For the first time in many years, bank customers and non-bank customers are shaken by policy shift in the financial services sector. The Central Bank of Nigeria (CBN’s) limit N100,000 and N500, 000 on over-the-counter cash withdrawals by individuals and corporate entities per week, respectively, is with diverse implications to the polity, businesses and economy. The policy, which takes effect on January 9 next year, will crumble Point of Sale (PoS), cash-in-transit and entertainment industry operations, broaden e-payment ecosystem and raise the e-fraud momentum. TAOFIK SALAKO, COLLINS NWEZE, OKWY IROEGBU-CHIKEZIE, LUCAS AJANAKU and CHIKODI OKEREOCHA report
For a cash-based economy like Nigeria, any policy that tends to change the status quo is taken very seriously. That explains the inquisitiveness that followed the Central Bank of Nigeria (CBN’s) directive limiting cash withdrawals for individuals and corporate organisations. The policy directive, among other things, limited over-the-counter cash withdrawals by individuals and corporate entities per week to N100,000 and N500, 000, respectively. The directive was announced in a letter to deposit money banks and other financial institutions. It was signed by CBN Director, Banking Supervision Department, Haruna Mustafa.
The apex bank said the regulatory directives will take effect nationwide from January 9, 2023, and warned that aiding and abetting its circumvention attracts severe sanctions. The CBN also set the maximum cash withdrawal per week via Automated Teller Machine (ATM) at 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,” it said.
It further directed that third party cheques above N50,000 shall not be eligible for payment over-the-counter, but retained the N10 million limits earlier placed on clearing cheques. This policy has continued to generate diverse reactions from bank customers, businesses and economic managers. While it will broaden the e-payment space and expand financial inclusion, it will equally impact negatively on some cash-based businesses such as Point of Sale (PoS), cash-in-transit and entertainment industry businesses.
The influence of cash in politics is expected to drop while audit trail for all e-payment transactions will be readily available, experts have said. Data released by the Nigeria Inter-Bank Settlement Systems (NIBSS) has shown that transactions worth N32.8 trillion were performed electronically in September through the NIBSS Instant Payment platform (NIP). According to the industry data, the total value of transactions worth N271.56 trillion was performed electronically in nine months of 2022, a 26 per cent increase compared to N215.76 trillion reported in nine months of 2021.
The new policy plan is expected to boost e-payment but also expand e-fraud across all payment channels. A survey carried out by Agusto & Co has revealed that 59 per cent of bank customers sampled indicated that they have fallen victim to fraud. According to the survey, 41 per cent said their accounts hadn’t been compromised. “The remaining had been victims through phishing emails, data breaches, unauthorised access to accounts through USSD, and others,” it said. This number is expected to rise as more customers embrace e-payment due to the new cash withdrawal policy. Also, CBN establishment of bank neutral cash hubs (BNCH) to carry out receipt of naira denominated deposits on behalf of financial institutions from individuals and businesses with high volumes of cash will suffer a setback. The hubs were to be located in areas with high volumes of commercial activities and cash transactions to provide a platform for customers to make cash deposits and receive value irrespective of the banks their accounts are domiciled.
Also to be affected are cash-in-transit companies, which for years have dominated the business of moving cash with bullion vans to and from bank branches; while the entrainment industry is likely to suffer cash crunch. Many musicians get a large chunk of their income from funds sprayed on them at parties. This trend, analysts said, is likely to reduce drastically.
The bulk on PoS businesses
Point of Sale (PoS) operators have also lamented the negative impact the policy will have on their business. Speaking at Eleko Market in Ibeju-Lekki, Lagos, a PoS operator, Moses Adigun, said any policy that drastically makes cash unavailable is a minus for their business. “I pay out over N300,000 daily and limiting cash withdrawal to N100,000 weekly means that my business will suffer. The same way I do not have access to cash, is also how my customers will lack access to cash,” Adigun said.
