The Central Bank of Nigeria (CBN) cut a sorry figure on February 9, 2023, when one of its deputy governors said the apex bank did not anticipate the challenges that came with transitioning to the new naira notes.
Folashodun Shonubi, the deputy governor, said the challenges were caused by a new line of business created by indigenous Nigerians.
The admission of guilt may not suffice for millions of Nigerians left to bear the brunt of the cash crisis caused by the naira redesign policy of the CBN.
“Do you think some types of negligence in public office should be criminal in nature? You know, similar to when a doctor kills or severely injures a patient due to incompetence or criminal negligence?” Joe Abah, country director of DAI, said of the CBN’s regret.
The scarcity of the new naira notes and the many glitches being experienced with digital banking services have made many men break down into tears, women go naked or roll on the floor inside bank halls, and irate young bank customers destroy equipment in many bank branches, forcing staff to jump the fence for safety. In a Twitter poll conducted by Taiwo Oyedele, partner and head of tax at PwC Nigeria, asking who people hold responsible for the naira scarcity, 67 percent of the respondents said it was the CBN.
“Even the best of policies will fail without critical thinking in the design and robust planning for implementation no matter how well-intentioned. You have to think about what could go wrong under different scenarios and plan your responses ahead,” Oyedele.
Even before it became aggressive in pushing the cashless policy with the new naira notes and stringent withdrawal limits, the CBN has been plagued by a lopsided spread of financial services infrastructure, which is largely responsible for the high number of Nigerians that remains financially excluded. For example, investment in bank branches has often dragged and always favoured urban cities like Lagos. The 31 banks across the country reduced their branches from 5,392 in 2019 to 4,603 as of October 2022. Data from StatisSense show that whereas states like Sokoto and Bauchi have 40 and 43 branches respectively, an average local government in Lagos has 69 branches.
The CBN, therefore, anchored its plan to increase financial inclusion in the cashless economy through the use of electronic payment channels. Nigeria is one of the countries with the highest number of the unbanked in the world, with 40 percent of its population without a bank account, and out of the 59 million unbanked adults, 73 percent do not have the requisite documents to open a tier-three bank account, according to a report by Guardian.
“On the surface, a cashless economy in itself does not seem like a bad policy. Anyone who has been paying attention to the global payments trend knows that a cashless world looms and that it is only a matter of time till hard notes become obsolete or close enough,” the Fintech Association of Nigeria (FintechNGR) said in its latest report, ‘Cashless Economy on Steroids’.
Nevertheless, the association said for a cashless policy to be successful, it has to do two things: offer incentives to encourage mainstream adoption and ensure the current IT infrastructure has the capacity to handle the increase in transaction volumes.
Similar to bank branches, the existing payment infrastructure lacks the capacity to accommodate a growing user base. For example, data released by the Nigeria Inter-Bank Settlement System (NIBSS) show that payments made via electronic channels hit an all-time high value of N42 trillion in December 2022.
This is a 52 percent year-on-year increase from December 2021. Similarly, the total volume of transactions processed by NIBSS also jumped from 3.4 billion in 2021 to 5.1 billion in 2022. This represents a 50 percent increase year-on-year. The payment infrastructure is also unevenly distributed.
Read also; Cashless economy: CBN to boost SMEs with saved funds from naira redesign project
Between 2017 and 2022, the number of Point of Sale (PoS) terminals in Nigeria grew significantly, from around 155,000 to 1.1 million as of April 2022. BusinessDay also published a special report on the PoS market which showed that while the PoS market is growing, with the total number of PoS agents hitting 1.9 million, distribution remains grossly lopsided. Cities like Lagos, Abuja, and Port Harcourt, where the income levels are high, command a large concentration of banking agents at the detriment of rural communities, which the agents were originally meant to serve.
In contrast, many states in the North are experiencing glitches in PoS distribution and operations, with the new naira note policy exacerbating the situation. For instance, Kaduna is arguably the most modernised state in the North; yet, up to two local governments are still without bank branches. In addition, PoS machines are also ineffective due to a lack of a strong network in these areas, and residents would need to travel at least 200 kilometres to the nearest bank branch to deposit old notes, without knowing when to expect the new notes.
“The cashless situation has led to ATM vandalism, the burning of banks, the threatening of bankers, and violent protests across the entire country. As turmoil spreads across the nation, it has laid bare one inescapable fact – that the poor and disadvantaged are bearing the brunt of the collapsing economy,” FintechNGR said in the report.
But the CBN has insisted there is no going back. On Tuesday, the CBN said the old N200, N500, and N1,000 notes were no longer legal tender despite a Supreme Court order barring the apex bank from implementing the February 10 expiration deadline for the old notes. For now, the old foes may not be going anywhere.
