Economic Impact Assessment on the CHANGES in the CBN Cashless Policy’; Initial review by Centre for Public Policy Alternatives (CPPA)

February 2013

INTRODUCTION

The cashless policy was introduced by the Central Bank of Nigeria (CBN) in 2012. Lagos State was designated as the pilot state and the policy took effect on April 1st 2012. Dubbed ‘Cashless Lagos’, this policy refers to the introduction of ‘cash handling charge’ incurred oncash-based transactions (withdrawals & deposits) above the stipulated daily limit in banks. The policy is aimed at reducing the amount of physical cash circulating in the economy, encouraging the use of alternative methods of transactions such as the use of the Internet, Mobile payment, ATM and POS for payments for goods, services, transfers etc as well as to reduce the cost of banking services.

To encourage the achievement of its objectives, the policy was been reviewed in August 2012. This involved an increase in the daily cumulative cash withdrawal/ deposit limit for individual accounts and the concurrent lowering of the processing fees (see the table below).TheEnhancing Nigerian Advocacy for a better Business Environment (ENABLE) project sought to conduct an Economic Impact Assessment (EIA) of the effects of the reform to the Cashless Policy on Micro, Small and Medium Enterprises (MSMEs) in Lagos. Findings from this survey would inform the quality policy decisions in Nigeria for businesses and individuals.

CBN Cashless Policy – Processing Fees
Individual Accounts / Corporate Accounts
Old / New / Old / New
Daily Cash Withdrawal/Deposit Limit (N) / 150,000 / 500,000 / 1,000,000 / 5,000,000
Withdrawal Processing Fee / 10% / 3% / 20% / 5%
Lodgment / Deposit Fee / 10% / 2% / 20% / 3%

To this end, the Centre for Public Policy Alternatives (CPPA) was contracted to carry out the field work on a survey to measure the impact of the changes of the CBN Cashless Policy on Micro (1-10 Staff), Small (11-49 Staff) and Medium (50-199 Staff) Businesses in Lagos State. The study focused on CASH withdrawals and deposits only with the exclusion of withdrawals and deposits made by cheques.

SURVEY METHODOLOGY

The survey adopted a cross-sectional design with modified multi-stage random sampling techniques. This was necessary to ensure every respondent within the identified sector had an equal chance of being recruited or excluded from the survey. To achieve adequate representativeness, achieve a robust analysis and achieve a better external validity, a large sample size was collected.The target population comprised of businesses, which were then stratified into micro, small and medium scale enterprises, as well as sectors.

The survey was conducted across sixteen (16) Local Government Areas (LGAs) in Lagos State viz; Agege, Ifako-Ijaiye, Alimosho, Amuwo-Odofin, Apapa, Eti-Osa, Ikeja, Kosofe, Lagos Island, Lagos Mainland, Mushin, Oshodi/Isolo, Ojo, Somolu and Surulere. To achieve the study objectives, data was collected through fully structured questionnaires via face to face interaction using Pen and Paper Interview (PAPI) method in business locations such as offices, market places, stores.

Inclusion criteria and screener questions were employed to select the appropriate businesses.Strict quality control measures were employed to ensure quality data was collected from respondents including rreviewing of all completed questionnaires, on-the-spot and back checking, group interviewing where appropriate. The sample size collected was more than the quota to minimize ‘no response’ and attrition to mitigateeventualities that may have come up during the course of fieldwork.

Overall, 586 micro, small and medium scale enterprises were sampled in the survey; comprising 475 (81%) businesses that have bank accounts used for business purposes and 111 (19%) without bank accounts for business purposes. Of the 475 with bank accounts, 467 were validated, and incorporated into the study, while eight were discarded due to inadequate responses.

The data collected was then processed and analysed using Statistical Package for the Social Sciences (now Predictive Analytical Software), an analytical package and Micro soft excel.

STUDY RESULTS

At the end of the EIA, the study has shown some changes in the habits of business owners to cash transactions. The survey was able to throw more light on the effect of the change in CBN’s cashless policy on the volumes and frequency of cash (withdrawal and deposit) transactions by MSMEs.

