Mixed Reactions Greet CBN’s Policy On New Cash Withdrawal Limits

Daily Independent (Lagos)

Kingsley Ighomwenghian

3 May 2011

Expectedly, the new policy of the Central Bank Nigeria (CBN) limiting daily cash deposits and withdrawals by individuals and corporate organisations has been greeted by divergent opinions from very stakeholders in the economy.

While some believe the move is a right step in the right direction aimed at promoting electronic payment system by moving the economy from cash to credit-based, as in most others across the globe, there are those, who think the policy is rather ill-advised. There is another group that believes that its implementation should be handled carefully so that it will not to become counter-productive.

A CBN circular entitled “Industry policy on retail cash collection and lodgment (IITP/C/001),” addressed to Nigerian banks, money card acquirers, issuers and processors, payments system service providers, and Cash-in-Transit (CIT) operators, noted that “in view of increasing dominance of cash in the economy with its implication for cost of cash management to the banking industry, security, money laundering, etc., the (CBN), in collaboration with the Bankers’ Committee, is adopting policies to reduce the high usage of cash, moderate the cost of cash management and encourage the use of electronic payment channels.”

According to Opeyemi Agbaje, a financial analyst and chief executive of Resource & Trust Company in the March 2011 edition of Strategic Capital Business & Economic Review, currency in circulation at the end of December 31, 2010, stood at N1.378 trillion. It dropped slightly to N1.34 trillion, a month later, before dropping again to N1.337 trillion in February. Also, the report noted that currency outside bank vaults stood at N1.025 trillion at the end of February, from N1.033 trillion and N1.082 trillion in January 2011 and December 2010, respectively.

The circular signed by Mohammad Nda, director, Currency Operations Department, directed that beginning “from June 1, 2012, a daily cumulative limit of N150,000 and N1,000,000 on free cash withdrawals and lodgments by individual and corporate customers respectively with (banks) shall be imposed.”

Individuals and corporate organisations that make cash transactions above the cumulative limit “will be charged a penal fee of N100/thousand and N200/thousand respectively for amounts.

“Contravention of this policy,” according to the circular, “shall attract a fine of five times the amount that the bank waives as a first offender, while the bank shall, subsequently, pay ten (10) times the charges waived.”

Commercial banks are allowed to charge N5 per N1 million as cost of transaction (COT), there is, however, no CBN approved rate for overdrawn accounts, which is at the discretion of the bankers.

The CBN also announced that banks will cease cash in transit lodgment services provided for merchant-customers from June 1, 2012, and could engage the services of CBN licensed cash-in-transit (CIT) companies to aid cash movement to and from their banks at mutually agreed terms and conditions. While Lagos, the nation’s commercial capital, Abuja, the seat of power and other major commercial cities like Port Harcourt, Kano and Aba, have been chosen as pilot for the scheme, to be extended nationwide later, the CBN also warned that contravention of the policy shall attract a fine of N1 million per species movement.

“Furthermore, third party cheques above N150,000 shall not be eligible for encashment over the counter. Value for such cheques shall be received through the clearinghouse. If a bank allows third party cheque encashment, it shall be liable to a sanction of 10 per cent of the face value of the cheque or N100,000 whichever is higher.

To ensure the success of the policy, the apex bank gave operators of card payment schemes, processors, switching companies, service providers, and banks up to June 1, this year, to acquire approved operational agreements/contracts for local currency point of sale (POS) card scheme, or risk being suspended for a month or even having their licences revoked.

Reactions

When Daily Independent contacted various stakeholders on Monday, there was expectedly a divergence of opinions, with Lawson Omokhodion, former Managing Director/Chief Executive Officer of Liberty Bank and a public policy analyst, urging the regulators to “sit down and study the policy.”

“How can you tell me that in a country that is still so cash conscious that my total withdrawal is a maximum of N150,000? Is he (Sanusi Lamido Sanusi, the CBN Governor) going to tell that a trader in Kakuri Market, Kano, or their counterparts in Aba and Port Harcourt?

