Ascertaining The Impacts Of 2019 CBN Cashless Policy Directive On Market Organizations (A Study Of Onitsha Main Market)

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Ascertaining The Impacts Of 2019 CBN Cashless Policy Directive On Market Organizations (A Study Of Onitsha Main Market)


Abstract


Before the emergence of modern banking system, banking operation was manually done which lead to a slowdown in settlement of transactions, which massively affected market operations. This manual system involves posting transactions from one ledger to another with human hands. The new policy by Central Bank of Nigeria (CBN) on cashless system of payment has raised a lot of concern to the growth of market operations in Anambra State, with the objective of reducing robbery, high cost of processing cash, revenue leakages, inefficient treasury management, promoting economic development through financial intermediation, among others. The aim of this paper is to ascertain the extent to which proposed introduction of cashless banking system of payment will affect market operations in Anambra State. Qualitative research design and correlation was used to carry out this study. The study indicates that there is significant positive relationship between the introduction of cashless banking system of payment and market operations in Anambra State. The implication of these to the economy of Anambra State is that, it will lead to significant decrease in deposit mobilization and credit extension by Nigerian deposit money banks. Consequently, the study concluded that cashless system of payment will be examined and develop the e-payment system first, so that people will be used to it before talking of cashless economy. This is because; bulk of the Anambra State business activities is driven by Small and Medium Enterprises (SME) and petty traders. To retain this proposed policy of cashless economy in Nigeria, we recommend that the migration of our payments system towards a cashless society would require some reforms and a lot of effort and sensitization especially for low income group, who are currently deeply rooted in using cash and see it as a convenient and easy way of receiving and making payments.


Chapter One


Introduction

1.1 Background Of The Study

The Central Bank of Nigeria (CBN) in 2019 implemented its 2014 intended policy on cash-based transactions which stipulates a cash handling charge on daily cash withdrawals that exceed N500, 000 for Individuals and N3, 000,000 for corporate bodies. The new policy on cash-based transactions (withdrawals) in banks, aims at reducing (NOT ELIMINATING) the amount of physical cash (coins and notes) circulating in the economy, and encouraging more electronic-based transactions (payments for goods, services, transfers, etc.)

Money performs a number of roles in economic activity; it is a unit of account, store of value, medium of exchange and means of deferred payment. Also, money has evolved over the centuries to minimize the friction of transaction costs that are involved in mediating exchange. In fact, the process can be observed from the development of the very first monetary products. For instance, conducting economic transactions in barter economies involved high transaction costs as considerable time and effort was required in finding suitable partner. Subsequently, another facet in the evolution of money was the need for fungibility and divisibility. Hence, the advent of study money (notes and coins) made the process less costly by allowing people specialize in production based on their strengths and by enabling the monetary authorities to mint coins in convenient denominations, thereby creating divisibility (Baddeley, 2004).

However, there has been drift towards electronic money, which is quite difficult to define because it blends technological and economic characteristics (Basel Committee, 1998; BIS, 1996). According to ECB (1998), electronic money is broadly defined as an electronic store of monetary value on a technical device that may be widely used for making payments to undertakings other than the issuer without necessarily involving bank accounts in the transactions, but acting as a prepaid bearer instrument. Analogous to this definition is that of cashless economy wherein there exist no notes and coins issued by central banks but by private financial institutions (Costa and De Grauwe, 2001). The central bank of Nigeria introduced the new cash policy for a number of key reasons, which includes:

To drive development and modernization of our payment system in line with Nigeria’s vision 2020 goal of being amongst the top 20 economies by the year 2020. An efficient and modern payment system is positively correlated with economic development, and is a key enabler for economic growth.

To reduce the cost of banking services (including cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach.

To improve the effectiveness of monetary policy in managing inflation and driving economic growth.

In addition, the cash policy aims to curb some of the negative consequences associated with the high usage of physical cash in the economy, including:

High cost of cash:

There is a high cost of cash along the value chain – from the CBN & the banks, to corporations and traders; everyone bears the high costs associated with volume cash handling.

High risk of using cash:

Cash encourages robberies and other cash-related crimes. It also can lead to financial loss in the case of fire and flooding incidents.

High subsidy:

CBN analysis showed that only 10percent of daily banking transactions are above 150k, but the 10percent account for majority of the high value transactions. This suggests that the entire banking population subsidizes the costs that the tiny minority 10percent incur in terms of high cash usage.

Informal Economy:

High cash usage results in a lot of money outside the formal economy, thus limiting the effectiveness of monetary policy in managing inflation and encouraging economic growth.

Inefficiency & Corruption:

High cash usage enables corruption, leakages and money laundering, amongst other cash-related fraudulent activities.


