By Kingsley Ighomwenghian
Sanusi Lamido Sanusi, CBN governor.
Latest data on the website of the Central Bank of Nigeria (CBN) revealed on Monday that currency-in-circulation rose by an unprecedented N30.71 billion or 2.12 per cent in September 2013.
According to the CBN, currency-in-circulation stood at N1.474 trillion, up from N1.443 trillion in the preceding month end.
The figure however represented a N125.21 billion or 9.28 per cent growth year-on-year from the N1.348 trillion recorded by the apex bank at the end of September 2012.
The September rise is coming just a month after the level fell by N13.944 billion or 0.95 per cent in the August from N1.457 trillion in July.
So far this year, currency-in-circulation attained its peak of N1.508 trillion in the month of March, from a floor of N1.437 trillion, a month earlier; while in the last 12 months, the highest was N1.631 trillion in December 2012.
In the monthly economic report for August released a fortnight ago showed that CIC was N1.443 trillion, a month-on-month decline by 1.0 per cent from the previous month's figure and "in contrast to the increase of 2.2 and 0.4 per cent at the end of the preceding month and the corresponding period of 2012, respectively."
The development, relative to the preceding month, the CBN noted, "reflected the fall in currency outside banks and vault cash, respectively."
Contrary to expectation
The growth in currency circulating outside the banks, when compared with previous month's and year-on-year, is however coming at a time when there have been reports of an imminent drop in the level, owing to the decision by the CBN's Monetary Policy Committee (MPC) to raise the Cash Reserve Ratio (CRR) on government deposits from 12 to 50 per cent.
The CRR is the percentage of deposits banks must keep with the CBN as reserves.
Rising from its meeting in July, members of the MPC, chaired by Lamido Sanusi, the CBN Governor, announced the shift following which banks handling government deposits were to lose an estimated N600 billion of their deposits from public sector from an estimated N1.3 trillion now in their vaults for the apex bank's upkeep.
The apex bank's August report noted that the introduction of the 50 per cent CRR on all public sector deposits during the month, "precipitated volatilities in most financial market indicators.
"There was a reduction in the level of liquidity due to the sterilisation of N896.43 billion and the delay in the release of fiscal allocation, which did not impact on the banking system liquidity until August 26, 2013."
This may have explained why the hike in CRR for government deposit may not have led to a drop in currency in circulation.
Going cashless
At every opportunity, senior officials of the CBN have explained that despite initial suspicion, the populace is gradually embracing the cashless option.
Such officials would always come with figures and data to support their claims, insisting that figures do not lie.
One of such occasion was earlier this month in Washington DC, when Babatunde Lemo, a chartered accountant, former bank chief executive and CBN Deputy Governor since 2004, currently in charge of operations, told select journalists on the sidelines of the 2013 World Bank/IMF annual meetings that transaction volume and value on the cashless platforms- Point of Sales, electronic transfers and automated teller machines have greatly improved.
As part of encouraging people to rely less on cash for transactions, the CBN flagged its cashless policy initiative at the pilot stage in Lagos.
The shift from cash to electronic means, the apex bank said would save Nigeria between N192 and N200 billion that would otherwise be spent on cash handling and management across the country. That amount, they said, is what the regulator, the banks and their customers had to pay for remaining a cash based economy.
CBN statistics revealed that about 86 per cent of in-branch bank cash withdrawals are less than N100, 000 in value, while less than 10 per cent of transactions are more than N100,000. But only 10 per cent of branch cash transactions are above N150, 000, but make up 86 per cent of the volume of cash handled.
As cash based economy, the CBN says as the volume and value of currency-in-circulation (CIC) grows, the cost of cash management will also grow and with retail and commercial payments primarily made in cash, the cash transactions represent over 99 per cent of customer activity in banks.
This huge amount had kept on growing year by year and this formed one of the basis for the cash-lite economy initiated by the apex bank and has taken off in some locations around Nigeria.
According to the CBN, the policy is an arrow that will hit three main targets to significantly reduce the huge costs of handing cash. It would therefore free more funds for real sector lending by banks.
Sanusi believes the heavily cash-oriented transactions for goods and services (especially retail transactions) in the nation's economy is not in line with global trend, considering Nigeria's ambition to be amongst the top 20 economies by the year 2020.
The major focus of payments system reform, he explains, "is to increase the diversity and liquidity of payments instruments. Thus, enhanced efficiency of the payments systems has been achieved in many modern economies, driven by the user's changing needs, competition among service providers and changes in technology. Consequently, reform of payment system has been a critical element of major CBN reforms. The cashless driven by the CBN does not mean the absence or replacement of cash. However it is the provision of safer and more efficient alternatives of payments to bank customers".
