IMPACT OF CASHLESS POLICY ON THE NIGERIA ECONOMY
This study examines the impact of cashless policy on the Nigerian economic growth. Nigeria has continued to evolve in different realms. The economy is being reformed, the institutions are being reshaped and legislations are being re-examined so as to reposition the nation to take its rightful position in the international community. As a way of fast-tracking the Nigerian economy so as to he among the first 20 world economies come 2020, Nigeria has proposed that come 2012 it will adopt the cashless economic system. In carrying out the study the researcher adopted descriptive survey research design in order to make use of primary data using questionnaire as an instrument for data collection. The questionnaires were distributed to a sample size of 200 respondents randomly selected and the data collected were analyzed and the two hypotheses formulated were tested using non-parametric tool of chi square to determine the relationship and impact of the cashless policy on the Nigerian economy. The result of the findings have shown that cashless policy has positive relationship with and impact on Nigerian economy but it would require huge amount of capital on technology and other facilities needed for smooth operation of the policy. The researcher therefore recommended that government in collaboration with CBN and other financial institutions should provide adequate infrastructures, e-payment facilities, securities, steady power supply and adequate enlightenment of people on the benefits and proper usage of the system for effective implementation of the policy in order to ensure economic growth and development in Nigeria otherwise there would be economic decline.
KEYWORD: IMPACT OF CASHLESS POLICY ON THE NIGERIA ECONOMY
TITLE PAGE.. i
APPROVAL PAGE.. ii
TABLE OF CONTENT.. vii
LIST OF TABLE.. ix
CHAPTER ONE.. 1
1.1 Background to the Study. 1
1.2 Statement of the Problem.. 3
1.3 Research Questions. Error! Bookmark not defined.
1.4 Objectives of the Study. Error! Bookmark not defined.
1.5 Justification for the Study. Error! Bookmark not defined.
1.6 Scope of the Study. Error! Bookmark not defined.
1.7 Definition of Terms. 7
CHAPTER TWO.. 10
LITERATURE REVIEW... 10
2.0. Introduction. 10
2.1. Theoretical Review.. 10
2.1.1. Rogers’ Diffusion Theory. 10
2.2 Empirical Review.. 14
2.2.1. A Glimpse at Pre-Cashless Policy Era. 18
2.1.2 Cashless Policy and Electronic Payment via E-banking. 19
2.1.3. Type of Electronic Banking. 20
2.1.4 Challenges of Cashless Policy Implementation in Nigeria. 22
2.1.5 Prospects of Cashless Policy. 24
2.1.6 Relative Rationale and Impact of a Cashless Economy. 28
CHAPTER THREE.. 34
3.1 Introduction. Error! Bookmark not defined.
3.2 Research Design. Error! Bookmark not defined.
3.3 Population. Error! Bookmark not defined.
3.4 Sample and Sampling Technique. Error! Bookmark not defined.
3.6 Sources of Data. Error! Bookmark not defined.
3.7 Instrument for Data Collection. Error! Bookmark not defined.
3.8 Data Analysis Technique. Error! Bookmark not defined.
CHAPTER FOUR.. 37
DATA PRESENTATION, ANALYSIS AND INTERPRETATION.. 37
4.1 Introduction. 37
4.2 Demographic Information of the Respondents. 37
4.7: Bank Patronized by Respondents. 42
4.8: Respondents’ Use of ATM... 42
4.9: Banking Service Used by Respondents. 43
4.10: Would you still prefer direct payment and withdrawal to e-payment or e-banking, if the cashless policy is effective?. 43
4.3 Analyzing Section B of the Questionnaire. 44
4.4. Analysis of the research Hypothesis. Error! Bookmark not defined.
4.4.1 Data Estimation and Evaluation Techniques. Error! Bookmark not defined.
CHAPTER FIVE.. 62
SUMMARY, CONCLUSION AND RECOMMENDATION.. 62
5.0. Introduction. 62
5.1. Summary of Major Findings. 62
5.2. Conclusion. 65
5.3 Recommendation. 67
5.4. Suggestion for further Studies. 68
APPENDIX I. 71
The recent evolution of technology for financial transactions poses interesting questions for policy makers and financial institutions regarding the suitability of current institutional arrangements and availability of instruments to guarantee financial stability, efficiency and effectiveness of monetary policy. Over the course of history, different forms of payment systems have been in existence. Initially, ‘trade by barter’ was common; however, the problems of barter such as the double coincidence of wants necessitated the introduction of various forms of money (Swartz et al, 2004). Nevertheless, analysts have been predicting the complete demise of study instruments and the emergence of potentially superior substitute for cash or monetary exchanges, that is, ‘cashless society’.
