ABSTRACT
Financial
transactions involving the use and movement of physical cash are gradually
declining with the introduction of the CBN’s Cashless policy. This development
has been of great concern to economist, the government of Nigeria and financial
institutions. This aim of this study is to evaluate financial and economic
transactions under the new CBN’s cashless policy and how the development has
enhanced the financial sector of the economy of Nigeria. Concerning
methodology, both primary and secondary data were used for the study.
Respondents mostly bank employees and customers were issued well design and
structured questionnaires to effectively examine the new developments brought
about by the introduction of the cashless policy with respect to how financial
transactions are being managed and the overall impact the cashless policy has
had on the development of the financial sector of the economy of Nigeria.
Hypotheses were formulated to test assumptions and claims generated from the
study. The T-test was employed to test the statistical significance of the
estimated parameter at a 5% level of significance. R-squared was used to test
the measure of goodness of fit of the models developed for the study.
Moreover, F-statistics was also used to test the joint statistical significance
of the explanatory variable and the dependent variable. The study concludes
that both cashless technological money i.e e-money and cash currency should be
in the economy simultaneously, e-money alone cannot operate successfully in an
economy except the few privileged will oppress the majority who are
less-priviledged
The development of innovative cashless banking has the potential to transform
economic activity and achieve developmental goals. If an effective cashless
banking system can be developed and the below recommendations are carried out
then it will have desired impact on the Nigerian economy. Therefore, trusted central
banks and governments must play a key role in promoting the development of
popular forms of e-banking channels.
TABLE OF CONTENT
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Hypotheses of the Study
1.6 Significance of the Study
1.7 Scope of the study
References
CHAPTER TWO
LITERATURE REVIEW
2.0. Introduction
2.1. Conceptual Review
2.2.1. A Glimpse at Pre-Cashless Policy Era
2.1.2. Conceptualizing Cashless Economy
2.1.3 Cashless Policy and Electronic Payment via E-banking
2.1.4. Type of Electronic Banking
2.1.5. Challenges of Cashless Policy Implementation in Nigeria
2.1.6. Prospects of Cashless Policy
2.1.7. Relative Rationale and Impact of a Cashless Economy
2.2. Theoretical Review
2.2.1. Rogers’ Diffusion Theory
2.3 METHODOLIGICAL REVIEW
2.4. EMPIRICAL REVIEW
2.4. Summary of Literature
References
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
3.2 Research Design
3.3 Population
3.4 Sample and Sampling Technique
3.6 Sources of Data
3.7 Instrument for Data Collection
3.8 Data Analysis Technique
References
CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION
4.1 Introduction
4.2 Demographic Information of the Respondents
4.3 Analyzing Section B of the Questionnaire
4.4. Analysis of the research Hypothesis
4.4.1 Data Estimation and Evaluation Techniques
Model Estimation
CHAPTER FIVE
SUMMAY OF FINDINGS, RECOMMENDATION AND CONCLUSION
5.0. Introduction
5.1. Summary of Major Findings
5.2. Conclusion
5.3. Recommendation
5.4. Suggestion for further Studies
BIBLOGRAPHY
Regression Results
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
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.
1.2 Statement of the
Problem
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 hasnt 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
Research
Questions
(a.)
What is the relationship between
Cashless policy and accessibility to customers’ accounts?
(b.)
To
what extent does the Cashless policy affect queue-ups in banking halls?
(c.)
What relationship exists between
Cashless policy and cash-related robbery in money deposit banks?
(d.)
What is the relationship between Cashless policy and the promptness of
bank-related transactions?
1.4 Objectives of the
Study
The broad objective of this study is to establish the relationship between CBN’s
Cashless policy and the development of the financial
sector and the Nigerian economy.
This broad objective is broken down to the following specific objectives which
are;
1. To ascertain the relationship between Cashless policy and
accessibility to customers’ accounts.
2. To investigate the relationship between Cashless policy
and queue-ups in banking halls.
3. Ascertain the relationship between Cashless policy and
the promptness of bank-related transactions.
1.5 Hypotheses of the Study
1.
H1: There is a significant relationship between accessibility
to customers’acounts and cashless policy.
H0:
There is
no significant relationship
between accessibility to customers’accounts and cashless policy.
2.
H1: There is a significant relationship between queue-ups in
banking halls and cashless policy.
H0:
There is no significant relationship between queue-ups in
banking halls and cashless policy.
3.
H1: There is
a significant relationship
between cash-related robbery in money deposit banks and the cashless policy.
H0:
There is no significant
relationship between cash-related robbery in money deposit banks and the
cashless policy.
4.
H1: There is
a significant relationship
between the promptness of bank-related transactions and the cashless policy.
H0:
There is no significant relationship between the
promptness of bank-related transactions and cashless policy.
