Effect Of Microfinance Banks Services On Micro Enterprises

Project and Seminar Topics with material for Banking and Finance

Effect Of Microfinance Banks Services On Micro Enterprises


This study examines the Impact of Cashless Policy on the Performance of Nigeria Financial Institutions. This study employs survey research design. Analytically, the research adopted descriptive statistics to highlights the effectiveness of the cash-less policy of the CBN in Nigeria. The study examines the effects of the adoption of cashless policy on the profitability performance of commercial banks in Nigeria. By using ATM and POS as proxy for the adoption of cashless policy and ROA and ROE as proxy for profitability and using the Ordinary least Square multiple regression analysis, the study reveals that there is a high positive correlation between the adoption of cashless policy and commercial bank profitability in Nigeria. The multiple regression analysis also revealed that the use of cashless policy instruments particularly ATMs and POS increases the ROA and ROE of the banks. It is therefore recommended that the cashless policy should be strengthened and all bottle necks like poor power supply and all loopholes that could lead to fraudulent exposure be tactically proactively tackled.

Chapter One


1.1 Background to the Study

The Central Bank of Nigeria (CBN) has in recent times engaged in series of reforms aimed at both making the Nigerian financial system formidable and enhancing the overall economic performance of Nigeria so as to place it on the right path in tune with global trends. Since Nigeria’s independence in 1960, the successive reforms were channeled at enhancing social welfare and achieving developmental goals but there has been no substantial positive change in Nigeria’s economic indicators.

Introduction of mobile banking, electronic banking and online transactions in Nigeria has paved way for a new era of development where the use and demand for physical cash is gradually declining. The increase in emerging Information Technology has made banking services become more and more automated and less paper work than in the past as averred in the Central Bank of Nigeria (CBN) reports and statistical bulletins, annual reports of most Nigerian banks. Banks in Nigeria have realized that they would soon go out of corporate existence unless they keep with the pace at which Information Technology (IT) has redefined the creation of value and worth for their customers.

Also, these recent evolution of information technology in the Nigerian financial institutions possess interesting questions for academician, economist, financial institutions, financial analyst and the regulatory agents of government such as Central Bank of Nigeria (CBN) regarding the current economic status, logistics, and availability of instruments to guarantee economic growth and stability, efficiency and effectiveness of the cashless policy.

Some observers (Humphrey 1996, Ohley 1999, Klee 2004, Swartz 2006) suggest that the increased use of cashless payment system; (i.e. money or scrip which is exchanged only electronically via computer networks) has led to the predictions of a cashless society.

In addition, the cashless policy aims to curb some of the negative consequences associated with the usage of physical cash in the economy, including high cost of cash, high risk of using cash, high subsidy, informal economy and inefficiency and corruption (CBN, Website, 2011).

Since the inception, various payment methods have been used to purchase goods and services starting with the trade by barter. The trade by barter method of transaction has been the foundation for the introduction of money and coins to solve the problem of double coincidence of wants and divisibility faced by trade by barter. The use of money/coins was introduced after the use of trade by barter method, and it has solved various challenges associated with trade by barter, but the use of money as an exchange medium has its own challenges and shortcomings and can still be replaced with a better payment system ‘the cashless policy’.

Developed countries like US have enjoyed various advantages which has prompted the Central Bank of Nigeria (CBN) to adopt the cashless policy. At the end of the 1980s the use of cash for purchasing consumption goods in the US has constantly dropped with inflation (Humphrey, 2004). Nigeria’s aim to be among the biggest economy by 2020 has driven her to gradually move from a pure cash economy to a cashless policy. Since Nigeria gained her independence in1960, there have been different constitutional reforms, change in economic and banking policies mainly aimed at stabilizing the economy, enhancing social welfare and enhancing economic growth and development.

While cash and cheques are still prevalent in some parts of the world, electronic payment mechanisms and especially, mobile payments are gaining consumer acceptance in many economics due to the high penetration of mobile phone technology (Herzberg, 2003).

In view of being one of the best economies in 2020, the CBN started implementing the cashless policy in some major cities in Nigeria since 2012 such as Lagos, Kano, Port-Harcourt and Onitsha. The CBN asserted reduction in crime rates, minimized risk associated with carrying huge sums of money, reduction in banking cost, improvement on monetary policy in management of inflation and the overall growth and development of the economy of Nigeria as advantages associated with the implementation of the cashless policy.

