Leapfrogging Digital Payments through Cash Withdrawal Limits

Obinna Chima writes on efforts to enhance digital payments and move to a cashless economy

With exactly one month to the implementation of the new cash withdrawal limits introduced by the Central Bank of Nigeria (CBN) earlier this week, Nigerians have continued to express divergent views about the policy.

While some believe the policy would help transform the country’s digital payment system, some believe the policy would inconvenience operators in some sector.

The CBN had on Tuesday, introduced new cash withdrawal limits for banks and other financial institutions. The new policy followed its recent currency redesign project in which it had expressed concerns over the high volume of cash outside the banking system.

Under the new dispensation, the central bank restricted the maximum cash withdrawal over the counter (OTC) by individuals and corporate organisations per week to N100,000 and N500,000 respectively.

This was just as President Muhammadu Buhari yesterday asked the Senate to confirm the appointments of two serving deputy governors, Mr. Edward Adamu and Mrs. Aisha Ndanusa Ahmad for second and final terms in office.

The directive on the new cash withdrawal limits was contained in the CBN letter dated December 6, 2022, which was addressed to all Deposit Money Banks, and Other Financial Institutions, Payment Service Bank (PSBs), Primary Mortgage Banks (PMBs) and Microfinance Banks (MFBs).

The letter was signed by CBN Director, Banking Supervision Department, Mr. Haruna Mustafa.

The CBN stated however, that withdrawals above the thresholds would attract processing fees of five per cent and 10 respectively for individuals and corporate entities going forward.

In addition, third party cheques above N50,000 shall not be eligible for OTC payment while extant limits of N10 million on clearing cheques still remains.

The new withdrawal regime further pegged 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.

Also, only denominations of N200 and below shall be loaded into ATMs while the maximum amount that can be withdrawn via Point of Sale (POS) terminal was limited to N20,000 daily.

The central bank, however stated that in compelling circumstances not exceedingly once a month, where cash withdrawals above the prescribed limits was required for legitimate purposes, such withdrawals shall not exceed N5 million and N10 million for individuals and corporate organisations respectively, and shall be subject to the referenced processing fees.

The CBN further noted that monthly reruns on cash withdrawal transactions above the specified limits should be rendered to the Banking Supervision Department while compliance with extant Anti-Money Laundering/CFT regulations relating to KYC, ongoing customer due diligence and suspicious transaction reporting among others is required in all circumstances.

The bank also encouraged bank customers to use alternative channels including internet banking, mobile banking apps, USSD, cards/POS, eNaira among others to conduct their banking transactions.

The CBN warned banks and other financial institutions that aiding and abetting the circumvention of the new policy would attract severe sanctions.

But members of the National Assembly have called for sessions with the CBN to clarify the intention of the policy.

To some analysts, the new CBN policy would support monetary policy transmission. They said the policy would positively enhance the monetary and fiscal space as well as improve the profitability of the banking sector.

The analysts, however, cautioned that the slow adoption of e-banking, the rise in cybercrime coupled with an election year, and other macroeconomic factors could slow the benefits of the policy.

Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, said the effectiveness of monetary policy hinged on being able to mop up excess liquidity and having the majority of the population included in the financial system.

He said, “Several initiatives by the CBN have tried to encourage both financial inclusion and a cashless society, however, these have been largely ineffective. The new CBN policy will certainly aid in accelerating the monetary policy objectives, whilst also tackling the insecurity challenges and encouraging financial inclusion.

“Though there will undoubtedly be implementation challenges, it is a step in the right direction for sanitising the economy. The excess liquidity floating around in the economy needs to be mopped as this will also help inflation.”

Also, Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said the step taken by CBN in limiting cash withdrawal would not only curb vote buying, and terrorism and encourage digital payments, but also reduce the pressure on foreign currency.

“In other words, the measure would improve the value of the naira against other currencies. It is always a play of demand size against supply size. If there is a scarcity of naira, foreign currencies would become surplus in the market to exchange for scarce naira.

“It will also help CBN to manage the supply of the redesigned currency which may not be very available to cover the demand for it in all states of the federation at the same time,” he said.

Also, CEO, Global Analytics Consulting, Mr. Tope Fasua, said the policy could address the current exchange rate gaps.

He explained, “The policy will also be a good step in strengthening the value of the naira. At this rate, if this is played right and it is sustained, we may see a scenario where the naira/dollar rate comes down and the naira can strengthen a little bit against the dollar when there is not much money flowing after the dollar.”

