THE IMPACT OF CENTRAL BANK CASHLESS POLICY IN DEVELOPING NIGERIA BANKING SECTOR
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Governments around the world are adopting measures to encourage  or require their agencies, private businesses and individuals to shift  away from using cash towards digital payments. Some have offered  incentives, such as rebates on taxes or participation in lotteries based on card usage. Other countries have capped  the maximum cash transaction size that businesses can accept. But few  countries have gone as far as Nigeria has with its “Cashless Nigeria” policy.
However the Implementation by the Central Bank of Nigeria since 2012, the Cashless policy imposed penalties on all businesses  and individuals who deposited or withdrew cash from their bank accounts in excess of daily limits.  These penalties forced large cash users  to pay as much as 5% of the value over the limit in fees to their banks. Large businesses with substantial  supply chains or large customer bases that pay in cash were therefore liable  for substantial fees unless they shifted to electronic payments, Cashless  policy assumed that these large corporate would be incentivized to digitize.
Two years after the launch of Cashless  policy in Lagos State, there has been  no published independent analysis of businesses’ response to the policy. This Better Than Cash Alliance case study analyzes how a sample of four large Nigerian businesses in diverse sectors — a nationwide manufacturer, a large distributor, an international shipping agent and a nationwide insurance company — have responded to the  policy, and how far their payment profiles have digitized.
However the Central Bank of Nigeria (CBN) undertakes monetary policy in order to maintain Nigerian’s external reserve, safeguard the international value of the legal currency, promote and maintain monetary stability. Similarly, it acts as a sound and efficient financial system in Nigeria, as a banker and financial adviser to the Federal Government and as lender of last resort to the banks. Consequently, in pursuance of its functions in compliance with the core mandate, the CBN as a result of change which is a constant factor, has engaged in series of reformations aimed at both making the financial system formidable and enhancing the overall economic performance of Nigeria so as to place it on the right path in tune with global trends.
The payments system plays a very crucial role in any economy, being the channel through which financial resources flow from one segment of the economy to the other. Therefore, it represents the major foundation of the modern market economy. Essentially, there are three pivotal roles for the payments system namely; the Monetary Policy role, the financial stability role and the overall economic role (CBN, 2011). The cashless policy introduced by the CBN is aimed at achieving a cashless economy. One of the prerequisite for the development of national bank sector according to Ajayi and Ojo (2006) is to encourage a payment system that is secure, convenient and affordable. In this regard, developed countries of the world, to a large extent are moving from paper payment instruments towards electronic ones (Humphrey, 2004). The policy was conceptualized by the apex bank to migrate Nigeria’s economy from a cash based economy to a cashless one through electronic payment systems (e-payment), not only to enable Nigeria’s monetary system fall in line with international best practices or discourage movements of huge cash manually, but at the same time, increase the proficiency of Nigeria’s payment systems which will in turn improve the quality of service being offered to the banking public. The Nigerian cashless system of payment has been evolving in line with the global payments evolution. Cashless system of payments and instruments are significant contributors to the broader effectiveness and stability of the financial system.
Innovations in technology and business models have implications for the efficiency and safety of cashless system of payments. Cashless system of payment is defined as a society where transactions is functioning, and operated or performed without using coins or banknotes for money transactions but instead using credit cards or electronic transfer of funds (Reverso Dictionary. The nation’s quest of migrating from cash to cashless policy has been on the front burner. Analysts have posited that to meet the target of becoming one of the leading world economies by the year 2020, efforts must be made to embrace electronic payment system in its entirety. It was in this consciousness that the CBN, which is the apex regulatory body of the banking sector, came up with are form of policy to check the increasing dominance of cash in the banking sector in order to enhance e-payment system in the economic landscape. Nigeria’s preparedness in adopting this new policy has been questioned by stakeholders given her socio-cultural milieu and other social vices associated with electronic payments that drive cashless policy. Against this backdrop, the study sought to examine cashless monetary policy as regards the Nigerian Banking Industry with a view to exposing the issues relating to it, the possible challenges to be faced by it, as well as the prospects of the policy on the industry.
One of the most compelling propositions put forward by the Central Bank of Nigeria (CBN) in the defence of its new policy on cash-based transactions (‘cash-less policy’) is that: An efficient and modern payment system is positively correlated with economic development, and is a key enabler for economic growth.”
Interestingly, we find evidence in theory to support this proposition, but there is the need to find equally supportive evidence for this proposition in practice. The implementation of the new procedures and rules based on magnetic ink character recognition (MICR) technology revolutionized the cheque clearing system. Consequently, a Centralized Automated Clearing process was established in Lagos clearing zone, whereby with MICR Reader Sorters, necessary information on cheques are captured, built into clearing files and electronically are automatically computed and also electronically transmitted to the Central bank for final settlement. The clearing cycle was subsequently reduced from 5 days to 3 days, which all clearing cheques both local and up-country now takes 3days to clear (CBN, 2011).
