The document analyzes the risks inherent in transitioning to a cashless economy in Nigeria. Some key risks discussed include infrastructure challenges like poor electricity, technological limitations, and security issues. The government is aiming to reduce cash usage and encourage electronic payments, but this poses new risks that must be managed. Effective risk management strategies like insurance policies and maintaining backup cash are recommended to mitigate risks for banks and customers in Nigeria's developing cashless economy.

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ANALYSIS OF EXPECTED RISKS INHERENT IN CASHLESS
ECONOMY IN NIGERIA
SUNDAY C. NWITE Ph.D, ACII, ACIB, IRDI.
SENIOR LECTURER
DEPARTMENT OF BANKING AND FINANCE
EBONYI STATE UNIVERSITY – ABAKALIKI

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PHONE NO: 080-37743134
E-MAIL: nwitewhite2006@yahoo.com
ABSTRACT
The analysis of expected risk inherent in cashless economy. Long before now,
federal government of Nigeria has made known its desire to operate a cashless
economy free of paper money and coins so as to align with the financial system
and model transactions that are changing rapidly all over the world. Also, as a
result of exigency in reducing cost of cash management in the banking industry,
the central bank of Nigeria (CBN) in collaboration with the Bankers committee is
adopting policies to reduce the high usage of cash, moderate the cost of cash
management and encourage the use of electronic payment channels.
To achieve inter-operability of local currency point of sales transaction (POS) no
card scheme, foreign or local, shall operate exclusive acquire agreement or
contact in Nigeria with effect from June 1, 2011. Any payment scheme,
processor, switching company, service provider or bank that contravenes this
policy may be suspended for a minimum of one (1) month by the CBN, this
policy shall apply to both private and public sectors transactions. All financial
institutions and loans, mortgage and microfinance banks shall comply
accordingly. Compliance with the policy shall be monitored by the banking

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supervision department and the other financial institutions supervision
department of CBN with appropriate sanction applied to earring institutions.
KEYWORDS
Analysis of expected risk, cashless economy, risk inherent, financial system,
cash management, and hazard.
Paper Type: Research Paper
INTRODUCTION

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Banks will be more eager to do business and give the businessman in the
country access to credit. With the age long conventional albatross of collateral
security end or is it possible to open the windows of other trendier forms of
accessing credit in this new regime when most of the money in circulation will
obviously be in banks will be a new business haven or will it give room to a new
set of business challenges. From the previous of secured credit transaction
anything that makes the repayment of money more assured other than the
promise by the borrower qualities as security. While some form of security is a
sine qua non in a lending transaction, realization. Security is often not costless,
this is why a banker may be reluctant to give the access to credit if he has the
linking that the transaction is likely to fail. This reluctance to do business endures
in so far as it entails the borrower money or having power to take control of the
proceeds of the transactions channel them to wherever he desires without
recourse to the lender. Where this likelihood, the lender is always on his toes
and will always access the safety of investment before taken a plunge. He is not
even interested in realizing security at point as this is only a waste resort for him
if he cannot help it. In a cashless economy, however, the banker is more
comfortable in a transaction as he is in a better position to enforce such
conditions as domiciling contract where need be. Where there principles
discouraging transactions on basis, the economic actors will tend to conform

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more to routing transaction though instruments as it will be more profitable to do
so. Business transactions will also rely less on people’s integrity, the economy
will move integrated and disclosed accounts will be charged directly with the own
business obligation. Diversion of funds can also be easily checked.
CONCEPT OF CASHLESS ECONOMY
A cashless society is one where cash (money) is not carried about. As a result
payment for goods and service are made through electronic means and by the
use of quasi money. In the developed economies broad money goes beyond
currencies in circulation plus Demands Deposit Plus Time. Deposit
(M2=CC+DD+TD) as it is in most developing economies. In a cashless society,
broad money involves all these electronics means that facilitate payments for
goods and services.
In Nigeria, efforts have been made to make the economy cashless. The money
laundering prohibition Act (MLPA) of 2004 is a good step the right direction. Most
Nigerians do not know that the law prohibits payment or collection of cash when
buying or selling any goods whose value exceeds five hundred thousand naira