Unlike the barter system which involves the exchange of one good for another, a cashless environment refers to one in which transactions are carried out with minimal exchange of physical cash. It implies that the payment instrument is not physical cash but other instruments such as cheques, electronic transfers, e-payment and so on. The rapid advancement in electronic distribution channels has produced tremendous changes in the financial industry in recent years, with an increasing rate of change in technology, competition among players and consumer needs as argued (Hughes, 2001). Since Nigeria‘s Independence in 1960, there have been different governments, constitutional reforms, change in economic policies and banking reforms, mainly directed at enhancing social welfare and achieving developmental goals but there has been no substantial positive change in Nigeria‘s Human Development Indicators. This also calls to question the effectiveness of the cash-less policy of the Central Bank of Nigeria (CBN). At the end of the 1980s, the use of cash for purchasing consumption goods in the US has constantly declined (Humphrey, 2004). Hence, most LDCs (Less Developed Countries) like Nigeria are on the transition from a pure cash economy to a cash-less ‘one for developmental purposes’. Little wonder why the Central Bank of Nigeria recently introduced a cashless policy. Thus, as part of its regulatory functions, the Central Bank of Nigeria, issued a circular dated April 20, 2011 in which it conveyed to operators and the banking public its decision to introduce a cash less banking policy into the Nigerian financial system with effect from January 1, 2012 using Lagos as the pilot programme that is the policy kick-starts from Lagos and eventually all over the other states in the nation. To enforce the implementation, the Central Bank had, in a circular April last year, declared that “commencing from June 1, 2012, a daily cumulative limit of N150,000 and N1,000,000 on free cash withdrawals and lodgements by individuals and corporate customers respectively with deposits money banks shall be imposed.” Following public outcry, the daily cash withdrawal and deposit limit was raised to N500,000 and from N1,000,000 to N3,000,000 for corporate accounts.
According to CBN, the new cashless policy was introduced for a number of key reasons, including, 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 and 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: high risk of using cash, high subsidy, informal economy and inefficiency & corruption (CBN, Website, 2011). Regarding this context, the study seeks examine the cashless economy by exploring its impact on the Nigerian economy.
As more payment systems have been introduced, pundits have been predicting the emergence of a ‘cash less society’. Today, we still pay with cash and checks, but several other payment instruments, such as credit and debit cards, are widely used. The use of paper money is more declining, but at a rather slow pace. As it were, Nigeria is a country heavily dominated by cash and there are some factors that negatively affect the choice of cash over non-cash instruments, some of these include time spent in counting and verifying cash, susceptibility to loss, time spent in the banking halls, amongst others (Nnanwobu et al, 2011).
A cash-based economy is one which is characterized by the psychology to physically hold and touch cash a culture informed by ignorance, illiteracy, and lack of security consciousness and appreciation of the merit of digital payment (Ovia, 2002). Cash, as a payment system, attracts lots of negative consequences such as high cost of handling cash, risks of using cash and keeping them in houses which eventually lead to high rate robbery, financial loss in the case of fire and flooding incidents. High cash usage results in lots of money outside the formal economy, thus limiting the effectiveness of monetary policy in managing inflation and encouraging economic growth. Also high cash usage enables corruption, leakages, money laundering, counterfeiting, mis-management, mutilation and depreciation in value if not invested. Some or most of these factors are one which exists in the Nigerian economy today thus creating gap for this current study.
In Nigeria today, infrastructure is a major problem that hinders the money deposit banks from attaining full potential in terms of certain policy implementations and its impact on financial transactions in the banking industry. The infrastructure in Nigeria over the years has not been reputable and thus has given way to ineffectiveness to the sincerity in financial transactions in the banks. The level of technology in the nation is rather poor and increasing at a slow pace and as such hasn’t given room for major development and policy implementations that may have risen. The technology available for carrying out banking transactions are not as effective as they ought to be therefore leaving people with no other choice than to keep cash in their houses in order to avoid having to spend lots of time in the banking halls due to low servers, interrupted power supply, bad internet services. Illiteracy and the low level of education of people does nothing else than leave people in the dark and therefore results into the inability of the people to understand when developments are being put into place. Many people do not see the need to keep their money in the banks or invest them due to the lack of understanding they have and also insufficient publicity and awareness measures are what have being in existence which if dealt with would at least reduce the lack of understanding of many and make them see viable reasons why they should keep their money in the banks and invest them other than keep them in their houses as a route to the safety of many lives and better growth of the economy and as such increase the standard of living. This of course, is the motivation behind this study.
As a matter of fact, the demand for money is being taken in terms of demand deposits in banks and liquid assets outside the banks that is the average willingness of people to either hold money in cash or keep it as demand deposits in the banks effects the activities of commercial banks in controlling the amount of money in circulation, which in turn determines the hold of the CBN on the economy in terms of monetary policy implementations. The analysis of banking innovations and the response of the public towards them would help determine the hold of the Central Bank of Nigeria (CBN) on the extent to which they have been able to foster financial transactions in money deposit banks across the nation.