All sizes of businesses were able to make savings in the form of reduced charges of withdrawals deposits as majority of their transactions fell with-in the range of the daily limits;47% of all businesses admitting that the introduction of processing fees influenced them to split up transactions.38% of respondents stated that the changes in the cashless policy resulted in increasedfrequency of transactions and 37% admitted to using more cash.

SUMMARY OF FINDINGS

  • Nine in every ten businesses operated bank accounts with ‘deposit money banks’, only 1% operated with microfinance banks.
  • There werechanges in the average frequency of deposits transactions among businesses with individual bank accounts. This was however not the same in the frequency of withdrawals.
  • There were no changes in the average frequency of withdrawals and deposits in businesses with corporate bank accounts.
  • 47% of businesses split transactions in terms of cash withdrawal and deposits after the changes in the policy, compared to 35% that would do the same if the lower free daily limits and higher charges for cash withdrawals and deposits were to be in place.
  • More businesses started to use more cash after the change in the cashless policy (35%), compared to 31% (if the old policy were to be in place).
  • By overall analysis,96% of the respondents affirmed that they were aware of the Cashless Policy in Lagos state.
  • 83% of business owners with corporate bank accounts, and 58% of businesses with individual bank accounts were aware of the changes in policy free daily limits for cash withdrawals & cash deposits.
  • 76% of business owners with corporate bank accounts compared to 44% with individual bank accounts were aware of the changes in the charges for withdrawals & deposits above the free daily limits.
  • Across all the business sectors in general, cash withdrawals (60%) and deposits (33%) were mostly distributed between 2 – 5 transactions.
  • Higher frequency of withdrawals and deposits were observed in Small and Medium Enterprises than the Micro Businesses.
  • The total cost of business in 2012 varies among the business groups; between less than N10, 000 to over N100 million.
  1. SOCIO – DEMOGRAPHIC INFORMATION & BUSINESS INFORMATION

49% of the businesses surveyed were micro Enterprises, 48% were small and 3% were medium Scale Enterprises.

Table 1.Summary of the sampled businesses by groups (micro, small and medium scales)

Business Groups
Type of Business / Frequency / (%)
Micro-enterprise / 228 / 49
Small enterprise (10 - 49 employees) / 225 / 48
Medium enterprise (50 - 199 employees) / 14 / 3
TOTAL / 467 / 100

For business registration, 77% of the businesses stated that they were CAC registered; with nine in every ten small and medium enterprises, compared to six in every ten micro enterprises.

Bank Accounts

Nine in every ten businesses operated bank accounts with ‘deposit money banks’; where 44% of them operated individual bank accounts, 48% corporate bank accounts, and 8% operated both. 68% of the micro businesses compared to 21% of small and medium enterprises operated individual bank accounts. Seven in ten (70%) small and medium enterprises, compared to one in every four of micro businesses, operated corporate accounts.

Gender

68% of the businesses were owned by males, while 32% were owned by females.

There was a skew in the gender ownership of businesses across the business groups. This observation widened with business size (39% of females in micro enterprise, compared to 24% and 21% for small and medium scale businesses respectively).

Sector and LGA

A summary of the sampled businesses by business groups (micro and small/medium scales), sectors and local government areas are highlighted in the tables below.

Sampling by business sectors

Table 2: Business groups across Sectors / Micro / SME
Sectors / Small / Medium / TOTAL
Agriculture, Forestry And Farming / 9 / 4 / 0 / 13
Mining And Quarrying / - / 3 / 0 / 3
Manufacturing / 26 / 60 / 7 / 93
Electricity, Gas Steam And Air Conditioning Supply / 3 / 1 / 0 / 4
Water Supply, Sewage, Waste Management And Remediation Activities / 1 / 3 / 0 / 4
Construction / 6 / 8 / 0 / 14
Wholesale And Retail Trade, Repair Of Motor Vehicles And Motorcycles / 72 / 32 / 0 / 104
Transportation And Storage / 10 / 6 / 1 / 17
Accommodation And Food Services Activities / 14 / 14 / 1 / 29
Information And Communication / 13 / 15 / 0 / 28
Financial And Insurance Activities / 3 / 11 / 3 / 17
Real Estate Activities / 6 / 10 / 0 / 16
Professional, Scientific And Technical Activities / 12 / 4 / 0 / 16
Administrative And Support Service Activities / 11 / 2 / 0 / 13
Public Administration And Defence, Compulsory Social Security / 4 / 1 / 0 / 5
Education / 7 / 19 / 1 / 27
Human Health And Social Work / 5 / 25 / 1 / 31
Arts, Entertainment And Recreation / 7 / 1 / 0 / 8
Other Service Activities / 18 / 6 / 0 / 24
Activities Of Household As Employers, Undifferentiated Goods / 1 / 0 / 0 / 1
TOTAL / 228 / 225 / 14 / 467

