Author: The Nation

President Muhammadu Buhari’s naira redesign policy implementation hit families, businesses and the economy like a thunderbolt. The Central Bank of Nigeria (CBN) redesign of N200, N500 and N1,000 notes and withdrawal of N2.1 trillion old notes from circulation created a huge cash gap in the economy. As the crisis persisted, public outrage degenerated to violent protests in some cities, with incidents of vandalism and arson at several banks’ facilities – and Point of Sale (PoS) outlets. To speedup economic recovery and prevent another round of naira scarcity, Assistant Business Editor COLLINS NWEZE writes that the way forward is for the CBN to print and circulate more redesigned naira notes ahead of the December 31 sunset for old notes

Bernard Thompson, a computer software developer, was one of the millions of Nigerians that rejected cashless banking due to several risks associated with it. For him, digital payment has little or no place in his business given the rising volume and value of e-frauds emanating from it. That view became more pronounced after he lost N1million to e-fraudsters, who cloned his Automated Teller Machine (ATM) card and made away with his money.

Thompson is one of the cardholders that, according to Nigeria Electronic Fraud Forum (NeFF), lost over N12.8 billion annually to e-fraudsters for using internet banking, mobile banking, Point of Sale (PoS), Automated Teller Machines (ATMs), Unstructured Supplementary Service Data (USSD), web payment, Nigeria Quick Response (NQR) code, among other e-payment channels. Another victim, Michael Abiodun, a Lagos-based vehicle tyre retailer, also got a shocker from the e-fraudsters. Nothing forewarned him of the problem he would soon face on that fateful Saturday.  A customer, who bought goods worth N150,000 from him, said he had no cash and requested Abiodun’s account details to transfer the fund.

He disclosed how he was defrauded: “The customer who was buying three new vehicle tyres typed my account number on his phone and within few minutes, I got transaction alert from my bank. The fake alert showed that N150, 000 had been credited to my account. So, the fraudulent customer took the goods and went away. The next working day, which was Monday, I went to my bank to withdraw the money but it was not there. My account officer showed me my last transaction detail, and informed me that the alert on my phone was not from the bank and that it was a fraud. That was how I lost the money and all efforts to trace the fraudster failed.”

Abiodun said he released the goods because the fake alert captured his previous account balance and the new deposit by the customer. That, he said, was an indication that the fraudster was collaborating with an insider from the bank. “Up till today, I have not recovered that money,” he disclosed.

That experience, Abiodun noted, made him to dump cashless banking and only release his goods after payment confirmation from his bank. Today, Thompson and Abiodun have fully returned to the use of digital banking platforms after the Central Bank of Nigeria (CBN) introduced the naira redesign policy implemented alongside the cash withdrawal limit regime.  Both policies were meant to give substantial backing to the cashless banking and drastically reduce cash use in the economy.

While the naira redesign policy looks great on the surface, especially after  President Mohammadu Buhari and the CBN Governor, Godwin Emefiele, spoke glowingly about its benefits to the payment system and economy, its implementation has exposed the fragility of the e-payment system, brought a lot of hardships to the people, crumbled several small and medium-sized businesses and put the economy on speedy decline.

Understanding the

naira redesign policy

The naira redesign policy was announced on October 25, 2022-three months and three weeks before the general elections. Under the policy, the CBN introduced new N1,000, N500 and N200 denominations and withdrew the old notes from circulation. But a March 3 Supreme Court verdict on a suit spearheaded by Kaduna, Kogi and Zamfara state governments forced the CBN to reintroduce the rested notes.

In its judgment, the apex court directed the CBN and the Federal Government to allow the old and the new naira notes to co-exist till December 31. Emefiele said the introduction of new naira banknotes was a deliberate step by government to check corruption and is backed by its key function as enshrined in Section 2 (b) of the CBN Act 2007. “In recent years, the CBN has recorded significantly higher rates of counterfeiting especially at the higher denominations of  N500 and N1,000 banknotes. Although global best practice is for central banks to redesign, produce and circulate new local legal tender every five to eight years, the naira has not been redesigned in the last 17 years,” he said.

Businesses, economy quake

The hardest hit by the policy have been the most vulnerable members of the population (the poor, the unbanked and the rural dwellers).  Given the low levels of education and exposure of a significant number of Nigerians in this category, many of whom live in rural areas with inadequate or non-existent telecommunications infrastructure, a quick and seamless transition to digital payment channels was always unlikely.

The result of the cash crunch has been a significant loss of man-hours, logistics constraints to many businesses and individuals as cash became commoditised, hoarded by many and commanded outrageous premiums of up to 20 to 30 per cent at PoS outlets. For instance, Michael Osondu, an Abuja-based entrepreneur, said he paid  N15,000 to get N10,000 cash from PoS outlet, even as many commercial banks rationed cash to their customers.

