How CBN cripples its cashless policy

There is profound confusion over  implementation of the cashless (or is it cashlite?) policy of the Central Bank of Nigeria (CBN). No one knows precisely what the CBN is up to. In fact, the CBN has declared war on its cashless policy. Friendly fire from the apex bank itself is killing the policy.

In the last five weeks the CBN has issued two contradictory directives capable of crippling the policy.  In the closing days of September, 2019, the apex bank ordered the commencement of punitive handling charges on cash deposits and withdrawals.

Under the new rule, cash withdrawals by individuals above N500, 000 would attract handling charge of three per cent while deposits above N500, 000 attract two per cent. Corporate bodies withdrawing above N3 million would be charged five per cent, while deposits above N3 million attract three per cent.

CBN said the charges are only on the amount above the limits. That explanation implies that if a corporate body withdraws N4 million, a charge of N50, 000 is imposed as five per cent of the N1 million in excess of the N3 million limit. The handling charge of N50, 000 on N1 million withdrawal is a huge penalty in a country where small and medium enterprises access funds in the money market at anything from 30 per cent.

The punitive charges were interpreted as a means of encouraging stakeholders to handle more transactions through electronic transfers which amounts to debiting one account and crediting the other without physical cash movement.

About two weeks after the imposition of the punitive charges on cash transactions, the apex bank published a heart-rending report on the cost of printing banknotes. In the report, CBN announced that it spent the colossal sum of N101 billion printing banknotes between 2017 and 2018.

Again, the report was interpreted as a determined effort by the apex bank to elicit support from the populace for its cashless policy.

As scandalous as the figures on the cost of printing naira notes was, the apex bank actually invoked sympathy from some quarters.  Many felt that since there was a viable alternative to cash transactions, the huge cost of printing banknotes was unnecessary and should be avoided. Consequently, there were concerted efforts by many to use PoS.

Unfortunately, the sympathy was short-lived. By the middle of October, the bankers’ bank struck again at those who sympathized with it for spending so much printing banknotes.

The CBN introduced stamp duty on transactions in point of sales (PoS) terminals.  PoS is a major alternative to cash as medium of transactions.  It is used at shopping malls, fuel retail outlets and other businesses.

On Saturday, October 19, 2019 business outlets implemented the new levy. Everyone doing transactions through PoS to the tune of N1, 000 pays N50 as stamp duty.  The money goes to the federal government, not the CBN or the banks through which the transactions are handled. The policy was sneaked into the system with the spontaneity that greeted the handling charges on cash deposits and withdrawals. No one was sensitized on its coming. It triggered a wave of protests, but no one listened.

It is not clear why a banking regulator saddled with a scandalously high cost of printing banknotes would jettison an efficient medium of transaction that would drastically reduce the amount of cash in circulation and cut the cost of printing banknotes. 

The Manufacturers Association of Nigeria (MAN) was busy complaining about the punitive charges on cash withdrawal and deposits when the CBN struck with the stamp duty on PoS transactions. MAN is yet to recover from the shock of the punitive charges to complain about stamp duty on PoS. 

With the introduction of stamp duty on PoS which is the major alternative to cash transactions, the CBN has forced an avalanche of cash on the business community. They would have to pay N50, 000 handling charge on every N1 million above the set deposit limit.

At the moment, most of their customers prefer to withdraw cash from ATM and pay for goods and services rather than pay the N50 stamp duty on PoS.

The N50 stamp duty on PoS transactions would push stakeholders back to the old ways of handling transactions.

The apex bank launched its cashless policy in 2012 and expected the system to fully embrace it by March 2020.  However, in the last seven years, it has been curiously silent on its pet project. Now it has worsened a bad situation with an avoidable levy.

Since the apex bank knows that cash transactions form the crux of Nigeria’s culture, it should design incentives that would facilitate a seamless switch from an age-long tradition of paying for goods and services with cash to electronic transfers.

That means that electronic transfers should be free over the period of the test run of the new policy. The charges on electronic transfers in Nigeria are huge disincentive for switching to the novel medium. They should be scrapped.

Besides, there is need for the apex bank to overhaul the nation’s bank charges.  They are huge disincentive to financial inclusion.  Bank charges in Nigeria are atrociously high.  Banks make billions of naira monthly by debiting their customers for mysterious maintenance of the ATM cards in customers’ wallets.  They charge heavily for issuance of statements of account which is the right of customers.

There are scores of other fraudulent charges which the CBN has looked the other way as banks fleece their customers.  This has driven millions of Nigerians from the nation’s porous banking net and contributed its own quota to making Nigeria the global headquarters of abject poverty.

Stamp duty on PoS transactions is a stampeded response to Nigeria’s worsening revenue crunch. The CBN should persuade the federal government to look elsewhere for revenue rather than truncating a laudable alternative to the high cost of currency printing with an ill-timed and ill-targeted levy.

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