According to him, less than 10 per cent of his customers ask for transfers and 90 per cent demand cash. “It means we will serve a smaller customer base when this policy takes off,” Adigun said. Another PoS operator, Nkemdilim Michael, said she will look for another business because the business thrives on cash. “Customers come to us for quick cash, which we give them at a fee. Now, both the customer and the operator will be looking for cash. That will make cash very expensive and might lead to higher fees and reduced patronage,” Nkemdilim said. Many of the market women expressed surges at the policy, saying they do not believe it is true. “I think the policy may not be as they have told us. How can they say we will only withdraw N100,000 cash weekly? The policy will reduce our business volume unless they make the right infrastructure available before implementation,” Mrs. Beatrice Ajao, a vegetable seller based in Ajah Market, Lagos.
Bank customers association, others call for caution
Speaking on the new policy, President, Bank Customers Association of Nigeria (BCAN), Dr. Uju Ogunbunka, said the policy is a good one given the benefits that come from cashless banking, but its timing and implementation process are not practicable based on weak IT infrastructure realities on the ground. He said the CBN has good intention, but there are serious issues that are currently weighing against the policy implementation. “The policy is good, but the practical realities in the country are against its successful implementation. Nigeria is a cash-driven economy and no matter what anyone thinks, you cannot run away from that trend overnight. It is going to be a crisis. Power supply is bad and network connectivity in many rural areas is also bad or non-existent. Taking cash away from them will speed doom for the people,” he said.
Ogunbunka said the economy currently has big problem with inflation, and the strength of the naira is weak. “What can N1,000 buy? That means people will have to be frequenting the banks to get enough money to buy what they need. How many people spend N100,000 a week? I am yet to see how a woman selling vegetables will be paid with cash transfer. The CBN need to strengthen the infrastructure and get banks ready for take-off,” he said.
The BCAN boss said there are many bank customers who do not believe in online transactions and will not change their minds overnight because of the negative experiences they have had with the channels. He said the rising cases of e-fraud have frightened many cardholders into abandoning e-payment and returning to cash-based transactions. He said convincing such people into embracing digital payment fully will not be an easy task that will just happen overnight.
The Abuja Chamber of Commerce and Industry (ACCI) has reacted cautiously to the recent new policy on cash withdrawal limits announced by the CBN, particularly on the ease and cost of doing business. This is contained in a statement issued in Abuja by the President of ACCI, Al-Mutjaba Abubakar. According to Abubakar, the chamber is raising posers on the impact of the new policy on cost of doing business and ease of doing business in Nigeria.
“We have perused the policy guidelines and we first commend the CBN for constantly innovating to address the fiscal and monetary challenges facing the country. We note the intention of the apex bank, which is the urgent need to address growing inflationary pressure and stabilise the value of naira. As commendable as this policy is, we are worried about the timing of the announcement that coincides with the ongoing plan to phase out old naira notes,” he said.
Abubakar said that ACCI’s concerns stemmed from the disruption the new policy would have on many Small and Medium Enterprises (SMEs) in several big local markets. He said that the limitation on withdrawal will constrain business transactions, especially as most businessmen rely on such withdrawal for quick business engagement from one market to the other. “Aside slowing down businesses within formal and the informal markets, the new policy also has tendency to increase cost of doing business due to sanction on withdrawal exceeding certain limits. The charges on excess withdrawal constitute new form of levy, which adds to the long list of levies on the SMEs and the informal business operators.
“The ACCI wishes to again draw the attention of the apex bank and other levels of government to the fact that small businesses in Nigeria are dying on a very alarming percentage. We solicit the understanding of policy makers to always engage the business sector on policies and programmes that will affect them. Such exchange will enable policy makers to consider impact of proposed policies on businesses,” he said.
Abubakar said that any oversight in holding such consultation might result in policy decisions that further emasculate small businesses, thereby deepening economic challenges facing the nation. “On the implementation timeline of the new policy, we urge the apex bank to allow more time for the commencement of this policy so that businesses have enough time to make the necessary adjustments,” Abubakar said.
Telecom operators, others lend their voices
Telecom operators expressed support for the CBN’s move to institutionalise cashless policy by limiting the volume of cash individuals and corporates could handle per week. They, however, said the unpaid debts owed them by the banks for transactions that were carried out using telecoms infrastructure remained the single threat to the CBN’s policy. Acting under the aegis of Association of Licensed Telecoms Companies of Nigeria (ATCON), the group said it remained a cause of worry why, despite the intervention of the Minister of Communications and Digital Economy, Prof Isa Pantami and others, the banks refused to pay the debt, which has now reached N80 billion.
