The effectiveness and challenges of cbn cashless policy on rural business development

Thesis Overview

<p> </p><p><b>INTRODUCTION</b></p><p><b>1.1 &nbsp; &nbsp; <br></b><b>Background<br>of the study</b></p><p>The financial system of any<br>economy is responsible for mobilizing savings for productive investments and<br>ensuring efficient resource allocation. Banks have traditionally played an<br>active role in this regard. A large volume of literatures such as those of Ajayi<br>(2006), Adegbaju and Olokoyo (2008), and Babalola (2008) have documented the<br>contribution of banks to socioeconomic development of nations. In recognition<br>of this, various financial policy reforms targeting the banking sector have<br>been pursued in Nigeria. The recent of such policies within the last decade<br>are: the recapitalization of banks initiated by the Central Bank of Nigeria<br>(CBN) in July, 2004 and concluded in December 31, 2005, formalization of<br>adoption of electronic banking, and transition from cash based to cash-less<br>financial arrangement. One of the prerequisite for the development of<br>national economy according to Ajayi and Ojo (2006) is to encourage a payment<br>system that is secure, convenient, and affordable. In this regard, developed countries<br>of the world, to a large extent, are moving away from paper payment instruments<br>toward electronic ones, especially payment cards (Humphrey, D. B. 2004). In<br>these countries, for instance, it is possible to pay for a vending machine<br>snack by simply dialing a number on one‘s phone bill. In recent times, the<br>mobile phone is increasingly used to purchase digital contents (e.g. ringtones,<br>music or games, tickets, parking fees and transport fees) just by flashing the<br>mobile phone in front of the scanner at either manned‘ or unmanned point of<br>sales (POS). In Nigeria, as it is in many developing countries, cash is the<br>main mode of payment and a large percentage of the populations are unbanked<br>(Ajayi and Ojo (2006). This makes the country to be heavily cash-based economy. Argument in favour of cash-based transactions abounds<br>in the literature. A study conducted in UK in march 2010 (the future of cash in<br>UK) argued that cash differs from other payment instruments in the following<br>regards; it circulates, it is always valuable, it provides full and final<br>settlement of a transaction, it allows for anonymity, once issued, the<br>circulation of cash is uncontrolled, it is regarded as public good by its<br>users. However, the cost of cash to Nigeria financial system is high and increasing;<br>the cost was very close to fifty billion naira in 2008 (CBN, 2012). Recently,<br>it has been revealed by the CBN that the direct cost of cash is estimated to<br>reach a staggering sum of one hundred and ninety two billion naira in 2012.<br>Other challenges resulting from high-cash usage among others include; robberies<br>and cash-related crime, revenue leakage arising from too much of cash handling,<br>inefficient treasury management due to nature of cash processing, high subsidy,<br>high informal sector etc. Against these backdrops, the CBN introduced the<br>cashless policy in April 2011 with the objective of promoting the use of<br>electronic payment channels instead of cash. Presently, the CBN is conducting a<br>pilot scheme of the cashless policy in Lagos, which commenced in January 1st<br>2012. So far, implementation of the policy in Lagos has not gained expected<br>traction. Hence a rollout across the country has been substituted with phased<br>implementation in Port Harcourt, Kano, Aba and the Federal capital territory<br>(CBN 2012). This study therefore aims at two major objectives, first to look<br>into the prospects of cashless policy in Nigeria and second its challenges. The<br>study proceeds as follows. Section 2 offers an overview of cashless policy and<br>some stylized facts on non-cash payment in Nigeria. In sections 3, a brief<br>review of literature is undertaken. The study expatiated on the effectiveness<br>and challenges of the CBN cashless policy on rural business development using<br>Zenith bank as a point of reference.</p><p><b>1.2<br>STATEMENT OF THE PROBLEM</b></p><p>Cashless economy is an economy where<br>transaction can be done without necessarily carrying physical cash as a means<br>of exchange of transaction but rather with the use of credit or debit card<br>payment for goods and services. One of the prerequisite for the development of<br>national economy according to Ajayi and Ojo (2011) is to encourage a payment<br>system that is secure, convenient, and affordable. In this regard, developed<br>countries of the world, to a large extent, are moving away from paper payment<br>instruments toward electronic ones, especially payment cards (Humphrey, 2013).