1.2 Statement of the Problem

The aim of any economy policies (fiscal or monetary policy) is to improve the purchasing power of every individual and the society at large.

Before the introduction of cashless policy by the Central Bank of Nigeria (CBN) in 2012, Our financial institutions has been characterized with so many issues, ranging from poor handling of physical cash, high usage of cash in doing business which affect the cost of banking operation, leakages, money laundering and other financial related offence due to high cash usage within our various economic sector (private and government).

In Nigeria, banking transactions have witnessed a slow pace of technological transformation due to high level of financial illiteracy, poor and irregular power supply and to some extent lack of trust on payment system not involving physical cash. Banking customers have therefore been subjected to high transaction cost with customers spending several hours in banks to do simple transactions as opposed to cashless transactions which according to (Ashike:2011) reduces processing/transaction time, offers multiple payment options and gives immediate notification on all transactions on customers’ account. The long hours spent in banks and inefficiency through cumbersome documentations reduces customer satisfaction as well as increasing transactions cost and other overheads for banks (Ogun:2011).The absence of cashless policy in Nigeria has over the years contributed to high cost of cash movement and cash management by banks thereby impacting negatively on banks profitability. It also contributes to lack of transparency in business dealing in Nigeria ((Jaiyeola, 2011). According to Nonor (2011), most Nigerians are still unbanked as the slow adoption of cashless policy has as well slowed down the inculcation of savings habit necessary to encourage investment and a boost in economic activities and development of the national economy. In line with the Central Bank of Nigeria policy synopsis for introducing the cashless policy, Akara (2016) noted that the absence of the cashless policy gives loopholes to rampant inefficiency and corruption, money laundering and other cash-related fraudulent activities.

Cashless policy as a technique of economic management is to bring about sustainable economic growth and development as introduced by the Central bank of Nigeria (CBN) has not been fully operational in the country due to; i) high rate of illiteracy, ii) in-adequate sensitization/education of the benefits of the cashless policy, and iii) in-adequate infrastructure (such as the provision of internet connections in commercial areas, computers and Point on Sale (POS) machines) in some part of the country.

Apart from the physical challenges, economic data and indicators are not fully available and reliable. There is a great challenge in attempting to analyze the true impact of the cashless policy on the economy of Nigeria as only few monetary and macro-economic indicators can be traced with relation to the subject matter. Several scholars have attempted to analyze the cashless system or e-banking. However, it becomes clear that few studies present a comprehensive evaluation of cash-less banking implications in developing countries. Most ignore the economic benefits of the equation while some do incomplete examination of its negative implications. This is often due to unreliable panel data for monetary and macro-economic indicators. Although, this study focuses on Nigeria Financial institutions, it is difficult to translate cashless studies from one country to another. Even payments instruments that look similar across countries on the surface may be different due to historical and legal variations (Daniel et al, 2004).
This study therefore examines the impact of cashless policy on performance of financial institutions.

1.3 Objectives of the Study

The main objective of the study is to examine the impact of the cashless policy on performance of Financial Institutions in Nigeria and how it affects economic growth. Specific objectives of the study include:

  1. To examine the impact of the cashless policy on performance of financial institutions.
  2. To investigate the effect of the Automated Teller Machine (ATM) on banks profitability.
  3. To determine the impact of point of sale (POS)on banksprofitability.
  4. To determine the impact of cashless policy on money laundering and corruption

1.4 Research Questions

This study tends to provide answer to the following research questions;

  1. To what extent does cashless policy impact performance of financial institutions?
  2. Does the adoption of CBN’s cashless policy in Nigeria affect banksprofitability?
  3. Does the use of ATMs in banking transaction affect banks profitability inNigeria?
  4. To what extent does the point of sale (POS) cashless policy transactions affect bank profitability inNigeria?

1.5 Research Hypothesis

The following null hypotheses are formulated to guide the study at 5% significance level:

  • H01: There are no significant effects of Automated Teller Machine (ATM) on banks profitability in Nigeria.
  • H02: There are no significant effects of Point of Sale (POS) services on banks profitability in Nigeria

1.6 Significance of the Study

The study will give various insights into the various implications the introduction of the cashless policy will have on financial institutions and the economy of Nigeria. Through examining various economic indicators such as the gross domestic product (GDP) and inflation, the study will examine and compare growth trends and changes to determine whether the cashless policy introduced by the CBN has a negative or positive effect on the economy of Nigeria.
Various challenges and prospects identified in the study will also enable various stakeholders to tackle these challenges effectively by making policies that will address them and boost the economy of Nigeria.

