So cashless is here finally.  It’s actually been operative since the CBN announced its commencement in 2012. However,…
So cashless is here finally.
It’s actually been operative since the CBN announced its commencement in 2012. However, for the last eleven years or thereabouts, the policy posturing has been more of encouraging compliance rather than enforcing it, until the twin issue of Currency redesign – ostensibly to discourage cash-based corruption leading to the elections and the Cash withdrawal limit promulgation by the apex bank put the whole country unto unmitigated chaos.
To do a decent job of this piece, it’s important to apply some context. Nigeria is a predominantly underdeveloped country. Its economy is largely informal, and its biggest assets and potentials are not easily quantifiable. Let’s apply some context to this premise. A recent article in ThisDay newspaper submitted this:
According to the International Monetary Fund, the informal economy employs approximately 5.5 million people in Lagos State alone—roughly three-quarters of the state’s 7.5 million labour force—and in the country as a whole, with nearly 200 million people, over 80 per cent of the population works in the informal sector (IMF).
Given the labour intensity, there is little doubt that the bulk of businesses and entrepreneurs are in the informal sector. Unlike the formal economy, the informal economy’s operations are not included in the country’s Gross Domestic Product (GDP). As a result, the GDP figure computation is a significant underestimate of the country’s GDP when the massive informal economy is excluded.
From the foregoing, it is clear that Nigeria’s cash dependency is not premised primarily around national literacy, broadband penetration or even the presence of financial institutions as we often band about. It is quite clear that the major reason why Nigerians have continued to trust and depend on cash as the exchange of value is that some of the most critical economic and social interactions of everyday Nigerians continue to happen informally.
Everyday shopping at the open market, short-distance travel on motorcycles and tricycles, parking fees in public spaces, giving monetary gifts during visits, and even helping the destitute on the streets.
All these and more are the average socio-economic interactions most Nigerians engage in daily – whether they are financially included or even economically excluded.
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The challenges of a cashless Nigeria
The recent ‘Ban of Cash,’ as it is called on the streets, has created near disaster as many socio-economic activities grind to a halt. One of the most tragic images of recent weeks was a video trending from the Idi-Oro fruit market where plantain sellers lamented the destruction of value as their plantains rotted on display due to persistent cash scarcity. Many of them have waited almost two weeks to sell their inventory, but the market – like many all around the country have suffered deplorable patronage as buyers are unable to purchase primarily due to the limited access to cash.
Should we as a nation continue to watch and hope as we are wont to do? Should we watch Nigeria’s informal economy, the true bastion of our economic strength, continue to stutter in the face of cash scarcity and regimented policy execution? Should our farmers continue to suffer unmitigated crop rot while transporter, sellers, and even consumers continue to suffer endlessly? What aid can we get from FinTech? How can the informal economy posture itself to adapt in the face of this sudden change? Is there some breathing room in the policy for a better transition?
This piece will attempt to share thoughts on some immediate and mid-term options. Starting with the CBN, critical stakeholders like Financial institutions and FinTech and also the merchants and patrons. Let’s dive in.
The regulator, CBN, should relax
The CBN needs to relax this cashless policy and not necessarily reverse it. I say that because the real end game of cashless is to drive inclusion and economic growth, both of which are critically needed in a slowly growing and flagellating economy like ours.
However, the sudden combination of currency changes and massive cash withdrawal, coupled with an aggressive policy position on Cash limits, is like combining explosives and dynamite to generate the fire for roasting corn. I mean, think about it, of the just over three trillion-naira cash in circulation, the CBN Governor stated that the apex bank had withdrawn approximately 2 trillion Naira, which is about 66% of the cash in circulation, and for a nation that is almost 60% dependent on the informal economy, we are practically creating not just chaos, but destroying that economic backbone for the nation.
Simply applying cash limits would have been rough but understandable. However, aggressively withdrawing cash and the continued rejection of the old notes as legal tender, despite a Supreme Court judgement, feels vindictive to some. We must relax the cashless policy, relax the stranglehold on de-cashing the economy and plan a long-term/sustainable way of implementing a cashless society without torpedoing the economy.
The financial industry should buckle up
Some of the biggest pain consumers face is not for lack of inclusion. In fact, for the included, this has been the worst period of banking and financial services for maybe the last 30 years. We are seeing a near collapse of digital infrastructure supporting financial services. From the NIBSS Instant Payment (NIP) infrastructure coupling the banks to switching capabilities to core banking technology, Digital Channels (USSD, Mobile, ATMs & Internet Banking) and other operations and settlement platforms, things have felt more apocalyptic in the last two months than at any time over the last three decades.
All players clearly need to step up. There is a need to increase capacity, reinforce disaster recovery and even ramp on anti-fraud solutions that protect everyone. The cashless policy acceleration is a net positive for everyone involved, but more so for the industry. Some investments are critically required in the short term to improve customer experience and the customers’ trust in Digital as a capable alternative to their cash-based lifestyle.
More than this, we also need to rethink solutions for open-market merchants or micro-merchants. We must provide better-fit solutions that do not necessarily require investments in terminals, smartphones or internet connectivity. Those merchants need simple but effective solutions that allow them to receive payments from everyone without a hassle. Possibly mobile money wallets or even USSD solutions that empower them to still control their cash assets without losing an arm and leg in purchasing the solution that powers this.
Merchants/Business Evolution
It is now certain that Merchants and businesses (Small & Big) are typically the drivers of sustainable change in the Digital payments eco-system. Clearly, there is a job for and by open market merchants to be curious in exploring digital technology as a primary payment acceptance channel. This is crucial to help the CBN deepen its policy acceptance and provide a better experience for their customers and certainly a sustainable pathway forward for their business. Cash is not without risk, and continued devotion to cash-cased acceptance leaves their business at the risk of losing not just patronage but also material value if and when some currency ceases to be legal tender.
Consumer Acculturation
The next are the customers and consumers who need to exercise more patience as this policy takes time to mature and also learn that change is here. Digital payment is not just a desired alternative; it is clearly the primary financial policy of the government. As such, being included, seeking to engage service digitally or even pay digitally when services are offered in the open market is the sustainable pathway forward. We all need to align in this direction because only then can we all work together to ease the burden and accelerate the benefits for everyone across the value chain.
The role of Academia, media, others
The final group is what I call others. Critical stakeholders like the media have a critical role in educating and helping to drive the right acculturation that can be the difference between this policy being a success or otherwise. Others, like the Academia, are critical in educating and providing the facts-based assessment and research that promotes the good of this policy for all and sundry.
Other stakeholders like community and religious leaders, critical social resources like transport & taxes, and other men and women of influence should be encouraged to speak out and be worthy examples of digital payments adoption. It may take time, but as stated, this policy clearly is going nowhere and certainly is a net positive to us all in the long term.
To end, Nigeria is an emerging economy whose foundation is steeped in the fortunes of the informal economy. We as a people and our leaders must remain committed to the prosperity of players and stakeholders in the informal sector of our economy.
Critical stakeholders like street traders, artisans, vendors, nano and micro-businesses, commercial buses, tricycles, and motorbikes (Okada riders), domestic workers, and market traders, among others, many of whom are in their millions and support the nation at large are critical enough as a segment to warrant the respect and recognition for their contributions.
We must think of policies with them in mind primarily, and we must have their due consideration when executions of this nature are contemplated in future. Where we refuse, the lessons will not just be costly in monetary terms; they may cost more than we can pay.
A word is usually enough for the wise…
This article was contributed by Lanre Basamta. He is an experienced tech-business and marketing professional with years of experience in the Nigerian Fintech industry.