka Oke, a trader, said.
A bank customer said: “In most of the ATMs, despite that you are the bank customer, you can’t withdraw more than a certain amount; at my bank I was informed it was N10,000. I had to go to the counter to take N20,000.
“This policy is not helping, because I needed N50,000 to pay for something, despite the urgency of it I had to wait till the next day.
Another bank customer, Mercy Eze said: “I don’t like to move around with cash, but last year was hell for me and my family and even now no one is sure of what they are doing with cash.
“I won’t be depositing money for now, I have to wait and watch how long this development will stay, you know the saying, once beaten twice shy.”
Speaking on the situation, a financial analyst, Ali Wasiu said even as limited cash in circulation has its positive side, the CBN must however, intervene through various currency control mechanisms.
“Banks could be hoarding cash to sell to PoS at the expense of the public. Cash rationing typically occurs during monetary tightening conditions to stem the number of physical currency in circulation.
“For a country battling with record high inflation as Nigeria, it is a way of mopping up the already flooded currency in the market,” Wasiu said.
Also speaking on the impact of the cash crunch on the financial inclusion drive, the President of the Association of Small Business Owners in Nigeria, Femi Egbesola, said it would have a negative effect, noting that with what is happening now; people’s confidence would be eroded in the system.
“People are trying to get their businesses structured and take their monies to the bank. With what is happening now, the confidence is eroded. People, mostly in the micro sectors, need cash for their daily transactions,” Egbesola said.
Cash rationing by banks
In December 2023, the CBN suspended charges on large cash deposits above the regulatory limits of N500,0 00 for individuals and N3,000,000 for corporate accounts to address the growing cash scarcity and empty ATMs across the country.
However, a lot of the cash that left the banking sector during the CBN’s attempt to force a cashless economy policy through towards the end of the last administration has not found its way back into the formal banking sector.
The disconnect between the amount of cash in circulation and the actual cash in the banking sector has created a challenge in the banking sector that has forced the banks to resort to cash rationing to meet customers’ demands.
Cash rationing has become an increasingly common practice, particularly in countries experiencing economic difficulties. Similarly, some banks imposed cash-rationing during the Coronavirus (COVID-19) pandemic to manage liquidity shortages.
Cash-rationing by banks refers to the practice of limiting the amount of cash that can be withdrawn by customers from their accounts. This measure is often implemented by banks during times of financial stress, such as economic downturns or liquidity crises.
There are two main types of cash rationing, which are explicit and implicit cash rationing. Explicit cash rationing occurs when banks openly impose limits on cash withdrawals. For instance, a bank may limit customers to withdrawing a certain amount of cash per day or per week.
Implicit cash rationing on the other hand occurs when banks use indirect methods like delaying cash transactions or imposing strict identification requirements to limit cash withdrawals.
According to analysts, the goal of cash rationing is to conserve the bank’s cash reserves and prevent a bank run, which can lead to bank’s collapse.
“Banks are rationing cash because they are not getting enough from the CBN. If we receive more cash from the CBN, we will be able to increase our daily withdrawal limits by customers,” a source familiar with the banking sector said.
According to the source, the CBN is responsible for the current cash rationing by commercial banks. “For instance, the CBN gives you N10 million as a bank and you have to service about 2000 or more customers; how do you ensure that you satisfy your customers without leaving anybody out,” our source said.
Speaking further on the issue, he said that Nigerians should look beyond the challenges posed by the current cash rationing by banks, and should look at the overall advantage to the economy. It is argued that while some Nigerians are finding it hard to withdraw their money from the banking sector; the banks are innovating to turn the challenge around.
While banks struggle with cash transactions on a daily basis – they have been able to leverage on the challenge to grow their bottom-line to the benefit of their investors by cutting overhead costs for the banks.
Currently, banks are shutting down branches to embrace agency banking that is also another way of creating jobs within the current cash rationing bottleneck in the sector with Point-of-sales (PoS) terminals.