A Professor of Finance and Capital Markets, Nasarawa State University, Keffi, Prof. Uche Uwaleke, said the cash withdrawal limit was part of the currency redesign package, adding that the two are mutually dependent.

He said, “It goes without saying that cash withdrawal limit is an integral part of currency redesign meant to reduce the amount of currency circulating outside the banking system.

“If the experience of India’s demonetisation exercise is anything to go by, then it’s evident that imposition of cash withdrawal limits by monetary authorities, following a demonetisation exercise, is a norm.”

In his contribution, the Head, of Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi said, “In the long run, it is a well thought out policy and is something that would help the economy. However, in the short run, there might actually be some hiccups and can cause some dislocation in the economy.”

According to him, “The cost of printing naira from the CBN’s perspective is going to reduce significantly because the volume of naira that would be printed every year would reduce significantly.”

He said the policy would also enable the federal government to better track MSMEs’ activities going forward and boost tax compliance.

Olubunmi said the banking sector also stood a chance to benefit from increased transaction charges from using digital payment channels.

“From the banking perspective, it would reduce the cost of operations for banks because most of the bank branches would be closed. And the charges attached to internet banking would increase non-interest income in the banking industry,” he said.

On the downside, he said: “Nigeria is still a cash-based economy. In the last ten years, the pace of adoption of internet banking and digital banking has increased significantly but predominantly, there are still some areas that are still cash-based.

“So, if not properly handled, people might find it difficult to transcend. A lot of the MSMEs would struggle especially in the rural areas to adjust to this directive.”

In his contribution, a former National Publicity Secretary of the PDP, Olisa Metu, argued that the policy could be counter-productive and inconvenience the poor.

Metu said it was inconceivable that in an economy bedeviled with random and multiple bank charges, the central bank would decide to inflict the lowest level of citizens with a mandatory acquisition of PoS machines.

According to Metu, “This exposes the poor to multiple deductions by banks and may be an opportunity to fleece the people.

“How do you expect Nigerians to patronise the banana and fruit sellers? Should we stop buying from petty traders because of network delays in effecting transactions? What of the attendant ceaseless and multiple deductions from the accounts of these petty traders?

 “What of the security scare of waiting to confirm payments by the roadside?” he asked.

He called on the CBN to mitigate these measures with a freeze on withdrawal charges by banks and introduce policies to ensure that transfers and transactions were not impeded by network problems.

To the President of the Bank Customers Association of Nigeria, Dr. Uju Ogunbunka, the cashless policy was understandable, but he appealed for the adjustment in its timing.

He explained: “From the cashless policy point of view, we should appreciate that, as much as possible, the government is trying to limit the use of cash for transactions, more so, now that they are redesigning the currency. And they may not have enough in print, so for it to go around, they have to find a way to limit us from using cash.

“The second thing is that the government wants to drive the use of online banking, which is good for our economy.  Unfortunately, there have been so many complaints about failed transactions.”

But the CBN Governor, Mr. Godwin Emefiele has explained that the new cash withdrawal limits were  not politically motivated.

He assured that it would be for the overall benefit of the economy.

He said, “We can only just continue to appeal to Nigerians to please see this policy the way we have presented it. We will be reviewing from time to time how this is working; because we are not going to be rigid but it is not to say that we will reverse, or change the timing but whether it is about tweaking some amount to be a little bit higher or lower, we will do so because we are human and we want to make life good for our people.”

Emefiele added: “It is important for me to say that the cashless policy started in 2012 but on almost three to four occasions we have had to step down the policy because we felt that there is a need for us to prepare ourselves and deepen our payment system infrastructure in Nigeria.

“Between 2012 and now which is about 10 years, we believe that a lot of electronic channels have been put in place that would aid people in conducting banking and financial transactions in Nigeria. We have 1.4 million super agents that are all over the country, in all local governments and all villages and I have told my colleagues, we are going to publish all the names of all the super agents.”

According to him, “Having super agents which are different from the banks and different from MFBs other financial institutions, having 1.4 million of them is as good as saying we are having 1.4 million banking points where people can conduct banking services and we think that Nigeria as a big country and the biggest economy in Africa, that we need to leapfrog into the cashless economy.

“We cannot continue to allow a situation where over 85 per cent of the cash that is in circulation outside the banks. More and more countries that are embracing digitalisation have gone cashless and I have said it at different fora that this is not targeted at anybody.”