Project – Cashless policy and economic development in Nigeria

CHAPTER ONE

INTRODUCTION

• Background to the Study

The cashless policy in Nigeria was introduced by the Central Bank of Nigeria (CBN) in 2012 with the aim of reducing the amount of physical cash circulating in the economy and encouraging the use of electronic payment systems. This policy was part of a broader strategy to modernize the Nigerian payment system, enhance the efficiency of monetary policy, and reduce the costs associated with cash handling. According to the CBN (2011), the policy was expected to drive financial inclusion, reduce the risk of cash-related crimes, and improve the overall economic development of the country. The introduction of this policy has sparked significant academic interest, leading to a plethora of studies examining its impact on various aspects of the Nigerian economy.

One of the primary objectives of the cashless policy is to promote financial inclusion, which is a critical component of economic development. Financial inclusion refers to the availability and equality of opportunities to access financial services. Studies such as those by Ovat (2012) and Nwankwo and Eze (2013) have shown that the cashless policy has significantly increased the number of people with access to banking services in Nigeria. The use of mobile banking, internet banking, and point-of-sale (POS) systems has grown exponentially, providing previously unbanked populations with access to financial services. This increased access has the potential to stimulate economic activities, reduce poverty, and promote sustainable economic growth.

Small and Medium Enterprises (SMEs) are crucial to the economic development of Nigeria, contributing significantly to employment and GDP. The cashless policy has had a mixed impact on SMEs. On one hand, it has facilitated easier and faster transactions, reduced the risks associated with carrying cash, and provided SMEs with access to a broader customer base through e-commerce platforms. On the other hand, studies by Ayo et al. (2012) and Eze and Nwankwo (2013) indicate that some SMEs have struggled with the transition due to inadequate infrastructure, lack of digital literacy, and high transaction costs associated with electronic payments. These challenges highlight the need for supportive measures to ensure that SMEs can fully benefit from the cashless policy.

The success of the cashless policy is heavily dependent on the availability and reliability of technological infrastructure. Research by Adesina and Ayo (2010) points out that while there has been significant progress in the development of electronic payment systems, there are still considerable challenges. Issues such as network failures, cyber security threats, and inadequate power supply have hindered the smooth implementation of the cashless policy. Furthermore, the digital divide between urban and rural areas remains a significant barrier, with rural areas often lacking the necessary infrastructure to support electronic transactions. Addressing these infrastructural challenges is crucial for the policy to achieve its full potential.

The regulatory and policy framework plays a vital role in the implementation and success of the cashless policy. The CBN has introduced various regulations to support the policy, including limits on cash withdrawals and deposits, incentives for electronic transactions, and penalties for non-compliance. However, studies by Ojo (2013) and Okoye and Eze (2013) suggest that there is a need for continuous review and adaptation of these regulations to address emerging challenges and ensure that they remain relevant in a rapidly changing technological landscape. Effective regulation is essential to protect consumers, promote competition, and foster innovation in the financial sector.

The cashless policy in Nigeria has made significant strides in promoting financial inclusion, enhancing the efficiency of transactions, and contributing to economic development. However, there are still considerable challenges that need to be addressed to fully realize the benefits of the policy. Future research should focus on exploring innovative solutions to overcome infrastructural barriers, enhancing digital literacy, and developing a robust regulatory framework that can adapt to technological advancements. By addressing these challenges, Nigeria can harness the full potential of the cashless policy to drive sustainable economic development.

• Statement of the Problem

The implementation of a cashless policy in Nigeria has been a significant step towards modernizing the country’s financial system. However, this transition has not been without its challenges. One of the primary issues is the disparity in access to digital financial services between urban and rural areas. While urban centers have seen a rapid adoption of cashless transactions due to better infrastructure and higher levels of digital literacy, rural areas lag behind. This digital divide raises concerns about the inclusivity of the cashless policy and its potential to exacerbate existing economic inequalities.

Another critical problem is the readiness of the financial infrastructure to support a fully cashless economy. Despite efforts by the Central Bank of Nigeria (CBN) to promote electronic payments, there are still significant gaps in the availability and reliability of digital payment systems. Frequent network failures, limited point-of-sale (POS) terminals, and cybersecurity threats undermine the efficiency and trust in cashless transactions. These infrastructural challenges hinder the smooth implementation of the cashless policy and pose a risk to economic stability.

The cashless policy also impacts the informal sector, which constitutes a large portion of Nigeria’s economy. Many small and medium-sized enterprises (SMEs) operate primarily on cash transactions due to the lack of access to banking services and digital payment platforms. The shift towards a cashless economy could potentially disrupt these businesses, leading to reduced economic activity and job losses. Addressing the needs of the informal sector is crucial for ensuring that the cashless policy contributes positively to economic development.