Meanwhile, as the cash scarcity continues to linger, PoS operators across the country are benefiting from the challenges, which in some cases has led to increase in charges on transactions made via PoS terminals.
According to the operators who spoke to BusinessDay SUNDAY, many PoS operators now rely on business owners within their jurisdiction for cash supply to sustain their businesses.
“I charge N100 on transactions less than N5000; N200 for transactions above N5000 to N10, 000,” Modupe said.
She however, disclosed that sometimes the charges are negotiable depending on the amount involved or the relationship shared with the customer making the transaction. According to her, most banks across the state have long limited withdrawal on the counters, especially on huge amounts, making it difficult for PoS operators to gain access to huge cash.
“I sometimes get between N100 to N150, 000 from traders. Sometimes also, I get as much as N400,000 from traders in my neighbourhood,” she disclosed.
Effects of cash rationing
Cash rationing can have significant effects on individuals, businesses, and the broader economy that could lead to reduced consumer spending. When individuals are unable to access their cash, they may reduce their spending, which in turn will lead to a decline in economic activity.
On the other hand, cash rationing can lead to increased inequality. Cash rationing may disproportionately affect vulnerable populations, such as the poor and elderly, who may rely more heavily on cash transactions.
By strategically addressing the fundamental reasons for cash prevalence—cost, speed, reliability, and utility, Nigeria will not only provide a viable digital alternative but also enhance it to offer greater value.
“Kuda is committed to leading the charge towards a more inclusive, efficient, and cashless Nigerian economy, and we continue to innovate in ways that meet the evolving needs of the banking public,” Oyegun said.
According to him, recognising that cash is used not merely for its own sake but as a means to fulfil daily financial obligations, the government can provide infrastructures to support a multitude of utility payments.
“Our platform allows for the payment of essential services; further integrating digital solutions into everyday life,” he said.
CBN Naira redesign/revised cash withdrawal limits policy – looking back
The Central Bank of Nigeria (CBN) in a December 6, 2022 circular on Naira redesign/revised cash withdrawal limits policy signed by Haruna B. Mustafa, the then director of banking supervision and addressed to deposit money banks (DMDS) and other financial institutions (payment service banks (PSBs), primary mortgage banks (PMBs) and Microfinance Banks (MfBs).
In furtherance to the launch of the redesigned Naira notes by President Muhammadu Buhari, on Wednesday, November 23, 2022 and in line with the cashless policy of the CBN. The circular directed all deposit money banks (DMBs) and other financial institutions (OFIs) thus:
“The maximum cash withdrawal over the counter (OTC) by individuals and corporate organisations per week shall henceforth be N100, 000 and N500, 000 respectively. Withdrawals above these limits shall attract processing fees of 5 and 10 percent, respectively
“Third party cheques above N50,000 shall not be eligible for payment over the counter, while extant limits of N10,000 000 on cleaning cheques still subsist. The maximum cash withdrawal per week via Automated Teller Machine (ATM) shall be N100,000 subject to a maximum of N20,000 cash withdrawal per day.
“Only denominations of N200 and below shall be loaded into the ATMs. The maximum cash withdrawal via point of sale (PoS) terminal shall be N20,000 daily.
“In compelling circumstances, not exceeding once a month, where cash withdrawals above the prescribed limits is required for legitimate purposes, such cash withdrawals shall not exceed N5million and N10million for individuals and corporate organisations, respectively.”
The circular also directed that monthly returns on cash withdrawal transactions above the specified limits should be rendered to the banking supervision department of the CBN. And that compliance with extant AML/CFT regulations relating to KYC, ongoing customer due diligence and suspicious transaction reporting among others is required in all circumstances,
According to the circular, customers should be encouraged to use alternative channels (internet banking, mobile banking apps, USSD, cards/PoS, eNaira, etc) to conduct their banking transactions.
