Quick show of hands if you've not had difficulties getting cash or making digital payments in the past week. Chances are you've experienced one, or if you're like most Nigerians, both.
Across the city of Lagos, often referred to as Nigeria's economic capital, long queues at banks dot the landscape as Nigerians try to get cash for their daily needs. Where they could once get cash from PoS merchants for reasonable fees, they now have to pay exorbitant fees, often up to 10% of the sum being withdrawn.
When the CBN Governor, Godwin Emefiele, announced that the CBN would redesign the naira, he stated that the decision was in line with global best practices, adding that it would also help flush out excess cash being hoarded by individuals. Where such moves are typically characterised by notice periods of at least six months, less than three months were given for the old naira notes to cease being legal tender.
But if Nigerians thought their biggest headache would be turning the old notes over to the banks, they were in for a surprise. Although the new notes went into circulation in mid-December, by the end of the year, many Nigerians had still not seen any of the new notes.
Things got worse as the January 31 deadline approached. One week before the deadline, many businesses had begun to show a reluctance to accept the old notes. Shoprite, for example, encouraged its customers to use its PoS machines even as it turned back customers who wanted to pay cash with the old notes.
On the other hand, the new notes were not easy to come by. By the weekend, a parallel market opened as PoS agents with access to the new notes began charging higher fees for cash withdrawals. Even more interesting is that the new notes are not the only ones attracting higher charges.
The CBN eventually extended the time old notes could still serve as legal tender, and they, too, attract high withdrawal fees, albeit lower than charges for the new notes.
One thing is clear; three months were never going to be enough time to retire the old notes, especially so close to the festive period. Yet, the banks' inability to dispense new notes over the counter or via ATMs is worrisome. Conversations with some bank officials have revealed that even they cannot access these new notes.
As Nigerians struggle to access these new notes, the popular refrain — go cashless — has been bandied about. But as the numerous reports of downtimes experienced by banks and PoS networks show, it is easier said than done. Although laudable, this is another example of a poorly executed plan by the CBN.
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A more effective approach would have been taking a long-term approach. Rather than giving a three-month deadline and immediately reducing the amount of cash in circulation, the CBN could have incentivised people to use digital payment options.
One such incentive would have been making transfers free up to a certain point, an approach Adedeji Olowe, Lendsqr CEO, argued in a piece a few weeks ago. This is because while a startup CEO might not baulk at an extra ₦50, the farmer in a rural area will.
For example, a business owner I spoke to lamented that the transfer levy for transactions above ₦10,000 ate into her little profit. Naturally, if she is forced to accept transfers for purchases, the extra cost will be passed on to consumers. There are PoS machines, you say. Well, if you've moved around lately, you've probably seen people standing around as many PoS machines experienced downtimes. Not an ideal situation for businesses or their customers.
Lessons from India, which the CBN seems so intent on imitating, serve as a warning that rapid demonetisation of the economy could have dire consequences. When the Central Bank of India decided to reduce its dependence on cash, it followed a similar approach to the CBN by limiting cash withdrawals. The result was that many Indians struggled to withdraw cash , and lives were lost. Already, that is happening in Nigeria with the long queues.
There's also the fact that most people excluded from Nigeria's formal financial sector are not in Lagos, Abuja, or Port Harcourt. Rather, they are in rural areas where Internet access is spotty or are too poor to own an account in the first place. A cashless economy is great, but until most Nigerians see their economic state improve, and the necessary infrastructure is built, going cashless will remain a luxury for many citizens.