By Ajadi Sodiq

The Federal Government of Nigeria on the 6th December 2022, introduced a new policy — from redesigning the Naira to limited cash flow — which many have speculated introduction to be mainly to prevent vote buying in the coming election in 2023. 

According to the CBN governor, Godwin Emefiele, “the development was also aimed at checking the  increasing ease and risk of currency counterfeiting evidenced by several security reports, and the  increased risk to financial stability as well as the worsening shortage of clean and fit currency, with  the attendant negative perception of the central bank.” 

According to a 2018 paper report titled cash, crime, and Laundering, it revealed that cash is the primary means by which transactions in money laundering/terrorist financing are being promoted.  This policy was also aimed at reducing the cash flow in the economy which in the last few years has increased the rate of banditry, kidnapping, and all sorts of in Nigeria. This is basically to prevent the ransom demanded by these sets of people. Likewise, the redesigning of the Naira will also reduce the implication of cash maintenance. 

In Nigeria, where most business and non-business transactions are cash-based, it’s obvious that most money laundering activities are offline. Financial institutions will alert authorities to big or questionable deposits thanks to anti-money laundering measures implemented by financial regulators.  By limiting cash transactions, banks’ legitimate accounts won’t be used to withdraw huge quantities of money for shady offline activities. 

According to the World Bank, Nigeria is one of the many countries that make up half of the 1.7 billion unbanked people globally. This indicates the bad effect the policy will have on such unbanked citizens.  

The Effect on Traders; the Pros and Cons 

“How do the Nigerian Government expect a farmer from Sàki who never had a bank account to  survive this kind of policy?” 

According to a 2020 report, revealing that small businesses in Nigeria make up 96% of the number of companies in Nigeria, and also revealed that 91% of them are using cash-based policies. Small companies could spend less time processing invoices and entering data if they accept digital payments. 

Additionally, it offers the company conveniently accessible financial details in its loan applications.  

Kenya as a case study; 60% of the small businesses in the state used mobile money for transactions.  This, in turn, has increased Kenya’s financial market and positively affected loan disbursement and repayment in 2012. This decision of the central bank will have a more significant effect on the production of Nigeria, both SMEs and SMEs. For instance, a producer of rice who doesn’t have a  bank account, and needs to purchase fertiliser to fasten the production of his supplies, will definitely be needing more than 100k that was to be withdrawn in a week in just one minute.  

Also, cash is the most valuable asset for those who run point-of-sale (POS) terminals and businesses like Kuda that handle these transactions. Like everyone else, these POS agents acquire their money from banks, which makes it challenging for them to service consumers due to the cash withdrawal cap. This is not limited to a farmer alone, the sellers on campus who stock their shops up with more than 30k a day, and the new policy has reduced daily withdrawal to 20K. 

This will increase the number of starving Nigerians who purchase most of their food after they’ve been paid their salaries or see any opportunity to get food to their mouths. Many traders are expected to have a separate account for their business in order to grow with the cashless policy.  

A Twitter user @MikaelCBernard opined “The CBN should not have lowered withdrawal limits.  They could have just slammed fees on cash withdrawals. By imposing limits, you create room for  speculation, leading to a black market and hoarding” 

Way Forward 

Small business owners should register their company under FIRS and the State Internal Revenue  Service of their state. Also, operate the business with a separate bank from their personal transaction.  This is to reduce the tax rate imposed on their profits. Additionally, individuals are to engage in more digital transactions as stated earlier in other to boost the country’s betterment on the cashless policy.