<br>In these countries, for instance, it is possible to pay for a vending machine<br>snack by simply dialing a number on one’s phone bill. In Nigeria, as it is in<br>many developing countries, cash is the main mode of payment and a large<br>percentage of the populations are unbanked.</p><p><b>1.3 OBJECTIVE OF THE STUDY</b></p><p>The objectives of the study are;</p><p>1. To examine the features<br>of cashless policy of CBN</p><p>2. To determine the<br>effectiveness of cashless policy of CBN</p><p>3. To find out the<br>challenges of cashless policy of CBN to rural business development.</p><p>4. To proffer a better way<br>of implementing the cashless policy</p><p><b>1.4<br>RESEARCH HYPOTHESES</b></p><p>For the successful completion of the study, the<br>following research hypotheses were formulated by the researcher; </p><p><b>H0:<br></b>there<br>are no challenges of cashless policy of CBN to rural business development.</p><p><b>H1:</b>there<br>are challenges of cashless policy of CBN to rural business development.</p><p><b>H02:</b>there<br>is no effectiveness of cashless policy of CBN</p><p><b>H2:<br></b>there<br>is effectiveness of cashless policy of CBN</p><p><b>1.5<br>SIGNIFICANCE OF THE STUDY</b></p><p>This study, which is primarily aimed at<br>explaining the effectiveness and challenges of CBN cashless policy on rural<br>business development, will provide an insight into the problems associated with<br>cashless policy on rural business development.This report would be of great<br>benefit for CBN, to expose them to the effectiveness and challenges of CBN<br>cashless policy on rural business development.The findings will be useful for<br>researchers to further generate knowledge in the field.</p><p><b>1.6 SCOPE AND LIMITATION OF THE STUDY</b></p><p>The scope of the study covers the effectiveness and<br>challenges of CBN cashless policy on rural business development. The<br>researcher encounters some constrain which limited the scope of the study;</p><p><b>a)<br>AVAILABILITY OF RESEARCH MATERIAL:</b><br>The research material available to the researcher is insufficient, thereby<br>limiting the study &nbsp; &nbsp; &nbsp; </p><p><b>b) TIME:</b><br>The time frame allocated to the study does not enhance wider coverage as the<br>researcher has to combine other academic activities and examinations with the<br>study.</p><p><b>c)<br>Organizational privacy</b>: Limited Access to the selected<br>auditing firm makes it difficult to get all the necessary and required information<br>concerning the activities</p><p><b>1.7 DEFINITION OF TERMS</b></p><p><b>EFFECTIVENESS: </b><em>Effectiveness</em>&nbsp;is the capability of producing a desired result or the<br>ability to produce desired output. When something is deemed effective, it means<br>it has an intended or expected outcome, or produces a deep, vivid impression.</p><p><b>CHALLENGES:</b>a call to<br>someone to participate in a competitive situation or fight to decide who is<br>superior in terms of ability or strength.</p><p><b>CASHLESS POLICY</b>: Cashless policy is a policy established in the year<br>2012 by the Central Bank of Nigeria to curb excesses in the handling of cash in<br>Nigeria. &nbsp;The policy was enforced not to<br>eliminate the use of cash but to reduce the volume of cash in circulation.</p><p><b>RURAL DEVELOPMENT: </b>Rural<br>development is the process of improving the quality of life and economic<br>well-being of people living in rural areas, often relatively isolated and<br>sparsely populated areas</p><p><b>1.8 ORGANIZATION OF THE STUDY</b></p><p>This research work is<br>organized in five chapters, for easy understanding, as follows</p><p>Chapter one is concern with the introduction, which<br>consist of the (overview, of the study), historical background, statement of<br>problem, objectives of the study, research hypotheses, significance of the<br>study, scope and limitation of the study, definition of terms and historical<br>background of the study. Chapter two highlights the theoretical framework on<br>which the study is based, thus the review of related literature. Chapter three<br>deals on the research design and methodology adopted in the study. Chapter four<br>concentrate on the data collection and analysis and presentation of<br>finding. Chapter five gives summary,<br>conclusion, and recommendations made of the study</p> <br><p></p>