The introduction of E-commerce has made room for various tools in transacting business, although not all of these tools have been fully utilised. The new policy adopted is such that has been made to affect the whole economy and to put in full use all of these tools which include the monetary and fiscal policies, and in turn will maximise the effort of the e-commerce innovation.
1.3 OBJECTIVES OF THE STUDY
The general objective of this study was to examine the impact of Cashless policy on Nigerian economic growth. However, the specific objectives were:
- To determine the degree of the relationship between cashless policy and Nigerian economy.
- To ascertain empirically the impact of cashless policy on Nigeria economic growth.
1.4 RESEARCH QUESTIONS
In order to carry out this study effectively these research questions were made:
- To what degree does cashless policy relate to the Nigerian economy?
- To what extent does the policy impact on the Nigeria economic growth?
1.5 RESEARCH HYPOTHESIS
The following research hypotheses were formulated and tested for the study:
HO1- Cashless policy does not relate to the Nigerian economy.
HA1-Cashless policy relate to the Nigerian economy.
HO2-Cashless policy has no impact on the Nigeria economic growth.
HA2-Cashless policy has impact on the Nigeria economic growth.
1.6 SIGNIFICANCE OF THE STUDY
This study will be of immense benefit to the following persons:
- It would add the new knowledge generated to the existing knowledge of the researcher
- It will increase the volume of literature in the institution’s library.
- It will serve as a reference material to people who would want to carry out further research study on this topic in future.
- It will also assist bankers, business analysts and policy makers on monetary policy formulation and effective decision making.
- It will help the general public who may have time to go through the findings and recommendations of this study to gain knowledge as regard to the benefits and challenges of introducing the policy in Nigerian economy.
1.7 SCOPE AND LIMITATION OF THE STUDY
This study is geographically limited to Nigeria. It will include both human and material resources drawn from banking sector and other sectors of the economy, workers from government institutions, private employees, students and the general public but for effective study due to large population involved, it is limited to Ebonyi State, one of the 36 States of the federation. However, the major constraints of this study are the attitudes of some respondents who deliberately and out of bias refuse to disclose some relevant information needed for successful completion of this study; there was insufficient fund to be able to gather enough data and materials needed for this study due to non-reliable source of income of the researcher and time given to carry out this empirical study was very short and therefore inadequate comparing to the nature of this empirical study. Despite that the researcher endeavoured to make effective use of the available resources at her disposal to ensure that this study became successful.
Access Products — Products that allow consumers to access traditional payment instrument electronically, generally from remote locations.
ATM Card — An ATM card (also known as a bank card, client card, key card, or cash card) is a payment card provided by a financial institution to its customers which enables the customer to use an automated teller machine (ATM) for transactions such as: deposits, cash withdrawals, obtaining account information, and other types of banking transactions, often through interbank networks.
CBN- Central Bank of Nigeria.
Chip Card — Also known as an integrated circuit (IC) Card. A card containing one or more computers chips or integrated circuits for identification, data storage or special purpose processing used to validate personal identification numbers, authorize purchases, verify account balances and store personal records.
Electronic Data Interchange (EDI) — The transfer of information between organizations in machine readable form.
Electronic Money — Monetary value measured in currency units stored in electronic form on an electronic device in the consumer’s possession. This electronic value can be purchased and held on the device until reduced through purchase or transfer.
Internet Banking- This is a product that enables the Bank leverage on the Internet Banking System Module in-built on the new Banking Application (BANKS) implemented by the Bank to serve the Internet Banking needs of the Bank’s customers.
Mobile Banking - This is a product that offers Customers of a Bank to access services as you go. Customer can make their transactions anywhere such as account balance, transaction enquiries, stop checks, and other customer’s service instructions, Balance Inquiry, Account Verification, Bill Payment, Electronic fund transfer, Account Balances, updates and history, Customer service via mobile, Transfer between accounts etc.
Payment System — A financial system that establishes that means for transferring money between suppliers and of fund, usually by exchanging debits or Credits between financial institutions. Point Of Sale (P05) Machine - A Point-of-Sale machine is the payment device that allows credit/debit cardholders make payments at sales/purchase outlets. It allowed customers to perform the following services Retail Payments, Cashless Payments, Cash Back Balance Inquiry, Airtime Vending, Loyalty Redemption, Printing mini statement etc.
Smart Card — A Card with a computer chip embedded, oh which financial health, educational, and security information can be stored and processed.
Transaction Alert - Our customers carry out debit/credit transactions on their accounts and the need to keep track of these transactions prompted the creation of the alert system by the Bank to notify customers of those transactions. The alert system also serves as notification system to reach out to customers when necessary information need to be communicated.
Western Union Money Transfer (WUMT) - Western union Money transfer is a product that allowed people with relatives in Diaspora who may be remitting money home for family up-keep, Project financing, School fees etc. Nigerian Communities known for having their siblings gainfully employed in other parts of the world are idle markets for Western Union Money Transfer.
IMPACT OF CASHLESS POLICY ON THE NIGERIA ECONOMY