Disadvantages of Cashless Policy in Nigeria

In 2012, the Central Bank of Nigeria introduced a new policy on cash-based transactions which entailed a charge on daily cash withdrawals that exceed N500,000 (for Individuals) and N3,000,000 for Corporate organizations. This means that individuals and corporate organizations that made cash withdrawals above the specified limits would be charged a service fee.

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  • Individuals who withdraw amounts exceeding N500, 000 will be charged a processing fee of 3%, they will also be charged a processing fee of 2% for lodgements
  • Corporate account owners who withdraw amounts exceeding N3 million will be charged a processing fee of 5%. They will also be charged a processing fee of 2% for lodgements

Disadvantages of Cashless Policy in Nigeria

The implementation of the cashless policy was aimed at reducing the amount of physical naira notes circulating in the economy. This would encourage more electronic-based cash transactions through the payments for goods, transfers of cash, etc.

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The cashless policy can simply be described as financial operations performed without the use of banknotes. With the cashless policy, financial transactions will be carried out with the use of credit cards, electronic transfers and bank transfers while avoiding physical cash handling from one person to another.

A cashless economy is an environment where money is spent without being physically transferred from one person to the other. The adoption of a cashless policy has implications for the citizens of a country. For example, people and organizations are forced to convert their paper money to bank deposits. The hope is that when people and organizations put their naira notes into deposits, they would then be persuaded to spend the money rather than save it because of the disadvantages that come with bank deposits such as high-interest rates and fees. This would then boost consumption and the GDP. According to the Central bank, reasons for the adoption of the cashless policy are as follows:

  • High cost of cash: There is a high cost of cash that comes with volume cash handling from the CBN to commercial banks and Nigerians too.
  • High risk of using cash: Volume cash handling encourages robberies, theft and other cash-related crimes. It also can lead to loss in the case of fire and flooding incidents.
  • Inefficiency & Corruption: Volume cash handling as well as high cash usage enables corruption, embezzlement, money laundering and other cash-related fraudulent activities.

In spite of the good intentions that came with the adoption of the cashless policy, it has come with its own criticism and disadvantages. That is what this article espouses. Here, you will find the disadvantages that come with the cashless policy. Read on below:

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Machine malfunctions

The cashless policy involves the use of electronic transfers, payments etc. Often times, there are complaints with POS malfunctions and other technical issues that come with it. It is important that the manufacturers of the POS machines provide easy and quick solutions or other available options to tackle several technical issues that may result in the course of using POS machines. The government should include fair competition in order to prevent monopoly-like behaviour by POS and other financial tool manufacturers.

Debiting customers’ account twice

There is often the complaint of customers being debited twice in the course of the transaction while using the ATM’s machine. These technical malfunctions have to be addressed.

High transaction charges

There is a complaint of high transaction charges that come with online as well as machine transactions. This is discouraging for the masses and poses a challenge to the implementation of the cashless policy.

Infrastructure deficit

Many have argued that the financial institution in Nigeria is not adequate to carry the many responsibilities of a cashless society. The government needs to be more strategic and intentional about the expansion of many more electronic media such as ATMs, Point of Sales system (POS) in the country for the economy to be affected and positively impacted by the cashless policy. There needs to be the provision of adequate and well-functioning infrastructural facilities in Nigeria. Another infrastructure that needs to be provided is electricity. The availability of electricity goes a long way in facilitating the usage of electronic money. This in turn would influence the overall success of the cashless policy. Whenever there is a case of power outage or poor network services, financial transactions come to a halt.

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Poor Network connectivity and Communications

Nigerian telecommunication sector has always been plagued by poor network and connectivity. It seems that Telecommunications companies in Nigeria pay more attention to quality voice services rather than network connectivity. This makes for slow access to the internet and inconsistent network availability. The government needs to address this issue by making policies for Telecommunication companies so they can guarantee network quality and availability at all times and especially in the use of data and internet services.

Financial illiteracy

Another challenge to the implementation of cashless policy in Nigeria is the high rate of illiteracy. Many in remote villages are not financially literate enough to understand how cashless transactions work.

Inadequate sensitization or education

Many have faulted the government on their lack of adequate sensitization and education to the masses on the benefits of cashless policy

High cost of transactions and High interests

Paper money will cost a person almost nothing to hold or keep at home except for the risk of theft and robbery. However, there is no incremental risk. However, converting paper money into bank deposits will cost you (in terms of high-interest rates). There is also the risk of losing one’s money if one’s bank goes under.

Problem for remote villages

The cashless policy would be problematic for people in remote areas of the country who do not have access to the banking system.

Bank Administrative Competence

Many have also argued for the inability of banks to deal with the administrative hassle of handling small cash transactions and related customer queries.

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The government needs to put more regulations in place for the cashless policy to be successful. For example, penalties must be put in place so as to enforce the public to comply with the cashless policy.


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