Distribution of business groups by LGAs

Table 3: Business Groups by LGAs
LGA / Frequency / Percentage
Micro-enterprise / Small enterprise / Medium enterprise / TOTAL / Micro-enterprise / Small enterprise / Medium enterprise
Agege LGA / 18 / 13 / 3 / 34 / 52.9 / 38.2 / 8.8
Ajeromi-Ifelodun / 18 / 16 / 0 / 34 / 52.9 / 47.1 / 0.0
Alimosho / 33 / 30 / 1 / 64 / 51.6 / 46.9 / 1.6
Apapa / 5 / 5 / 0 / 10 / 50.0 / 50.0 / 0.0
Amuwo-Odofin / 7 / 8 / 1 / 16 / 43.8 / 50.0 / 6.2
Eti-Osa / 6 / 6 / 3 / 15 / 40.0 / 40.0 / 20.0
Ifako-Ijaiye / 9 / 14 / 0 / 23 / 39.1 / 60.9 / 0.0
Ikeja / 28 / 14 / 2 / 44 / 63.6 / 31.8 / 4.5
Kosofe / 14 / 19 / 1 / 34 / 41.2 / 55.9 / 2.9
Lagos Island / 8 / 15 / 0 / 23 / 34.8 / 65.2 / 0.0
Lagos Mainland / 9 / 8 / 1 / 18 / 50.0 / 44.4 / 5.6
Mushin / 19 / 11 / 1 / 31 / 61.3 / 35.5 / 3.2
Ojo / 20 / 16 / 0 / 36 / 55.6 / 44.4 / 0.0
Oshodi/Isolo / 14 / 25 / 0 / 39 / 35.9 / 64.1 / 0.0
Somolu / 7 / 13 / 0 / 20 / 35.0 / 65.0 / 0.0
Surulere / 13 / 12 / 1 / 26 / 50.0 / 46.2 / 3.8
TOTAL / 228 / 225 / 14 / 467
  1. ASSESSMENT OF PROCESSING FEES FOR CASH WITHDRAWALS & DEPOSITS

On the whole, six in every ten businesses made cash withdrawal between 2 – 5 times monthly. Three in every ten businesses made cash deposits between 2 – 5 times monthly.Except for frequency of 2 – 5 times monthly, more small and medium than micro enterprises made more monthly cash transactions as the frequencies of cash transactionsincreased. Across all the business sectors in general, cash deposits were closely distributed between 2 – 20 transactions.

Table 4: Frequency of monthly cash operations by businesses
CASH WITHDRAWAL / CASH DEPOSIT
Micro (%) / Small/Medium (%) / Overall (%) / Micro (%) / Small/Medium (%) / Overall (%)
1 / 5 / 5 / 5 / 5 / - / 2
2 – 5 / 69 / 52 / 60 / 47 / 20 / 33
6 - 10 / 21 / 23 / 22 / 29 / 34 / 32
11 - 20 / 4 / 17 / 11 / 16 / 34 / 25
21 - 50 / 1 / 3 / 2 / 3 / 11 / 7
51 -100 / - / 1 / 0 / 0 / 1 / 1

>100

/ - / - / - / - / - / -

Q17a: How many times do you make a CASH WITHDRAWAL, monthly? Q18a: How many times do you make a CASH DEPOSIT, monthly?

Frequency of Cash Transactions for Individual Accounts (THAT ARE BEING USED FOR BUSINESS PURPOSES) only

Cash withdrawal: there was significant difference in the average frequency of cash withdrawals within the businesses with individual bank accounts,before and after the changes in the cashless policy; especially for cash operations less than N150, 000.However, there was no significant difference for transactions between N150, 000 - 500,000; N500, 000 - 1,000,000 N; and N1, 000,000 - 3,000,000. There was no transaction at all for cash operation more than N3, 000,000.

