ABSTRACT
This study examines the Impact of
Cashless Policy on the Performance of Nigeria Financial Institutions.
This study employs survey research design. Analytically, the research
adopted descriptive statistics to highlights the effectiveness of the
cash-less policy of the CBN in Nigeria.
Data were basically sourced from primary
method through means of a well structured questionnaire. Five major
banks were selected from the twenty four banks and One hundred (100)
respondents were sampled, twenty from each banks.
Three hypotheses were formulated and
tested with the used of regression analysis and T-test. The analysis
resulted into rejecting the null hypotheses and concluding that; there
is significant relationship between cashless policy and performance in
the Financial Institutions; cashless policy has significant impact on
economic growth of Nigeria and that there is significant relationship
between cashless policy and money laundering and corruption.
The study proffered valuable
recommendations on the execution of cashless banking in Nigeria such as
availability of sufficient and well-functioning infrastructural
facilities (notably electricity), harmonization of fiscal and monetary
policy, regular assessment of the performance of cashless banking
channels (individually and collectively), consideration of the present
state and structure of the economy, redesign of monetary policy
framework and greater efforts towards economic growth whilst managing
inflation. In inclusion, the shift towards a cashless Nigeria seems to
be beneficial though it comes with high level of concerns over security
and management of cost savings resulting from its implementation.
TABLE OF CONTENTS
CHAPTER ONE – INTRODUCTION
1.1 Background
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Research Hypotheses
1.6 Significance of the Study
1.7 Scope of the Study
1.8 Model Specification
1.9 Definition of Terms
References
CHAPTER TWO - LITERATURE REVIEW
2.1 Introduction
2.2 Conceptual Framework
2.3 Theoretical Framework
2.4 Empirical Review
2.5 Gaps in the Existing Literature
References
CHAPTER THREE – RESEARCH METHODOLOGY
3.1 Introduction
3.2 Research Design
3.3 Population of Study
3.4 Sample Size
3.5 Sampling Technique
3.6 Sources of Data Collection
3.7 Methods of Data Analysis
3.8 Model Specification
3.9 Reliability test
3.10 Validity Test
CHAPTER FOUR – DATA PRESENTATION AND ANALYSIS
4.1 Introduction
4.2 Personal Characteristics of the Respondents
4.3 Response of Respondents to the Problem Areas
4.4 Testing and Interpretation of Hypotheses
4.5 Presentation of Secondary Data
4.6 Discussion of Results
CHAPTER FIVE – SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
5.2 Conclusion
5.3 Recommendations
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The Central Bank of Nigeria (CBN) has in
recent times engaged in series of reforms aimed at both making the
Nigerian financial system formidable and enhancing the overall economic
performance of Nigeria so as to place it on the right path in tune with
global trends. Since Nigeria’s independence in 1960, the successive
reforms were channeled at enhancing social welfare and achieving
developmental goals but there has been no substantial positive change in
Nigeria’s economic indicators.
Introduction of mobile banking,
electronic banking and online transactions in Nigeria has paved way for a
new era of development where the use and demand for physical cash is
gradually declining. The increase in emerging Information Technology has
made banking services become more and more automated and less paper
work than in the past as averred in the Central Bank of Nigeria (CBN)
reports and statistical bulletins, annual reports of most Nigerian
banks. Banks in Nigeria have realized that they would soon go out of
corporate existence unless they keep with the pace at which Information
Technology (IT) has redefined the creation of value and worth for their
customers.
Also, these recent evolution of
information technology in the Nigerian financial institutions possess
interesting questions for academician, economist, financial
institutions, financial analyst and the regulatory agents of government
such as Central Bank of Nigeria (CBN) regarding the current economic
status, logistics, and availability of instruments to guarantee economic
growth and stability, efficiency and effectiveness of the cashless
policy.
Some observers (Humphrey 1996, Ohley
1999, Klee 2004, Swartz 2006) suggest that the increased use of cashless
payment system; (i.e. money or scrip which is exchanged only
electronically via computer networks) has led to the predictions of a
cashless society.