This was worsened by the cash withdrawal limit policy. Under the updated regime, the CBN said effective January 9, 2023, individuals and corporate entities can withdraw a maximum of N500,000 and N5 million, respectively, away from N100,000 and N500,000, respectively, which was previously announced on December 6, 2022. The ensued cash constraint and persistent scarcity of the redesigned naira notes, compelled consumers to prioritise spending on necessities, leaving many businesses, particularly small businesses, with decreased sales and heightened credit risks.

At present, many small business operators, customers and bank customers said they have not seen or even received the new naira notes for months. Mary Okonkwo, a Lagos-based entrepreneur said all the cash receipts for goods she sold came in old naira notes. “All the cash I received for goods sold were in old naira notes and bank transfers. Sometimes, I wonder where the new notes are. This has affected our turnover, worsened cash crunch crisis and made payment for goods very cumbersome,” she said.

Another bank customer, Michael Adebayo, said low cash position in many families made it difficult for them to buy food, clothing, and provisions, among others. “We have seen many families cut their expenditure because of low cash positions. We hope that the situation will improve when the CBN releases more new notes into the economy,” he said.

Among the most vulnerable groups hit by cash scarcity were roadside businesses and hawkers. They expressed anxiety and frustrations over low customer traffic and patronage. Rose Okere, who sales roasted yam and plantain at the Magodo junction, Ketu, Lagos, said her sales volume dropped by over 80 per cent at the peak of the naira scarcity in February. “I incurred a lot of losses during the peak period of the naira scarcity. Many customers who usually spend N1,000 and N1,200 spent less than N400. They asked me to get a PoS machine for my business, but the cost is far beyond the capacity of my business,” she lamented.

At the Eleko market, in Ibeju-Lekki, Lagos, many small business operators also complained about drop in sales volume. Abubakar Umaru, who sells fruits and vegetables in the market, expressed anxiety over what became of his business in the cashless banking era. “I have seen drop in volume of sales because  my customers said they do not have enough cash to spend. I had several customers who left because they could not make bank transfers because of bad network. They all left and made their purchases at a nearby supermarket where they can use their debit cards on PoS machine,” Umaru lamented.

Cash swap limitations

As part of the move to make naira redesign policy implementation seamless, the CBN unveiled a cash swap programme in partnership with Super Agents & Deposit Money Banks (DMBs) to enable those in rural areas or with limited access to formal financial services to exchange old naira notes for redesigned notes. CBN’s Director of Banking Supervision, Haruna Mustafa, explained that each agent was authorised to exchange a maximum of N10,000 per person. Amounts above N10,000 was treated as cash-in deposits into wallets or bank accounts in line with the cashless policy.

However, the Association of Mobile Money and Bank Agents in Nigeria (AMMBAN) had described the programme as ineffective, insisting that participation by stakeholders was minimal. AMMBAN National Publicity Officer, Oluwasegun Elegbade, said the programme has not been really effective as it should. “The CBN only set up a monitoring team in less than five states. Overall, it wasn’t an effective initiative,” he said.

Uptick in cashless transactions

The policy implementation has led to significant rise in cashless banking and return of many customers who abandoned the mode of banking to guarantee safety of their funds. In a report titled: Redesign gone wrong? Agusto & Co., a rating agency, said that for context, in the five years leading up to 2021, electronic payment surged by 386 per cent to N272 trillion, accounting for over 94 per cent of the entire value of transactions in Nigeria’s banking system.

Financial institutions also responded accordingly, by upscaling digital infrastructure to support the increasing adoption of electronic banking. The Nigeria Inter-Bank Settlement System (NIBSS) reported a spike in the value of total cashless transactions in Nigeria to N39.58 trillion in January 2023 – a year-on-year increase of 45.41 per cent – largely on the back of the CBN’s redesign and cash withdrawal limit policy.

“Nevertheless, on evidence, the abrupt shift to electronic payments, which the current cash shortage has necessitated, has overwhelmed the banking industry’s digital payments infrastructure. Nigerians are currently grappling with an unprecedented rate of electronic transaction failures. To further complicate matters, many transactions have not only failed, but refunds are taking days, even weeks in some instances, leaving many stranded and constraining commercial activity,” the rating agency said.

Fintechs make inroads into e-payment space   The biggest beneficiaries of the current lapses in electronic transactions are Fintechs like Opay, Moniepoint, Paga, and Kuda, amongst others, which are reportedly far less prone to glitches and charge significantly lower transfer fees. For instance, Chief Executive Officer of Moniepoint, Tosin Eniolorunda, said the company processed $43 billion transactions for business in first quarter of this year. It has also grown its global headcount from 64 to over 1000 between 2018 and 2023. “Our operations are built on  targeting demographics previously excluded from financial systems and giving them easy access to the financial services ecosystem,” Eniolorunda said.

