Mutilated naira notes: e-payment channels as panacea
Economic managers are worried over the prevalence of mutilated naira notes The Central Bank of Nigeria (CBN) is urging currency handlers not only to keep the naira notes in circulation sparkling by adopting global best practices, but also embrace alternative payment channels as being promoted under the cash-less policy initiative. COLLINS NWEZE writes that the use of alternative banking channels like Point of Sale (PoS), Automated Teller Machines (ATMs), web payments and other electronic banking channels will help cut the N2.15 trillion cash in circulation and promote better cash handling by consumers.
There are rules set by the Central Bank of Nigeria (CBN) to guide the printing, circulation and storage of the local currency – the naira.
After the notes and coins have been printed/minted by the Nigerian Security Printing and Minting (NSPM) Plc and other overseas printing/minting companies, the apex banks takes charge as the sole issuing authority to other commercial banks.
The currency-in-circulation rose to N2.15 trillion in the fourth quarter of last year. The figure was 21.1 per cent when compared to the figure in the third quarter of 2017. The development, the CBN’s economic report said, reflected the growth in currency outside banks.
But, as the naira notes in circulation continue to rise, so is the damage done to them by those that transact with them. It is a regular sight to see people spraying mint notes at parties, writing on the notes, soling the notes, exposing them to liquids, and even squeezing them into inappropriate parts of their clothes.
The CBN has never shied away from warning against abusing the naira notes. It says that anyone caught in the act would be prosecuted and if convicted the person risked six months in jail, or a fine of N50, 000.
According to the bank, the abuse of the naira is contrary to its policy, adding that offenders would henceforth be arrested and prosecuted.
The apex bank describes as unacceptable a situation in which Nigerians accord more respect to the United States (U.S). dollar above the naira, saying Nigerians ought to appreciate and value the local currency because it serves as a symbol of national identity.
The regulator warns: “The naira has suffered abuse from majority of Nigerians. Today, we find some people spraying the naira at occasions, soiling it, writing on it, squeezing it while some are hawking it.
“The CBN spent a lot of money in the printing of these naira notes. We urge Nigerians to respect the naira and value it. Anyone caught abusing the naira will risk a jail term of six months or pay a fine of N50, 000.”
Besides, at the currency printing works of the NSPM Plc, quality is meticulously controlled throughout every process of currency production.
This guarantees that every note issued meets the required standard. The CBN maintains an office called Mint Inspectorate in the premises of the NSPM Plc to maintain security and quality of the notes and coins.
As a rule, the CBN issues currency to Deposit Money Banks (DMBs) through its branches and withdraws from circulation through the same channel. The notes deposited in the CBN by the commercial banks are processed and sorted to fit and unfit notes in line with the clean note policy. The clean notes are re-issued while the dirty notes are destroyed.
As seamless as the processes look, many Nigerians have been speaking on why the notes are not properly handled based on the rules set by the apex bank.
A former President of the Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu, said technology and electronic payment remain the greatest steps to address the prevalence of old notes in the economy.
He regretted that many Nigerians are still not conversant with e-payment, hence the need to adopt standard best practices in handling the notes.
Unegbu said the financial inclusion gap in the country meant that more cash are still being kept at home, thus increasing the chances that such cash will be badly handled.
He said banking penetration has continued to rise in urban towns, while the rural areas are left totally and the majority of the inhabitants adding to the unbanked population.
“There has been greater focus on getting financial services to urban dwellers forgetting that rural dwellers are the ones that handle bank notes most and they need to be properly educated on the gains of keeping the notes clean”, Unegbu said.
He suggested that the Microfinance Banks (MfBs) should be encouraged and supported because they remain the closest financial services to the grassroots.
“We have to revive the MfBs because the banking technologies cannot help much in the villages. Even in the towns, when Automated Teller Machines (ATMs) dispense old and dirty notes. This has to be addressed if we must achieve better naira notes,” he said.
He urged the CBN to put expiry dates on the notes, and continue to motivate banks to return old and dirty notes to the apex bank for new ones to be issued.
Unegbu said: “I want to suggest to the banks to ensure that old and dirty notes that come to them do not return to circulation. And the people have to also develop a better culture in handling bank notes. They must learn to put naira notes in wallets and envelops when presenting them as gifts at parties or other ceremonies.
“All of us are guilty. We need to discipline ourselves in handling the naira notes. We have to see the naira notes as very important and handle them properly. Those in the rural areas are disciplined and can even follow instructions on handling the naira if they are well educated through radio jingles and television”.
He also disclosed that new notes are not regularly printed, or properly circulated, as they are given only to the high-net worth individuals, hence, by the time the notes get to the villagers, they are already defaced.