By way of a background, the currency in circulation as at the end of August 2011 stood at N1.42 trillion. Also, the 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 (CBN, 2011).
Adoption of electronic banking which was supposed to ease banking transactions rather resulted to woes to customer. Most people complain of time wasted in banks. This occurs when there is power failure in banks resulting to slow down in operation.
1.2 STATEMENT OF THE PROBLEM
The deregulatory approach to monetary management and the resultant proliferation of  banking and financial institutions in the early 1990s brought about increased number of players far beyond what could be effectively managed by the Central Bank of Nigeria (CBN) as a result, the banking industry witnessed serious waved of distress that caused crisis of confidence in the industry. Since then, the CBN have intensified efforts towards achieving a healthy operating environment in the banking sector.
    The success of the Nigeria central bank practice and the recapitalization exercise in ensuring financial stability in the banking sector has been subject of debate among analysts. Somoye (2008) analysed the published audited accounts of twenty (20) out of twenty five (25) banks that emerged from the consolidation exercise and found that the consolidation programme has not improved the overall performances of banks significantly. All the observed weaknesses culminated in huge non-performing loans and insolvency of varying degrees in many of the banks.  The Central Bank of Nigeria (CBN) in collaboration with the Bankers Committee, introduced the cashless policy designed to provide mobile payment services that aim to breakdown traditional barriers hindering the financial inclusion of millions of Nigerians, secure and make convenient financial services to urban, semi-urban and rural areas across the country.
However, implementing the cashless policy requires that the banks make huge investments on ICT and other technologies that would enhance the proper implementation of the cashless system.
For banks that barely survived recapitalization, and several others forced into a merger and acquisition, this policy may affect their performances positively or negatively depending on the strength of the individual banks. Therefore, this study seeks to analyze the impact of this policy on Nigerian banks in relation to their profitability.
1.3    RESEARCH QUESTIONS
In trying to make a critical analysis of the  impact of central bank of Nigeria in developing Nigeria banking sector, the following questions will be very important as the researcher tries to provide answers to those mind bugging questions which are:
To what extent has CNB  impacted on banking sector in Nigeria?
Does central bank significantly impacted on  development of   bank sector?
How does cashless policies contribute to the growth of Nigeria economy?
 What role does central bank of Nigeria play towards development and growth of banking sector in Nigeria?
Can the efforts of the central bank be improved upon by making more policies  that will increase profitability of Nigeria commercial bank?  
Does financial reform increase the fragility of both financial and non-financial sector through interest rates and new investment?
Do you think that the central bank is doing enough in regulating the economy?
1.4 OBJETIVE OF THE STUDY
The main objective of the research is to examine broadly the impact of central bank of Nigeria in developing Nigeria banking sector. The main specific objective of this study is to:
Determine the impact of  cashless policy in Nigeria banking sector.
Examines the factors influencing the use of mobile banking in Nigeria bearing in mind the cashless policy of the Central Bank of Nigeria.
Determine the effect of e-banking in Nigeria banking sector
Evaluate if the electronic bank system has contributed to the economic growth of Nigeria.
Identified if ways by which financial reform could increase the fragility of both financial and non-financial sector through interest rates and new investment
To make appreciable recommendation that would enhance the Nigeria economy through central bank monetary policies.
1.6 SIGNIFICANCE OF THE STUDY
The CBN is the main institution that regulates the payments system in Nigeria. Banks, discount houses, Nigeria Inter-Bank Settlement System (NIBSS), Nigeria Stock Exchange card and switching companies remain the key players in the Nigerian payments system. The CBN,
complemented by Nigerian Deposit Insurance Corporation (NDIC) provide the necessary oversight function to ensure the efficiency and effectiveness of the payments system in Nigeria.
There are over 1000 registered institutions that provide payments/financial services in Nigeria. They include 24 consolidated deposit money banks (as at 31st December, 2011) with many
branches, 5 discount houses, 759 micro finance banks, 293 bureau- de- change, 111 finance
companies, 90 primary mortgage institutions and 6 development finance institutions (CBN, 2012).
 In a number of cases, depositors who lost their life saving die because of apparent hopelessness. People from different spheres of life have commented on these seemingly topical issues as it touches the very fabric of the bank industry in Nigeria. This study is being embarked upon as a way of further investigating the issue with a evaluating the impact of central bank of Nigeria on Nigeria banking sector.
1.7 LIMITATIONS OF THE STUDY
The major constraints encountered in this research work are:
The obvious attempt by banks to classify most of their information that is necessary for the completion of this work due to certain management policies.
The inability to collect the annual reports of many banks for various years was a slow down to this research as the staff refused to disclose the figures for analysis.
Finally there was the problem of inadequate information and unavailable material or information for the study.