The Nigerian experiment with cashlessness

A beginning was made as a one-year pilot project in Lagos state, and the footprint of the policy was gradually expanded until its nationwide execution on July 31, 2014.

In 2011, the Central Bank of Nigeria announced a Cash-less Nigeria Project to encourage electronic transactions, and drive the overwhelmingly cash-based economy towards a cashless economy. The aim was to curb terror financing, money laundering and other financial crimes. Restrictions were put on the amount of cash an individual or corporate organisation could withdraw for free. A beginning was made as a one-year pilot project in Lagos state, and the footprint of the policy was gradually expanded until its nationwide execution on July 31, 2014.

The study, by economist Okey O Ovat of the University of Calabar laid down five advantages and disadvantages of a cashless economy. A few of them apply to India as well.

BENEFITS

# Reduction in the cost of production, management and movement of cash.

# Significant reduction in damage caused by incidents like robbery, burglary and fire.

# It was found that only 10% of the population withdrew more cash than the limit — which meant that the cost of cash production for 10% of the population was being subsidised by the overall banked population. Cashlessness would ensure the removal of this anomaly.

# A cash-based economy encourages the informal sector and results in inflation.

# A cashless economy fights corruption by minimising avenues for money laundering and leakages.

CHALLENGES

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# After a year of the implementation of the policy in Lagos, a high rate of incidents involving fraudulent payments was observed.

# There were unsystematic deductions of values from account holders due to inefficiencies of the electronic payment system.

# The implementation faced hurdles in a country with a poor literacy rate.

# Poor infrastructure, including problems of network, hampered implementation.

# A foremost requirement of an efficient cashless economy is a steady supply of electric power. The public power system is unreliable in Nigeria and a large portion of rural Nigeria still lives without electricity.

Adrija Roychowdhury

Adrija Roychowdhury leads the research section at Indianexpress.com. She writes long features on history, culture and politics. She uses a unique form of journalism to make academic research available and appealing to a wide audience. She has mastered skills of archival research, conducting interviews with historians and social scientists, oral history interviews and secondary research. During her free time she loves to read, especially historical fiction. ... Read More