He challenged CBN to ensure the effectiveness of the law against issuance of dud cheques, such that defaulters can be persecuted speedily in a court of law, unlike the situation currently where the matter is treated with kid gloves, where the issuer is only required to issue another cheque.

The situation, he believes, could lead to a plethora of deferred transactions, (a situation where people have to wait for cheques to go through the clearing before goods purchased with them are released to the buyer). In such a situation, he continued, the economy would die, Omokhodion warned.

Also in a telephone chat on Monday, Agbaje told our correspondent that enough time has been given by CBN for all stakeholders to prepare for the June 1, 2012, commencement date. Within the period, he believes, all parties can engage in public enlightenment, put appropriate infrastructure in place like Point-of-sales (POS) terminals, to support implementation of the policy aimed at reducing operating costs in the industry and stemming corruption.

“The implication is that they have given more than enough time for education and to put appropriate infrastructure in place. Giving this situation, I think it is an appropriate policy, which we need to embrace,” Agbaje added.

Boniface Chizea, an economist and financial consultant, in an e-mailed response to an enquiry by **Daily Independent**, recommends the policy “from the perspectives of attaining greater operational efficiency, (as) it would enable (CBN) reduce the cost of currency management, and fight the battle against money laundering”.

There is no bank in the advanced countries, he continued, that accepts cash lodgements beyond a specified amount, adding, “if you must do so, some satisfactory explanations would be demanded (about) the source of such proceeds.”

He recalled an experience while in Britain in the mid 70s after selling a second hand car, and had to lodge the money in his current account. “I needed to provide evidence of the source of the cash for the deposit to be accepted. This approach contributes to disallowing money laundering to be perpetrated,” he explained.

“But my fear is that considering the nature of transactions of some businesses, these guidelines might drive more cash outside the banking system, as those whose business transactions are heavily cash-based proceed to shun the banks and resort to hording cash at home under their pillows!

“It is also a welcome development that there is a time lag of more than one year before this policy will come into effect. This time is adequate for CBN to garner reactions to enable it fine tune the policy for effective implementation to enable it better achieve the policy objectives of this measure,” he agreed with Agbaje.

He however stressed that the limit should have been higher than what was announced, and that the CBN should have used the average amount of cash transactions for determining the limit.

Chizea urged a raise in the set limit initially, to mitigate opposition to the policy, promote its acceptability and to underwrite its acceptance, and thereafter proceed to reduce it in the light of experience with its implementation across the selected cities that are known dominant cash centres in the country. Commencement of the policy from such high cash density locations, he also believes, will “allow time for the message of the policy to permeate the nooks and crannies of the economy and make for better implementation.”

To ensure the success of the policy, the public commentator agrees also that the law on dud cheque, which over the years has been observed in the breach, must be enforced to make banking transactions attractive. He challenged the CBN “to give example using some high profile bank customer, to drive home the seriousness of purpose of the authorities in this regard. Once we do that, third parties would be disposed to accepting cheques in settlement of transactions.

“The technology for electronic cash lodgements and transactions are in place; you have the ATM cards which are in wide use, you have cheque guarantee cards, which are also widely available and you have the debit and in some selective instances, the credit card system in extensive use in the country. But there could be issues arising from the literacy level in the country as it would be a difficult proposition to sell to the uneducated in the rural and far flung territories of this vast country”.

David Andorin, a stockbroker and chief executive of Lambert Securities Limited, however, believes “the policy is a right step in the right direction, because despite the fact that Nigeria is a cash-based economy, the move is a conscious step towards moving the economy to a cashless system. It is a means to fight money laundering, insecurity and corruption.

He challenged CBN to work very hard on infrastructure to ensure the success of t he policy, by ensuring that the right policy is in place to drive the payment system, leading to the use of the virtual channel. The maximum limit, he added, is okay; adding that whoever requires more funds should go through the virtual channels.

“Initially, it would be difficult, but eventually, people will have no alternative than to comply,” Andorin added, noting for instance that stockbrokerage firms have since stopped receiving cash payments for share purchases, as clients have to pay through the bank. There is also no cash payment for share sales, which is also done through bank cheques.

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