He identified the costs of absorbing old notes and the fear of losing float for the waiting period to get new notes as reasons the banks are unwilling returning to the CBN.
“I urge the CBN to do more to ensure that new notes get to the grassroots by empowering MfBs and also supplying them with new notes. They also need to educate the people on how to handle he notes,” he said.
Richard Obire, a one-time Executive Director of Keystone Bank, blamed the rise in the rate of mutilated notes in circulation on the people’s social behavior as most of business transactions are still cash-based and through the informal market.
He said many of the cash in circulation are not properly kept, hence the depreciation in their lifespan.
Obire said: “Even when you put new notes in circulation, the behavioural patterns of Nigerians ensure that the notes have very short life span.
Here, education is going to play major role in getting the people change such bad behaviors towards the naira. The radio and television messages must come in local languages to make room for better understanding of the sent and received messages.”
He admitted the high cost of sorting, storing and moving old notes. Hence, all hands must be on deck to ensure that the notes handlers keep them in good conditions.
Obire urged the CBN to give commercial banks targets based on their balance sheet sizes on the volume and value of notes to be returned every quarter and also monitor compliance while defaulters are sanctioned.
Besides, he recommended the strengthening of the operators of mobile money to ensure more acceptance of their services as that would improve the quality of notes in circulation.
He said there should be more investments in the mobile money business, as seen in Kenya where M-Pesa has turned around the fortunes of the grassroots economy.
On its part, the CBN assured that it would work aggressively towards increasing financial inclusion rate to 80 per cent, by cutting down on the number of people excluded from the financial system to 20 per cent in 2020.
The CBN Governor, Godwin Emefiele, who described the target as ambitious, disclosed that the bank had identified key strategies to cutting down the financial exclusion rate to 20 per cent by in the next two years.
Specifically, he said that the bank would work with the Nigerian Communications Commission (NCC) on how best to take advantage of mobile communication to reach those that were financially excluded.
The CBN chief said the country has moved from 46.3 per cent exclusion rate in 2010, to 41.6 per cent in 2016.
According to him, specific areas of focus identified which would be pursued aggressively include “prioritising intervention and creating awareness to ensure patronage, incorporating non-interest financial services into CBN intervention programmes.”
Others are “mobilising banks that offer such products for greater outreach and impact; massive rolling out of agents networks and creating awareness to increase adoption, and adoption of digital financial services as simple, flexible and easy alternative channels for reaching remote areas and rural hinterlands.”
Emefiele added that the National Financial Inclusion Strategy was being reviewed for greater effectiveness and impact, adding that stakeholders would be sufficiently mobilised to participate.
Road to financial inclusion
Enhancing Financial Innovation and Access (EFInA), a leading financial sector development organisation working to improve financial inclusion in Nigeria held a stakeholders’ workshop in Lagos. The workshop tagged: “The role of government in driving financial inclusion in Nigeria” was one of many similar events organised by EFInA to bring stakeholders to the table and promote discussions centered on driving policies to improve financial inclusion in the country.
At the workshop, the EFInA board chair, Ms. Modupe Ladipo provided participants with insights into the recurring challenges and barriers to inclusion.
She stated that income levels remained low while observing that the Northern part of the country remained particularly disadvantaged in terms of access to financial products and services.
The workshop attracted high level participation including the United Nations (UN) Secretary- General’s Special Advocate for Inclusive Finance, Her Majesty Queen Máxima of The Netherlands, applauded Nigeria for revising the National Financial Inclusion Strategy after five years of implementation.
She urged stakeholders to recognise the importance of leveraging technology and expanding mobile money to address the financial inclusion gap.
The use of electronic payment systems offer a lot of benefits to its users but despite these, the Nigeria economy is still larged cash-based as many people prefer to carryout daily transactions with cash despite the implementation of the cash-less policy.
Cashless policy is a policy established in 2012 by the CBN to curb excesses in the handling of cash.
The policy was initiated not to eliminate the use of cash but to reduce the volume of cash in circulation.
CBN Deputy Governor (Operations) Adebayo Adekola has said e-payment has continued to boost commerce through the use of ATMs, web payments, Point of Sale (PoS) Machines and other alternative payment channels.
He said the e-payment should be supported in the interest of the economy.
Adekola said the country was emerging from an era of magnetic stripe challenges which was effectively truncated with the migration to Personal Identification Number (PIN) and chip technology for card issuance.
This, he said, has ensured a reduction in ATM fraud to zero with the aid of this technology.
He said: “Since this feat, the industry has consistently been inundated with other types of fraud, from card not present fraud, to insider abuses and phishing scams. In all these, the forum has responded not only proactively but also effectively in fashioning strategies to combat these threats to our payments system.”