In addition, the cashless policy aims to
curb some of the negative consequences associated with the usage of
physical cash in the economy, including high cost of cash, high risk of
using cash, high subsidy, informal economy and inefficiency and
corruption (CBN, Website, 2011).
Since the inception, various payment
methods have been used to purchase goods and services starting with the
trade by barter. The trade by barter method of transaction has been the
foundation for the introduction of money and coins to solve the problem
of double coincidence of wants and divisibility faced by trade by
barter. The use of money/coins was introduced after the use of trade by
barter method, and it has solved various challenges associated with
trade by barter, but the use of money as an exchange medium has its own
challenges and shortcomings and can still be replaced with a better
payment system ‘the cashless policy’.
Developed countries like US have enjoyed
various advantages which has prompted the Central Bank of Nigeria (CBN)
to adopt the cashless policy. At the end of the 1980s the use of cash
for purchasing consumption goods in the US has constantly dropped with
inflation (Humphrey, 2004). Nigeria’s aim to be among the biggest
economy by 2020 has driven her to gradually move from a pure cash
economy to a cashless policy. Since Nigeria gained her independence
in1960, there have been different constitutional reforms, change in
economic and banking policies mainly aimed at stabilizing the economy,
enhancing social welfare and enhancing economic growth and development.
While cash and cheques are still
prevalent in some parts of the world, electronic payment mechanisms and
especially, mobile payments are gaining consumer acceptance in many
economics due to the high penetration of mobile phone technology
(Herzberg, 2003).
In view of being one of the best
economies in 2020, the CBN started implementing the cashless policy in
some major cities in Nigeria since 2012 such as Lagos, Kano,
Port-Harcourt and Onitsha. The CBN asserted reduction in crime rates,
minimized risk associated with carrying huge sums of money, reduction in
banking cost, improvement on monetary policy in management of inflation
and the overall growth and development of the economy of Nigeria as
advantages associated with the implementation of the cashless policy.
1.2 Statement of the Problem
The aim of any economy policies (fiscal
or monetary policy) is to improve the purchasing power of every
individual and the society at large.
Before the introduction of cashless
policy by the Central Bank of Nigeria (CBN) in 2012, Our financial
institutions has been characterized with so many issues, ranging from
poor handling of physical cash, high usage of cash in doing business
which affect the cost of banking operation, leakages, money laundering
and other financial related offence due to high cash usage within our
various economic sector (private and government).
Cashless policy as a technique of
economic management is to bring about sustainable economic growth and
development as introduced by the Central bank of Nigeria (CBN) has not
been fully operational in the country due to; i) high rate of
illiteracy, ii) in-adequate sensitization/education of the benefits of
the cashless policy, and iii) in-adequate infrastructure (such as the
provision of internet connections in commercial areas, computers and
Point on Sale (POS) machines) in some part of the country.
Apart from the physical challenges,
economic data and indicators are not fully available and reliable. There
is a great challenge in attempting to analyze the true impact of the
cashless policy on the economy of Nigeria as only few monetary and
macro-economic indicators can be traced with relation to the subject
matter. Several scholars have attempted to analyze the cashless system
or e-banking. However, it becomes clear that few studies present a
comprehensive evaluation of cash-less banking implications in developing
countries. Most ignore the economic benefits of the equation while some
do incomplete examination of its negative implications. This is often
due to unreliable panel data for monetary and macro-economic indicators.
Although, this study focuses on Nigeria Financial institutions, it is
difficult to translate cashless studies from one country to another.
Even payments instruments that look similar across countries on the
surface may be different due to historical and legal variations (Daniel
et al, 2004).
This study therefore examines the impact of cashless policy on performance of financial institutions.
1.3 Objectives of the Study
The main objective of the study is to
examine the impact of the cashless policy on performance of Financial
Institutions in Nigeria and how it affects economic growth. Specific
objectives of the study include:
- To examine the impact of the cashless policy on performance of financial institutions.
- To assess the impact of the cashless policy on economic growth of Nigeria.