1.2 Statement Of The Problem

The Nigeria bankers’ bank and financial apex institution announced the strict implementation of the cashless policy across six states which includes Lagos, Ogun, Kano, Abia, Anambra, Rivers states. The federal capital territory was not left out. This policy directive was in line with the institution’s vision to drive development and modernization of Nigeria’s payment system in line with the country’s vision 2020 goal of being amongst the top 20 economies by the year 2020. The Central Bank of Nigeria believes that an efficient and modern payment system is positively correlated with economic development, and it is a key enabler for economic growth. The envisioned card dominated society in place of cash is also considered to reduce crime and eliminate huge cost that comes with cash. However, despite the brilliance of this policy and the intention of the Bankers’ bank; the outburst from the several regions of the nations has been with an ill perception. This is evident in the call by the House of Representatives to the central bank of Nigeria to suspend the cashless policy until after due consultation. The policy however have been implemented and several groups have perceived the implementation as uncalled for. It is on this premise that the researcher embarked on this study to establish with facts the impacts of the 2019 cashless policy on market Organizations.


1.3 Objectives Of The Study

The primary objective of the study is to examine the impacts of 2019 CBN cashless policy directive on Market organizations.

Specifically, the objectives are:

  1. To determine how the Cashless policy have affected transactions in the market place.
  2. To determine the constraints to effective cashless policy in the market place.
  3. To recommend methods for effective implementation of cashless policy in market places.

1.4 Research Questions

The study seeks to provide answers to the following research questions

  1. How has cashless policy affected the transactions in the market place?
  2. What are the constraints to effective cashless policy in the market place?
  3. What methods will enhance effective implementation of cashless policy in market places?

1.5 Significance Of The Study

This study will provide insights on how the 2019 cashless policy has affected transactions in market places. This insight would serve as useful data for policy makers in adopting effective implementation strategies or modify the policy to suit the common good. This study in essence is an appraisal guide.


1.6 Scope And Limitation

The study is focused on the impacts of 2019 CBN Cashless policy directive. The impact of this directive is limited to Market places with special consideration for Onitsha main market, Anambra state.


1.7 Definition Of Terms

Cashless:

A situation of transaction where cash is absent.

Policy:

A course or principle of action adopted or proposed by an organization or individual.

Organization:

This refers to any system, body or group of people working together to achieve common goals and objectives of the business.


Chapter Five


Conclusion And Recommendations

5.1 Conclusion

We would like to emphasize that the focus of the Central Bank of Nigeria in introduction of cashless banking system of payment and its impact on the market operations in Anambra State is the effective management and use of e-banking in Anambra State. Nigerian cashless policy has placed much emphasis on high cost of processing cash, robbery among others. One cannot fault the right of the CBN to regulate monetary transaction in the country, which goes a long way in managing the nation’s economy. But this policy was planned without taking into consideration the present state of e-banking in the country. Migration from cash transaction to cashless transaction is not something that should be done in a hurry. We should talk of issue that is practical and realistic in Anambra State.

What we should talk about is raising confidence and stability in the banking industry. That is what the CBN should first of all address. We believe the velocity is too high. Let’s examine and develop the epayment system first so that people will be used to it before talking of cashless transaction in Anambra State. This is because; up to 80% of Anambra State occupants are used to cash transaction. The bulk of the Anambra State economy is driven by SME and petty traders. With negligible internet penetration in the rural areas, no meaningful electronic security and epileptic power supply. What infrastructure does the CBN hopes to build this cashless economy on? Despite the challenges and issues raised, cashless banking system of payment would gradually penetrate in the market operations in Anambra State, help the economy to grow and reduce the cash and carry syndrome that is in vogue.


5.2 Recommendations

From the finding of this study, the following recommendations were made to improve the impact of cashless banking system of market operations in Anambra State.

  1. The migration of our payments system towards a cashless society would require some reforms and a lot of effort and sensitization especially for low income customers, who are currently deeply rooted in using cash and see it as a convenient and easy way of receiving and making payments. The sensitization exercise would require the combined efforts of various stakeholders, including government, financial institutions and non-bank providers of payment services. This is because of significant positive relationship between introduction of cashless banking system of payment and market operations in Anambra State.
  2. The cashless system of payments idea was well received by the majority of Anambrarians, but with some concerns/challenges which can hamper its success and must be addressed by providers.
  3. There is need for the regulatory authorities to ensure that the policy was properly enforced, through the use of moral suasion to drive it home. Coercive measure should be out of it. On the long run, the economy will be better for it.
  4. The transformation from a cash-centric economy to a plastic one would need more than one year, this is because the introduction should be gradual with the fundamental structures that can let people know on how to make use of ATM; first put into place.
  5. Hence before cashless banking system of payment can be widely accepted and used in Anambra State, consumers must trust and have full confidence in the system, which entails:
    • Clear and practical communication.
    • High level of security in the system – difficult for scammers/fraudsters.

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