The study will be of benefit to financial institutions, the government, Nigerian citizens and to fellow researchers. For financial institutions like bank, the study will enable them see the value of cashless policy and the easy to practice the policy. For the government, the study will enable see where to adjust the policy in order enable efficient growth in the financial institutions like banks. The study will enable Nigerian citizens see the benefit of cashless policy in ensuring safety transaction and less arm robbery attack. It will also help Nigerian to welcome this new development as it creates adequate convenience for the citizens.

For fellow researchers, the findings of the study will serve as a source of information and reference for more study.
Lastly, the outcome of this study will increase the volume of the literature in the area of adoption of the CBNs cashless policy.

1.7 Scope of the Study

The study covered six (6) banks in Nigeria comprising both old and new generational banks which are First Bank plc, Skye Bank plc, Wema Bank plc, Guaranty Trust Bank plc, Zenith Bank plc and United Bank of Africa plc respectively, for a period of six (6) years from 2009 to 2014.

1.8 Operational Definition of Terms


Designating of financial transactions handled by means of credit cards, bank transfers, and cheques, with no money handed from person to person


A system allowing individuals to perform banking activities at home, via the internet.

Economic Growth:

Increase in a country’s productive capacity, as measured by comparing gross national product (GNP) in a year with the GNP in the previous year

POS (Point of Sale):

Point of sale is a computerized network operated by a main computer and linked to several checkout terminals

Automated Clearing House Transfers (ACH):

Is an electronic network for financial transactions that processes large volumes of credit and debit transactions in batches. ACH credit transfers include direct deposit, payroll and vendor payments


An abbreviation for automated teller machine, an electronic banking outlet, which allows customers to complete basic transactions without the aid of a branch representative or teller

Travelers Cheques:

Check issued by a financial institution which functions as cash but is protected against loss or theft.

Wire Transfers:

A wire transfer is the direct transfer of funds from the payer’s account at one bank to the payee’s account at another bank
NIBSS Funds Transfers: The Nigerian Interbank Settlement Scheme is an online platform where banks exchange value thereby enabling the performance of interbank transfers such as NEFT and NIBSS instant transferring funds between banks for single or multiple beneficiaries for individual amounts not exceeding N10million.

NEFT Transfers:

Once effected works with the next available clearing session of CBN and is received in the beneficiary’s account the same day or next working day, but NIBSS instant payments are immediate.


Real Time Gross Settlements is used to transfer sums above N10million in favor of a single beneficiary. It is used for big ticket transactions which must have been effected before noon for most banks if the funds are to reach the recipient bank the same day.

Mobile Money:

This is a product that enables users to conduct funds transfers, make payments or receive balance enquiries on their mobile phones.

E- Transfers:

Refers to electronic transfers which can be effected via the internet on PCs, laptops and other devices. Bank customers who have subscribed to internet banking can do basic banking transactions via the web.

1.9 Organization of the Study

The study is divided into five chapters. Chapter one deals with the study’s introduction and gives a background to the study. Chapter two reviews related and relevant literature. The chapter three gives the research methodology while the chapter four gives the study’s analysis and interpretation of data. The study concludes with chapter five which deals on the summary, conclusion and recommendation.

Chapter Five

Conclusion and Recommendation

5.1 Conclusion

Cashless policy particularly the use of ATM increases the ROA of the bank through a cashless approach. This implies that as POS usage volume increase, it increases the ROA of the bank through a cashless approach. As well cashless policy also increases the volume of the use of ATM.As ATM usage volume increased, it increases the ROE of the bank through a cashless approach. From the data collected and analyzed, it is safe to conclude that the deployment of ICT enhances the application of various policies such as the cashless policy for improving bank performance. It is therefore recommended that the cashless policy should be strengthened and all bottle necks like poor power supply and all loopholes that could lead to fraudulent exposure be tactically proactively tackled.

5.2 Recommendation

More electronic payment devices like ATM and POS should be acquired and installed in remote areas to facilitate quick banking transactions and banking inclusion while the (CBN) as well as commercial banks should increase its awareness to the Nigerian Public and encourage literacy among bank customers in Nigeria to enable them appreciate and embrace policies that rely on information technology for banking transactions.

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