In Nigeria you need cash for everything, the problem is actually getting hold of it

Anytime Oghenefega Otitifore, an engineer living in Okearo, needs to withdraw cash, she does not bother going to the ATM. In all of Okearo, a suburb just a few kilometers outside Lagos, there are only two ATMs—one is plagued with long queues and the ever present “unable to dispense cash” message on the screens while the other rarely works. Instead, she goes to a shop to withdraw cash. This shop represents a growing brand of businesses that operate as alternatives to ATMs.

Of course, the other option would be to visit the bank, but the closest banks are in Fagba, four and a half kilometers away. But with bad traffic and terrible roads, a 23-minute drive can stretch into hours. “Because of the absence of alternatives, these shops charge exorbitant rates when you need the money the most.” she says.

These businesses only came into existence in the last few years. First, the fuel stations in the area served as pseudo ATMs, later, store fronts began to pop up performing “cashback” functions. The first wave of shops seemed to replicate bank services—renewing subscriptions for cable TV, redeeming electricity and internet bills. But soon, a new market developed and now, a lot of shops perform the simple functions of helping customers with withdrawals for fees varying between 10% and 15% of the value of the withdrawal.

These companies are similar to check cashing or pay-day loan shops in the United States or in the United Kingdom. Even in more advanced markets, where there’s plenty of regulation such shops are often accused of exploiting the most vulnerable or poor people with exorbitant fees for helping the unbanked cash their pay check for example.

Again, the difference with the more advanced markets is what while there are still options, even for the poor, there are much fewer financial options in Nigeria.

Back in 2005, Charles Soludo, the former Central Bank (CBN) governor, had advocated for policy (pdf) to usher in a Nigerian age of cashless banking. It was easy to understand why this was a priority for him. Banking halls were cluttered and the government was spending a lot of money printing and replacing damaged and worn out naira notes. There was also a difficulty for the government to follow the trail of money leaving and entering the economy as it involved heavy paperwork.

The world, particularly in more advanced markets, has long been moving towards cashless financial services and it seemed to make sense to go cashless in Nigeria. But today, Nigerian banking halls are still cluttered and there are still long queues at ATMs.

The more things change…
So why has nothing changed? In some ways, things have changed but, slowly. There are new companies like local digital payments startup Paga, working hard to change the system by taking advantage of technology and incorporating cash services. Most of the mid-sized to large banks have introduced mobile apps to enable bill payments and person-to-person money transfers. But there’s still a strong demand for cash and cash ATMs.

Dr. Michael Nwidobie, a lecturer of accounting and finance in Caleb University in Lagos doesn’t think the absence of ATMs in certain areas is a result of bad policies introduced by the central bank. “A particular policy by Sanusi Lamido Sanusi while he was the Central Bank governor in 2009 stopped the spread of ATMs,” Nwidobie says. “He had limited the spread of ATMs to banks alone and that meant that ATMs outside of bank premises were decommissioned. But this policy has since been reversed.”

But opening more bank branches and deploying new ATMs can be very expensive. “When we factor in the costs of running an ATM, including the cost of electricity, the special networking equipment, the cost of cash in transit services, and cost to send someone down to the ATM whenever there’s a downtime, it really doesn’t make sense from a business point of view,” Tosanwumi Atiren, a process improvement officer with Stanbic IBTC, says. The way Atiren sees it “the world is already moving away from brick and mortar business models, the same way banking especially in Nigeria is going digital.”

But the reality on the ground doesn’t quite reflect that yet. Nigeria might have Africa’s largest economy, but large swathes of the economy—60% by some estimates—remains informal. By its very nature the informal consumer economy is dominated by cash transactions.

This is why the check cashing type companies are still needed.

Regulatory gray area
Some people, like Adedoyin Adewole, who also lives in Okearo argues that these businesses are exploitative in nature as he claims that these businesses queue up whenever the ATMs in the area get refilled and withdraw the bulk of the money just, so they can redistribute them—a problem they are a party to creating.

But Professor Olufemi Saibu, a lecturer of economics at the University of Lagos, does not agree. “People are almost always scared that technology will affect and make people lose jobs, but the absence of ATMs has provided new types of businesses and jobs.” He believes that a lack of infrastructure, good road networks, internet service penetration and a lack of urban planning that is peculiar to Nigeria has made the distribution of ATMs a goal that might be unattainable. But as Nigeria is a capitalist society, its loopholes and distribution problems that make for new business opportunities.

While the jury is out on whether these businesses are exploitative in nature and their mode of operations, these businesses are here. With banks seemingly unwilling to expand their operations to these areas, an important question is: when does government regulation step in to prevent these businesses from exerting so much power at the detriment of their customers?

Cash is king
The emergence of these new businesses exposes a much larger problem: Nigeria has still not been able to enforce its cashless policy. The informal nature of Nigeria’s consumer economy is no excuse. It hasn’t stopped Kenya digitizing even minor transactions thanks to the success of M-Pesa, the mobile money platform.

While M-Pesa has grown to beyond its humble beginnings in Kenya and Tanzania to parts of Europe, there is no such infrastructure in Nigeria at the moment. The Nigerian government, through the leadership of the Central Bank, has not embraced mobile money solutions quickly enough.

Nigerians are pretty addicted to cash for nearly every transaction, even as bank card use grows rapidly. The CBN, in August 2017, said nearly two trillion naira is in circulation. The same problems that Charles Soludo wanted to solve back when he started work on a framework for a cashless Nigeria are still present today.

Recently, the Central Bank signed a memorandum of understanding with the National Communications Commission to grant mobile money licenses to telecom companies in a bid to reduce the level of Nigerians who were financially excluded. The number currently stands at 41.6% according to the Access to Financial Services in Nigeria 2016 Survey.

But beyond systems like M-Pesa entering Nigeria, there needs to be a lot of education for people living at the bottom of pyramid markets. There is lot of work to be done for any headway to be made in Nigeria’s full adoption of a cashless policy because in Nigeria, cash is king.


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