EFFECT OF CASHLESS POLICY ON FINANCIAL INCLUSION IN NIGERIA

1.1 Introduction

Financial inclusion generally refers to people being able to get access to the formal financial institutions. Individuals are classified as financially included when they have or use a formal financial product or service. However, in all the above studies little attention has been paid to investigate the effects of Cashless policy on financial inclusion. In line with international precedents, the CBN defines financial inclusion as state in which adults have easy access to a broad range of formal financial services that meet their needs and are provided at affordable cost. Financial inclusion implies not only access but usage of a full spectrum of financial services including but not limited to payments, savings, credit, insurance and pension products (CBN 2012).

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.

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1.2 Background of 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’.

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.

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.

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.

Financial inclusion is thus distinct component of the CBN’s second Cashless policy objective, in conjunction with reducing banks’ cost to serve. However, other than the implicit assumption that lower banking costs will make banking services more affordable, the initial policy measures do not immediately appear to directly drive financial inclusion. For instance, the current threshold for cash deposits and withdrawals above which individuals must pay a fee, set by the CBN at N500, 000.00 per day, is several times the annual income of most Nigerians, so that few individuals have been directly affected by it. Not surprisingly, a representative survey of customers in Lagos found that fewer than 6% had deposited or withdrawn over this amount since the policy went into effect (National Financial Inclusion Strategy, 2012).

Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Effect of Cashless Policy on Financial Inclusion.

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1.3 Statement of Problems

Investigation revealed that as more payment systems have been introduced, pundits have been predicting the emergence of a cashless 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).

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 has not 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.

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1.4 Aim and Objectives of Study

The aim of the study is to investigate the Effect of Cashless Policy on Financial Inclusion in Nigeria. In achieving this aim, the following specific objectives were laid out as follows:

1. To determine the degree of the relationship between cashless policy and Nigerian economy;
2. To examine the effects of accessibility of payments infrastructure on financial inclusion;
3. To investigate the effects of awareness of electronic channels on financial inclusion;
4. To assess the effects of using enhanced formal financial services on financial inclusion; and
5. To examine the effects of change in business models of financial service providers on financial inclusion.

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1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• What is the degree of the relationship between cashless policy and Nigerian economy?
• What are the effects of accessibility of payments infrastructure on financial inclusion?
• What are the effects of awareness of electronic channels on financial inclusion?
• What are the effects of using enhanced formal financial services on financial inclusion?
• What are the effects of change in business models of financial service providers on financial inclusion?

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1.6 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

• H0: Cashless policy does not relate to the Nigerian Financial Inclusion.
• H1: Cashless policy relate to the Nigerian Financial Inclusion.

Hypothesis Two

• H0: Cashless policy has no effect on the Nigeria economic growth.
• H1: Cashless policy has effect on the Nigeria economic growth.

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1.7 Significance of Study

This study will be of immense benefit to the following persons:

1. It would add the new knowledge generated to the existing knowledge of the researcher.
2. It will increase the volume of literature in the institution’s library. It will serve as a reference material to people who would want to carry out further research study on this topic in future.
3. It will also assist bankers, business analysts and policy makers on monetary policy formulation and effective decision making.
4. It will help the general public who may have time to go through the findings and recommendations of this study to gain knowledge as regard to the benefits and challenges of introducing the policy in Nigerian economy.

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1.8 Scope of Study

The scope of the research is focused on the Effect of Cashless Policy on Financial Inclusion in Nigeria.

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1.9 Limitations of the Study

During the course of this study, many things militated against its completion, some of which are:

1. Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
2. Research material: availability of research material is a major setback to the scope of the study.
3. Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
4. Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

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1.10 Definition of Terms

Electronic Data Interchange (EDI): The transfer of information between organizations in machine readable form.

Electronic Money: Monetary value measured in currency units stored in electronic form on an electronic device in the consumer’s possession. This electronic value can be purchased and held on the device until reduced through purchase or transfer.

Internet Banking: This is a product that enables the Bank leverage on the Internet Banking System Module in-built on the new Banking Application (BANKS) implemented by the Bank to serve the Internet Banking needs of the Bank’s customers.