He noted that the over reliance of customers on cash transactions and drafted the payments system Vision 2020 with the primary objective of promoting widespread application of end-to-end e-payments in Nigeria adding that a safe and effective payment infrastructure is core to the financial stability of any country.
"The development of the PSV 2020 strategy document attempts to benchmark the Nigerian payments system in lines with global best practice of ensuring "National utilisation and international recognition" of the payment s system.
"Foremost of the challenges in Nigeria is displacing cash as the preferred means of payment. The cost of cash to Nigeria's financial system is high and increasing. In fact, the direct cost of cash is estimated to teach N192 billion in 2012. This escalating cash management cost, most of which is passed on to the customers in the form of bank charges and lending rates, is as a result often cash dominance of the economy. Some payment channels have been identified to have the great potential impact driving the usage of electronic payments and thereby reducing the use of cash in the economy. They include cash payments through PoS terminals and ATMs, mobile money payments, electronic payments of all forms, Internet banking" he said.
Hiccups
Implementation of the policy have so far not been without some hiccups, as customers complain of banks not being pro-active enough in their quest to tackle problems. It is certain that the roll out in these new states and the FCT would certainly bring along a barrage of complaints by customers.
For instance, the rate at which accounts are debited when cash is not dispensed by Automated Teller Machines (ATM) is on an alarming increase. More worrisome is the fact in some cases, customers have to complain several times before such transactions are reversed. Customers that do not have alert services are worse hit as they may never be able to ascertain if such reversals are done or not.
It is a known fact that the consumer protection department of the CBN is doing a lot in resolving issues between customers and banks, but more needs to be done especially in the area of sensitisation so that customers are fully aware of their rights and the banks too should be made to pay interests on amounts fraudulently taken from customers when such are refunded.
Also the banks need to be monitored closely, especially in relation to charges on accounts for internet banking transfers and across the counter cashless transfer for one bank to another among others.
Banks need to be encouraged to deploy ATMs to places where ordinarily people need to transact business that involves cash like airports. Investigation has revealed that some airports in Nigeria do not have a single ATM that customers can use.
Although the policy has been met with criticisms on the readiness of the country to support a cash-lite economy, the CBN had recently, commenced the extension of the policy to other states of the country. There had been arguments on unavailability of the required technology to support the policy as well as the right enlightened populace. For many customers in Lagos, where the pilot began, while the policy may have brought some convenience, the technological hitches and security of funds have remained a major issue.
However, the CBN believes the policy has been a success at the pilot stage and has decided to go ahead with the propagation of the cash-lite policy in the Federal Capital Territory and other states of the country such as Abia, Ogun, Anambra, Kano and Rivers, where it says there are high volumes of transactions.
Cash still dominant
In his economic monthly, Managing Director/Chief Executive, Financial Derivatives Company, Bismarck Rewane, noted the continued dominance of cash-based transactions in the country, 18 months after the introduction of the cashless policy.
Cash, he said, is still used to settle 83 per cent of retail transactions across the country, despite the CBN's continued enlightenment campaign.
"Card-based transactions remained relatively unchanged at 17 per cent. Approximately 83 per cent of transactions are cash-based. Network challenges continue to hinder wide adoption of cashless policy. Network challenges need to be addressed to further improve card-based transactions," he said.
The way out
Fielding questions from Nigerian journalists in Washington, Lemo spoke of the rapid deployment of PoS terminals, which has helped raise the percentage of use from just two at the beginning, to 20 per cent.
According to him, there were just 5,000 PoS terminals in January 2012 when the cashless Lagos initiative took off, to 200,000 at present. Of this figure, he continued, Lagos alone accounts for 177,000, or 88.5 per cent.
The level at which the cashless policy initiative has been embraced in the five additional states of Aba, Anambra, Rivers, Ogun and Kano; as well as the Federal Capital Territory, Abuja, "have been very rapid."
That, he said, is not to suggest in any way that there are no outstanding issues around connectivity, particularly in the area of bandwidth, because of the rapid deployment, following which discussions are ongoing with the Nigerian Communication Satellite (NIGCOMSAT) "for rapid improvement in connectivity in Lagos and outside. We hope connectivity problems will disappear soon," he added.
Another problem with the electronic channels, he continued, is the human element, since those who now work as tellers are deprived of free money they would normally get as tip, or fractions that customers forego at the point of paying for purchases. As such, the tellers suddenly discover that they are losing so much, he continued, since the PoS terminal pulls the exact value of purchases, so to continue getting some tip, they very often lie that there is no network on the machines, thereby forcing the customer to pay cash and frustrating the policy.
As a way out, Lemo continued, "I recently had a meeting with merchants to build in a reward system that gives (the teller) tip."
He also spoke of the need to undertake a reward system such that the worst two performers lose their jobs to serve as a deterrent.
