Nigeria Moves Away From Cash Economy

The Central Bank of Nigeria (CBN) has done a great deal over the past decade to improve the regulation of the country’s banking industry. Tighter control of the sector has produced a smaller number of strong banks that now rank among the biggest in Africa.

However, both the CBN and the government are keen to press on with the battle against financial crime and are looking to technological innovations for new weapons in the struggle.

Abuja now appears to regard the promotion of mobile and online banking as the best means of tackling fraud. Non-cash transactions leave an electronic paper trail that can be traced at a later date, while more limited use of cash reduces the risk of violent robbery and counterfeiting.

It has announced that it will impose charges of N100 on every N1,000 ($6) withdrawn or deposited in the form of cash above N150,000 ($960). This is to deter individuals or companies from making transactions in cash for relatively large amounts of money. The fact that criminals deal in large amounts of cash proves the advantages of bank notes over bank cards in hiding financial wrongdoing.

The Nigerian Association of Chambers of Commerce and Industry, Mines and Agriculture (NACCIMA) threw its weight behind the initiative in May but appealed to the CBN to reduce the charges imposed on electronic transactions.

In a statement, the organisation argued: “Bank charges on non-cash transactions could be reviewed downwards for customers, as an incentive. NACCIMA considers the CBN idea as laudable as it will help in reducing the risks and cost of money transfer and management by making Nigeria a cashless society.”

Reducing use of cash

Several new payment cards are being launched in order to encourage customers to reduce their use of cash. For instance, 3Line Card Management Ltd launched the Freedom Card earlier this year as “an end-to-end electronic payment solution, targeted at providing street banking services for the underbanked and underserved communities in Nigeria through its Freedom Network platform.”

The Freedom Network includes government agencies, businesses, banks and service providers, all of which allow cardholders to withdraw cash, transfer money, pay bills, buy goods and purchase mobile airtime.

A spokesperson for the system commented: “3Line intends using the Freedom Card to provide a single and common platform to provide street banking services to stakeholders, provide financial inclusion for the informal sector, bridge the gap between users and providers of financial and non-financial services in Nigeria as well use cost-effective technology to provide Nigerians affordable financial services within communities.”

The cards can also be used on the Interswitch network for ATM cash withdrawals around Nigeria.

Although security experts warn that the battle against ATM fraud has only just begun, plans for the introduction of biometric ATM cards have been welcomed in Nigeria.

The cards will be introduced in conjunction with the creation of a national identity card system, which will allow the government to hold information on all citizens, each of which will be allocated a nine-digit personal ID number.

The National Identity Card Scheme has been mooted on various occasions over the past decade but poor implementation and corruption scandals have seen each effort abandoned.

Developing the database

The new government of President Goodluck Jonathan, however, has pledged to finally introduce the database and ID cards in order to help tackle the country’s corruption problems. The completion of the national census in 2006 could provide a useful basis for developing the database and demonstrates that such an enormous undertaking is not beyond the capability of Africa’s most populous nation.

Yet it remains to be seen whether all citizens will be prepared to participate in the scheme and whether the introduction of the new cards will merely encourage the emergence of a new form of crime: trade in counterfeit ID cards.

Whatever happens, it is vital that the government regards the new database and cards as part of the solution to the country’s problems with financial crime and not an end in themselves.