The Chairman of ALTON, Gbenga Adebayo, in a telephone interview, said the policy of the apex bank aligned with what is obtained in other parts of the world, saying it was doubtful if there is any country in the world where the type of huge cash is carried around. He said the negative impact of the policy will be insignificant on the industry as most subscribers now buy airtime through the banking sector or through virtual top up. Adebayo said the number of people that buy with cash is low and are done mainly by people who are at the lowest rung of the social ladder.
“So, we don’t foresee any major backlash from the policy in our sector. We have somehow been at the top of the digital transformation journey of the country through our investment in infrastructure. The industry is ready to support the policy. We have done that not only via mobile money but through the use of Unstructured Supplementary Service Data (USSD). However, the big elephant in the house is the USSD debt, which has now reached N80 billion, in spite of the ministerial interventions. One day, we will get to the point where we will operate the no pay, no service. This will no doubt frustrate the entire industry. It is one major threat to the cashless policy because, no matter how long it takes, one day, we will implement our commercial terms,” he said.
He said while the telecoms operators are assuring members of the public of the resilience and availability of infrastructure to drive the policy, the debt owed by the bank remained the only threat to its success.
Also speaking, the President, National Association of Telecoms Subscribers (NATCOM), Chief Deolu Ogunbanjo, said the policy is welcome as it is the practice in other parts of the civilised world. He said as the giant of Africa, the country should reduce the huge cash outside the banking sector. He said the implementation of the cashless policy might put an initial pressure on the network; the hiccup will eventually be resolved as the policy progresses.
It will be funny and ignorant on the part of the Central Bank of Nigeria (CBN) if it thinks that its new policy on cash withdrawal limits can control inflation or strengthen the naira, the Director General, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, (NACCIMA), Olusola Obadimu, has said. In an interview with The Nation, Obadimu said the apex bank will be displaying ignorance if it believes it can rein in inflation or strengthen the weakening value of the local currency, the naira, simply by rationing cash.
A wrong-headed policy?
“You can’t control inflation by rationing cash; you can’t strengthen the naira by rationing cash, Obadimu charged, pointing out, for instance, that despite the fact that the dollar is in used in every country all over the world, it hasn’t weakened its value. Euro is being spent all over the world, has that weakened the Euro?” Obadimu also asked, insisting, “It is childish to think that if you don’t have too much of your currency outside, it will give strength to your currency.”
The NACCIMA DG said the policy was wrong-headed. “If you know you don’t have money to print a lot of notes, why did you decide to change notes? Is it by force?” he asked, adding, “If you cannot afford to print enough notes to go round, you can’t be rationing notes. It is not done.”
Obadimu argued that cash transitions and electronic transactions are options. And that even abroad where electronic payment system is widely embraced, governments there never rationed cash for anybody. “The government has no right to impose restrictions on how you spend your money; your money is yours. You are free to spend it however you want; government can encourage electronic payment, but cannot force or impose withdrawal restrictions on people,” Obadimu told The Nation.
According him, Nigeria’s electronic payment infrastructure is not yet perfect and robust enough to support the new policy. “Even me as an individual, I had three transactions that I did in the last one week and I was debited, but they declined. If you add it together, it is more than N50, 000,” he said, asking “what if I don’t have any other money?”
Obadimu, therefore, emphasised that “the system is not perfect yet. So, you can’t force on people a system that is not perfect yet. Sometimes, it takes two to three weeks to revert a failed transaction. In fact, there was a particular one last year that First Bank never reversed for me.”
The NACCIMA chief, while reiterating that it does not make sense to force people to embrace a technology that is not perfect, stated that even in countries where electricity, Internet and other infrastructure are stable, “they are not forcing people to embrace electronic payment.”