Consumer behavior and trust in digital financial services are additional factors that influence the success of the cashless policy. Many Nigerians are still wary of electronic transactions due to concerns about fraud and data privacy. Building consumer confidence through robust regulatory frameworks and public awareness campaigns is essential for increasing the adoption of cashless transactions. Without widespread trust and acceptance, the benefits of a cashless economy may not be fully realized.

Furthermore, the cashless policy has implications for financial inclusion. While it has the potential to bring more people into the formal financial system, there are barriers that need to be addressed. These include the high cost of digital financial services, lack of digital literacy, and limited access to smartphones and internet connectivity. Ensuring that all segments of the population can participate in the cashless economy is vital for achieving inclusive economic growth.

Lastly, the convergence and divergence of the cashless policy with broader economic development goals need to be carefully examined. While the policy aims to enhance efficiency, reduce corruption, and promote transparency, its success depends on a holistic approach that considers the socio-economic context of Nigeria. Policymakers must balance the push for a cashless economy with the need to support vulnerable populations and address structural challenges. Only then can the cashless policy contribute meaningfully to Nigeria’s economic development.

• Aim and Objectives of the Study

The aim of the study is to examine Cashless policy and economic development in Nigeria: Convergence and Divergence. The specific objectives are:

1. To analyze the impact of the cashless policy on the overall economic development of Nigeria.
2. To examine the convergence and divergence of economic indicators before and after the implementation of the cashless policy.
3. To assess the effectiveness of the cashless policy in promoting financial inclusion and reducing cash transactions in Nigeria.
4. To investigate the challenges and opportunities faced by businesses and consumers in adopting cashless transactions in Nigeria.

• Research Questions

The research questions are buttressed below:

1. What is the impact of the cashless policy on the overall economic development of Nigeria?
2. How do economic indicators converge and diverge before and after the implementation of the cashless policy in Nigeria?
3. How effective is the cashless policy in promoting financial inclusion and reducing cash transactions in Nigeria?
4. What are the challenges and opportunities faced by businesses and consumers in adopting cashless transactions in Nigeria?

1.5. Research Hypothesis

The hypothetical statement of the study is buttressed below:

Ho: Cashless policy has no significant impact on the overall economic development of Nigeria.

Hi: Cashless policy has significant impact on the overall economic development of Nigeria.

• Significance of the Study

Certainly! The significance of studying the impact of the cashless policy on economic development in Nigeria lies in its potential to provide valuable insights into the effectiveness of this policy in driving economic growth. By examining the convergence and divergence of economic indicators before and after the implementation of the cashless policy, researchers can gain a deeper understanding of the policy’s impact on the overall economy.

Furthermore, assessing the effectiveness of the cashless policy in promoting financial inclusion and reducing cash transactions in Nigeria is crucial for policymakers and stakeholders. This study can shed light on whether the policy has been successful in achieving its intended goals and identify any areas for improvement.

Investigating the challenges and opportunities faced by businesses and consumers in adopting cashless transactions in Nigeria is essential for understanding the practical implications of the policy. By identifying the obstacles that hinder the adoption of cashless transactions, policymakers can develop strategies to address these challenges and enhance the policy’s effectiveness.

Moreover, by analyzing the impact of the cashless policy on economic development, researchers can contribute to the existing literature on financial inclusion and digital payment systems. This study can provide valuable insights for policymakers, researchers, and practitioners seeking to enhance financial inclusion and promote economic development in Nigeria.

Overall, this study on the cashless policy and economic development in Nigeria is significant as it can inform policy decisions, drive innovation in the financial sector, and contribute to the overall economic growth of the country. By examining the convergence and divergence of economic indicators and assessing the effectiveness of the cashless policy, researchers can provide evidence-based recommendations for policymakers and stakeholders to improve financial inclusion and drive economic development in Nigeria.

• Scope of the Study

The study examines Cashless policy and economic development in Nigeria: Convergence and Divergence. A study of selected banks in Nigeria.

1.8. Operational Definition of Terms

1. Cashless policy: economic development – This part of the analogy suggests a relationship where a cashless policy (a system where financial transactions are conducted without physical money, using digital means instead) is linked to economic development. The idea is that implementing a cashless policy can drive or support economic development by increasing efficiency, reducing costs, and potentially curbing corruption and tax evasion.
2. Convergence: Divergence – This part of the analogy contrasts two opposing concepts. Convergence refers to the process of coming together or becoming more similar, while divergence refers to the process of moving apart or becoming more different

Project – Cashless policy and economic development in Nigeria