1.6
Justification
for the Study
Nigeria can be regarded as a
cash-based economy because majority of retail and commercial payments are made
in cash. According to a recent CBN survey, cash-related transactions account
for 99 percent of customer activity in Nigerian banks today. In addition, it
discovered that cash transactions above N150,000 was largest in terms of value
(N1469billion) and second smallest in terms of number or volume (10 percent). However, some other policy agenda did not enjoy as
much acceptance as did the recapitalization agenda; for instance, the
redenomination proposal was snubbed and judged to be counterproductive. In the
same vein, the non-interest, Islamic banking concept has been greeted with a
lot of skepticism, and the initiators are accused of masking under some hidden
agenda. The same may be said of the proposal on the introduction of “cashless
economy”. The reaction of one Gibson sums up the skepticism in certain quarters
about the “cashless economy,” he remarks that “I am foreseeing the ANTI-CHRIST
stepping in and the fulfillment of Biblical prophecy that a time for cashless
society will come and nobody will buy or sell except you have a number, be
wise”. This may mean that not enough has been done to address the genuine
concerns of the citizenry about the cashless economy. So much may have been
said about the anticipated gains attendant to the adoption of e-payment and
cashless economy (or cashless banking), but in concrete terms people have not
been convinced that the agenda is for the good of all. While we may point to
such economies as the Japanese or U.S, we must be very ready to accept the fact
that these are economies with functional institutional basis which cannot also
be said about Nigeria with much conviction. Apart from the institutions, one
fear that has been expressed is the state of Nigerian infrastructural decay.
Have we assessed the impact of infrastructure on the implementation of
‘cashless economy’ or is it an assumption that the infrastructural platform
needed for the cashless economy to perform will simply come with the cashless
economy? From the foregoing problems, The
significance of this study can in no form be overemphasized as it aims to aid
in improvement of the policy which would raise it chances of being implemented
successfully. This study would therefore aid in pin-pointing the problems in
the policy, the benefits of the policy and its application and how it affects money deposit bank transactions in
Nigeria respectively. Therefore, exploring
intense understanding of the whole cashless policy process and its
implementation is that of grave importance to this study at the moment.
Existing
studies on the topic was examined and thus more light was thrown to the topic
in question by this study following this regard. This study is one of the
recent works addressing the effectiveness and impact of the cashless policy on money deposit bank trasactions in
Nigeria although previous studies have shown that works have been done on it in
other countries and this
anticipated will help bridge the gap between current perceptions about the
cashless economy and the actual operations of the system.
1.7
Scope
of the Study
This study examined CBN cashless policy by exploring
its impact on the Nigerian economy. Since cashless policy is a recent economic
policy with no previous data and more so, the study seek the opinion of the
people by examining the impact analysis of the policy. Basically, for this
study, both primary and secondary sources of data was used in carrying out this
research. For the primary data, a survey would be carried out within the Lagos
State metropolis as it is the only state where the policy is being implemented
for now, while the secondary data focuses on every available from the Central Bank of Nigeria (CBN) within reach
and various paper publications.
1.8 Study Plan
This
study would be presented in five (5) chapters. The first chapter is the
introduction which includes the background to the study, statement of the
problem, research questions, research hypothesis, objectives of the study,
justification of the study, scope of the study, and the study plan.
Chapter
two focuses on the conceptual and
theoretical review, the analytical review and
review of related literature on the cashless policy. It will also provide an
overview of what the policy is about, the aims, objectives, merits, shortfalls,
application and the implementation
and how it affects money deposit bank based transactions.
This chapter will also discuss few experiences of other countries with the
cashless economy.
Chapter
three includes the research methodology that is data specification, method of
data collection, method of analysis and sources of data.
Chapter
four is basically data presentation and analysis
Chapter
five is the summary, conclusions and recommendations.
REFERENCES
Bamidele
A. (2005). The imperatives of E-banking for monetary policy in Nigeria. Central
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Ernest
S.O and Fadiya B.B (2012). Cashless Banking in Nigeria: Challenges, Benefits, and
Policy implications.
Hughes
T. (2001). ‘Market orientation and the response of UK financial services
companies to changes in Market conditions as a result of
e-commerce’, International Journal of
Bank Marketing, 19(6).
Nnanwobu
P. Okafor E. Odoekwu J. and Sanni O. (2011). Mobile Money: Can it Work in
Nigeria?. Research Intelligence Magazine
Oladejo
M. and Akanbi T. (2012). Bankers perception of Electronic banking in Nigeria:
A
review of Post consolidation
experience. Research journal of finance
and accounting
( 3).
Ovia
J. (2002). Payment system and the financial innovations. A paper presented at
the
Annual Policy Conference, November 2002.