He also said there is need to recognise the fact that there are people in the rural areas where infrastructure is even worse and Internet is worse, too. “How can you force people there to embrace electronic payment,” he asked. Obadimu said if the nation’s electronic payment infrastructure is solid and without the usual hitches, people will gradually embrace it. His words: “You don’t need to force people. If you want to do online transfers now, maybe you need a smartphone. I am not sure cheap phones can do it. How many Nigerians can afford smartphones? The cheapest smartphone should be about N30, 000. Some states are yet to implement the N30, 000 minimum wage. So, how can you force poor people to have smartphones to be doing online transactions? There are lots of people in the rural areas who don’t even have phones in the first place.
“Let’s not put the cart before the horse. As far as business people are concerned, they want to sell, they want to buy; don’t let us make life harder for them. Don’t let us make life harder for businesses. I think the CBN should rethink the policy. You can see the discordant tones.”
Deputy President, Lagos Chamber of Commerce & lndustry (LCCI), Gabriel ldahosa, said the cash withdrawal limit might be the next stage of the apex bank’s plan to steadily move the country to a cashless economy. He said the CBN appeared to be taking the benefit of the change of the high denomination currency notes to speed up the cashless process. He, however, expressed concerns that the policy may have negative consequences and lead to crises.
“It is likely to cause disruptions in the economy, especially in rural areas where bank branches are few and telecommunication networks are very weak. Small and medium enterprises (SMEs) that have small working capital tend to hold most of it in cash in order to keep their businesses running,” Idahosa said.
According to him, CBN may be forced to introduce special arrangements for rural areas and SMEs if the disruptions degenerate into crisis situations. He said the apex bank must prepare for such possibilities, especially in hard-to-reach mountainous and riverine areas. He noted that there might also be an unintended consequence of people in regular need of cash keeping much more cash than they normally do.
The Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the new cash withdrawal policy was a needless dissipation of energy and resources. He described CBN’s claim that there was too much cash outside the banking system as “erroneous,” noting that currency as a percentage of Gross Domestic Product (GDP) in Nigeria was 1.8 per cent, whereas, in the United States, it was about 10 per cent. “We are more cashless than many advanced economies,” Yusuf said.
He noted that currency in circulation in Nigeria as at October 2022 was N3.3 trillion, out of which N2.8 trillion was outside the banking vaults, pointing out that there was nothing abnormal about this as currency in circulation is meant for cash transactions and is a mode of payment. It is a contradiction to expect the currency to be largely kept in the vault of banks, rather than outside the banks. “Currency notes are printed primarily to facilitate payments in the economy by segments of the population that needs them. There is a difference between money supply and currency in circulation,” Yusuf, a former director general of LCCI, said. He pointed out that the total money supply as of October 2022 was N50.6 trillion; while the total currency in the economy was just N3.3 trillion.
Tax implications
Fiscal Policy Partner and Africa Tax Leader, PwC, Mr. Taiwo Oyedele, said the new cash withdrawal limits will have tax implications, especially for individuals and micro, small and medium enterprises (MSMEs). “As many people will be forced to carry out transactions using electronic payments, small businesses that currently operate mostly on cash will become visible to the tax authorities.” According to him, the policy will trigger various tax obligations including income tax, Value Added Tax (VAT) and Pay As You Earn (PAYE).
He said: “If a business is registered as a company, it may be liable to company income tax (CIT) depending on annual turnover. There is no CIT if the company’s turnover is below N25 million but it will pay 20 per cent of its turnover is between N25 to N100 million, 30 per cent of its turnover is more than N100 million in addition to Education Tax at 2.5 per cent. But if the business is not registered as a company, then it will be liable to personal income tax based on graduated taxable income bands between seven per cent and 24 per cent. Also, all businesses are required to register for VAT and charge 7.5 per cent on their goods and services except those with annual turnover below N25 million.
Managing Director, Afrinvest West Africa Limited, Ike Chioke, said people in smaller cities may find it difficult during the early implementation days. He said that in blind spots where the PoS or internet banking will not work, there will be no other alternative than to move cash around. He said limiting cash in such areas will present a major challenge for the businesses and communities. “I hope the monetary authorities have also put into planning measures to make sure that Nigerians are not overly impoverished by the system,” Chioke said.