- To determine the impact of cashless policy on money laundering and corruption
1.4 Research Questions
This study tends to provide answer to the following research questions;
- To what extent does cashless policy impact performance of financial institutions?
- To what extent does cashless policy impact the economic growth of Nigeria?
- To what extent does cashless policy impact money laundering and corruption?
1.5 Research Hypotheses
The following hypotheses are formulated tentatively and for be tested during the course of the research.
Hypothesis One
Ho There is no significant relationship between cashless policy and performance in the Financial Institutions
Hypothesis Two
Ho Cashless policy has no significant impact on economic growth of Nigeria
Hypothesis Three
Ho There is no significant relationship between cashless policy and money laundering and corruption
1.6 Significance of the Study
The study will give various insights
into the various implications the introduction of the cashless policy
will have on financial institutions and the economy of Nigeria. Through
examining various economic indicators such as the gross domestic product
(GDP) and inflation, the study will examine and compare growth trends
and changes to determine whether the cashless policy introduced by the
CBN has a negative or positive effect on the economy of Nigeria.
Various challenges and prospects
identified in the study will also enable various stakeholders to tackle
these challenges effectively by making policies that will address them
and boost the economy of Nigeria.
1.7 Scope of the Study
In pursuance of the objective of the
study; attention shall be focused on electronic banking among other
electronic commerce implementation. In order to conduct an empirical
investigation into the adoption of Electronic banking in Nigeria and
will also examine the nature of electronic banking operations from the
CBN bulletin from 2010-2014. The research scope cover financial
institutions for gathering of data related to cashless policy.
1.8 Operationalization of Variables
Y = f(X)
X = (x1, x2, x3, x4) - Proxies for Cashless Policy
Y = ?o+?1x1+?2x2 + ?3x3 + ?4x4+U
Where
Y = Cashless Transactions
X = Cashless Policy
x1 = ATM
x2 = WEB
x3 = POS
x4 = MOBILE
?o = Intercept of the line
?1 = Coefficient of x1
?2 = Coefficient of x2
?3 = Coefficient of x3
?4 = Coefficient of x4
µ = Stochastic Variable/error term
1.9 Operational Definition of Terms
Cashless:designating of financial transactions handled by means of credit cards, bank transfers, and cheques, with no money handed from person to person
e-banking:A system allowing individuals to perform banking activities at home, via the internet.
Economic Growth: Increase in a country'sproductive capacity, as measured by comparing gross national product (GNP) in a year with the GNP in the previous year
POS (Point of Sale): Point of sale is a computerized network operated by a main computer and linked to several checkout terminals
Automated Clearing House Transfers (ACH):is
an electronic network for financial transactions that processes large
volumes of credit and debit transactions in batches. ACH credit
transfers include direct deposit, payroll and vendor payments
ATM:An abbreviation for
automated teller machine, an electronic banking outlet, which allows
customers to complete basic transactions without the aid of a branch
representative or teller
Travelers cheques:Check issued by a financial institution which functions as cash but is protected against loss or theft
Wire transfers:A wire transfer is the direct transfer of funds from the payer's account at one bank to the payee's account at another bank
NIBSS Funds Transfers:
The Nigerian Interbank Settlement Scheme is an online platform where
banks exchange value thereby enabling the performance of interbank
transfers such as NEFT and NIBSS instant transferring funds between
banks for single or multiple beneficiaries for individual amounts not
exceeding N10million.
NEFT Transfers: once
effected works with the next available clearing session of CBN and is
received in the beneficiary’s account the same day or next working day,
but NIBSS instant payments are immediate.
RTGS: Real Time Gross
Settlements is used to transfer sums above N10million in favor of a
single beneficiary. It is used for big ticket transactions which must
have been effected before noon for most banks if the funds are to reach
the recipient bank the same day.
Mobile Money: this is a
product that enables users to conduct funds transfers, make payments or
receive balance enquiries on their mobile phones.
E- Transfers: refers to
electronic transfers which can be effected via the internet on PCs,
laptops and other devices. Bank customers who have subscribed to
internet banking can do basic banking transactions via the web.