Cash deposit: there was a significant difference in the average frequency of cash deposits for cash operations between N150, 000 - 500,000; and N500, 000 - 1,000,000 N; but not for operations less than N150, 000; N1, 000,000 - 3,000,000. There was no cash transaction at all for operation more than N3, 000,000.

Frequency of Cash Transactions forCorporate Accounts only

Overall, in terms of frequency of withdrawals and deposits, there was no significant difference in the average frequency of cash withdrawals and deposits for businesses with corporate bank accounts, before and after the changes in the cashless policy. However, the frequency of transactions differs for the different range of cash operations viz: less than 150,000 N; 150,000 - 500,000 N; 500,000 - 1,000,000 N; 1,000,000 - 3,000,000 N; and more than 3,000,000 N.

Changes in the cashless policy have significantly impacted businesses in Lagos state in terms of the average frequency of withdrawals and deposits for businesses with individual bank accounts, than for businesses with corporate bank accounts. The average frequency of cash withdrawals and deposits by businesses with corporate bank accounts showed little to no change before and after the changes in the policy.

  1. CBN CASHLESS POLICY ASSESSMENT

In general, 96% of the respondents affirmed that throughout 2012, they were aware of the Cashless Policy in Lagos, initiated by the central bank of Nigeria; with 52% claimed they were very aware, while 24% and 23% were moderately and somewhat aware respectively.Awareness of the changes in the cashless policy was quite high among the sampled businesses; as 83% of business owners with corporate bank accounts compared to 58% with individual bank accounts was aware of the increase in free daily (accumulated) limits for cash withdrawals & cash deposits from 150,000 to 500,000 Naira. 83% of business owners with corporate bank accounts compared to 58% with individual bank accounts were aware of the increase in free daily (accumulated) limits for cash withdrawals & cash deposits from 150,000 to 500,000 Naira.

76% of business owners with corporate bank accounts, compared to 44% with individual bank accounts were aware that the associated charges for withdrawals & deposits above the (accumulated) free daily limits were reduced from 10% for both withdrawals and deposits, to 3% for cash withdrawals and 2% for cash deposits.

Effects of the cashless policy on businesses, AFTER the increase of free daily limits and reduction of charges for cash withdrawals and deposits, on March 30, 2012

Table 5 / Yes (%) / No (%)
Did the introduction of processing fees lead you to split up your transactions, to avoid charges? / 47 / 53
Did that mean that you started to do more transactions? / 38 / 62
To avoid charges, did you start to use more cash? / 37 / 63

Q27. What has been the effect of the cashless policy on your business, AFTER the increase of free daily limits and reduction of charges for cash withdrawals and deposits, on March 30, 2012?

47% of all businesses admitted that the introduction of processing fees influenced them to split up transactions. 38% and 37% admitted that the changes in the cashless policy resulted in increase in their frequency of transactions, and to use more cash, respectively.

Assumed effects of changes in the cashless policy if the lower free daily limits and higher charges for cash withdrawals and deposits would have been in place

Table 6 / Yes (%) / No (%)
Would you split up your transactions, to avoid charges? / 35 / 65
Would you as a consequence start to do more transactions? / 39 / 61
To avoid charges, did you start to use more cash? / 31 / 69

Q28.If the lower free daily limits and higher charges for cash withdrawals and deposits would have been in place, how would it potentially had affected your business?

On the potential effects on business if the lower free daily limits and higher charges for cash withdrawals and deposits would have been in place: only 35% of the sampled businesses responded they would split up transactions. 39% affirmed it would consequently result in increase in their amount of cash transactions. 31% said they would start to use more cash, to avoid charges.

The changes in the cashless policy have impacted businesses to split up transactions in terms of cash withdrawal and deposits (47% ‘after the changes in the policy’ compared to 35% ‘werethe old policy to be in place). Splitting of cash transactions was observed more among the small and medium size businesses. This probably could account for the observed difference in proportions (47% after the change and 35% before the change).

There was also an increase in the volume of cash used by businesses(35% ‘after’ the change in the policy compared to 31% ‘were’ the old policy to be in place), businesses resorted to using more cash after the changes in the policy.

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