The Agusto & Co. report explained that whether the upsurge in the number of people making payments through Fintechs is due to lower transaction volumes than what traditional banks charge or the capacity of their digital infrastructure, or both, remains unclear. “However, getting traditional banks to invest in expanding their digital infrastructure in a period of rapid currency depreciation (most of the required infrastructure is imported) and, just as crucially, enhancing their cybersecurity will be crucial in convincing Nigerians to go cashless. Some of the Tier-1 banks spent an average of 5.4 per cent of their operating expenses on Information Technology (IT) and related expenses annually,” it said.

It added that raising this expense in the face of shrinking margins would become increasingly difficult, as it is likely to further impinge on profitability. However, Managing Director, SystemSpecs Technology Services Limited, Demola Igbalajobi, said there is no country that practices 100 per cent use of digital payment in settling its transactions, without a measure of cash deployment. He made case for seamless e-payment ecosystem involving banks, telcos and switches collaborating for efficiency and security of transactions.

He said that aside switches, telcos and banks also have roles to play in seamless payment system, and believed that poor connectivity is a major challenge, which stakeholders needed to tackle. Managing Director, Remita, ‘Deremi Atanda, said currency redesign policy of the  CBN would accelerate digital payment journey for the country and help stimulate cash-less adoption. He emphasised the importance of the e-payment policy in promoting financial inclusion, reducing the cost of currency management, and enhancing the efficiency of the payment system. He warned that the policy cannot succeed without a significant upgrade of Nigeria’s infrastructure, tackling poor network connectivity and and low levels of literacy.

Views from stakeholders

Former statistician-general of the federation, Oyeyemi Kale, said Nigeria’s GDP would contract in the first quarter of 2023, due to the naira redesign policy. Kale, who is now Chief Economist at KPMG Nigeria, projected that the country’s GDP would reduce by about N10 trillion to N15 trillion due to the CBN currency redesign policy, which led to a nationwide cash scarcity.

Member, Presidential Economic Advisory Council, Bismarck Rewane, said the CBN printed approximately N400 billion new naira notes following the currency redesign programme and N2.1 trillion old naira notes withdrawn from circulation.  According to Rewane, who is and economist and Managing Director, Financial Derivatives Company Limited, three of the eight naira denominations- N200, N500 and N1,000 make up 90 per cent total cash in circulation.

Also speaking on the development, an economist and CEO, Economic Associates, Dr. Ayo Teriba explained what is playing out. He said a breakdown of the N400 billion new notes printed showed that about 700 million pieces of new notes are in circulation at present. He said the volume of the new notes, falls drastically below the 9.75 billion pieces naira notes circulating before naira reforms. He said: “The naira notes have attracted global attention at the turn of 2023 for the wrong reasons. The currency redesign policy was a needless exercise that turned out to be a chaotic wild goose chase, until the Supreme Court suspended it on legal grounds. The Supreme Court Ruling has however not completely taken the issue off the table as the N200, N500, and N1,000 currency notes may still cease to be legal tender by 31 December 2023.”

Teriba said the policy choice Nigeria must make is whether to replace the old notes with new ones of the same face values or with new notes of larger face values.  He suggested that instead of wasting resources to print and replace every old naira notes, the 9.75 billion pieces of naira notes   can be drastically reduced by introducing larger denominations notes. Teriba said it is very unlikely that the CBN will print over nine billion pieces of new notes to totally replace the old notes by December 31.

President, Bank Customers’ Association of Nigeria (BCAN), Dr. Uju Ogubunka, said it was very worrisome that the new notes are not available to the ordinary people on the streets. “You can occasionally see the new notes with politicians and top business executives who maintain huge account balances in banks. We have read stories of banks calling their top customers to come and take new notes. If third party intervention is needed for Nigerian Security Printing and Minting Company to print the notes, let them request for such support,” he suggested.

Ogubunka, who was former Register/Chief Executive Officer, Chartered Institute of Bankers of Nigeria (CIBN) said the Domestic Operations at the CBN owes Nigeria explanations on what is keeping the new notes out of reach of the people. “I know that a lot of security measures are involved in new notes printing. But whatever it is, by now, the old notes should be passing out. But what we have is that the old notes have remained the dominant means of transaction. If care is not taken, we will have another round of crises by December 31, when the old notes will cease to be a legal tender,” he said.

Emefiele equally admitted the hiccups in the implementation of the policy. He said the apex bank was addressing “pressure areas” by redeploying cash where there are excesses. The governor dismissed the challenges as transient, promising that the issues would be overcome soon. He urged Nigerians to embrace alternative payment channels. On the scarcity, he said: “CBN is aware of the difficulty being faced by Nigerians in accessing the new currency at this initial stages of its issue and circulation but wishes to plead with all to please show some understanding as everything is being done to correct some of the observed lapses in the implementation of this ambitious programme.”