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(N500000) and two million naira (2million) doe individuals and corporate bodies
respectively. More so, the violation of this law attracts the fine not less than
N250,000 or two years imprisonment or but a fine and also imprisonment.
HISTORICAL DEVELOPMENT OF CASHLESS ECONOMY
Long before now, federal government of Nigeria has made known its desire to
operate a cashless economy free of paper money and coins so as to align with
the financial system and mode of transactions that are changing rapidly all over
the world.
Also, as a result will help in reducing cost of cash management in the banking
industry, the central bank of Nigeria (CBN) in collaboration with the banker’s
committee is adopting policies to reduces the high usage of cash moderate the
cost of cash management and encourage the use of electronic payment
channels.
Starting from June 1, 2012, a daily cumulative limit of N150,000 and N1,000.000
on free cash withdrawals and budgets by individual and corporate customers
respectively with deposit money banks (DMB) shall be imposed. Individual,
corporate organizations that make cash transactions above the limits will be
charged a penal fee of N100 thousand and N200/thousand respectively for
amounts above the cumulative limits, third party cheques above N150,000 shall
not be eligible for encashment over the counter. If a bank allows third party

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cheque encashment, it shall be liable to a sanction of 10% of the face value of
the cheque or N100, 000 which even is higher.
Under this policy, banks will cease cash in transit lodgment services rendered to
merchants customers from June, 1, 2012. in this regard, customers could
engage the services of the CBN licensed cash movement to and from their
banks a mutually agreed terms and conditions.
REASONS FOR CASHLESSNESS IN NIGERIA
This policy and the eventual cashless economy will reduce snatching of money
from customers at gun point, on the street and also reduce the incentive for
robbery and employee theft. The nation’s economy will witness less money in
circulation as huge of quasi money is expected to be in the vault. There will be
reduction in the cost as well as frequency of printing and minting of money by the
central bank of Nigeria.
Recently, CBN stated that it incurs about N34billion to print money annually. Use
of electronic money which may be the outcome of the policy, will reduce cost
associated with storage, transportation and security of cash.
However, the policy will face the challenges of inadequate power supply,
shortage or critical technological infrastructures, lack socio-cultural support and
absence of regulatory framework that are required to operate seamless and
effective electronic payment system in the country. As it is today, many people

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have lost confidence in the security of our electronic payment system as ATM
system is fraught with frauds and irregularities to the detriment of unsuspecting
customers.
It is expected that the policy may lead to “explosion” of mobile financial services
companies in Nigeria, therefore creating more employment opportunities for ICT
knowledge workers. Potentials of mobile banking in Nigeria. According to the
enhancing financial dunovation and access (EFINAC) report, 67 percent of
Nigeria’s population is unbanked and 78 percent of the nation’s rural population
is without a bank account, Nigeria’s unbanked population reflects Africa’s
average with only 20percent of African families having bank accounts, the mobile
money remains the only and most available feasible means to provide mass
market alternative to get more people banked in Nigeria. The internet has only a
penetration rate of 6 percent in a population of more than 140 million people but
mobile technology is close to 50percent penetration with huge prospects for
growth. Introduction of mobile financial service companies cash in transit at
servicing companies and may affect those staff of the banks that are currently
involved in cash management to either be redeployed to curb banking activities
or downsized.
CASHLESS ECONOMY IN ITS ERA OF POOR INFRASTRUCTURE
DEVELOPMENT

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The Nigerian government as a developing nation is characterized by poor
infrastructural development like epileptic electric supply, poor road network in
Nigeria, no water, poor security and other basic amenities that make life
meaningful.
In Nigeria, where the banks are mostly concentrated in the urban cities and the
few banks that have branch officers are always threatened by high level of theft,
because of the level of insecurity in Nigeria.
There has been cases where one go to bank to collect or withdraw money and it
will be that there is no network or that the server is not working and all these do
constitute problems to the person who wants to make the withdrawal.
In Nigeria as a nation where one can never be sure of power, what will be the
fate of somebody who after purchases of some consumables went to collect
money and the system developed problems.
Again, the type of business we do in Nigeria has encourage holding of cash
because it is difficult to create trust among Nigerians because of the level of
fraud.
Further to this, by the level of insecurity in Nigeria, it is very obvious that one
may pick the money and arm robbers will snatch the same amount in the same
spot and they do this by always shooting sporadically in the air, Nigeria by the
level of our development is not ready for cashless economy.

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THE IMPLICATIONS OF CASHLESS ECONOMY IN NIGERIAN
ECONOMIC DEVELOPMENT
Nigeria is a developing nation. The type of business done in Nigeria is yet to
develop to the standard we see in advanced countries.
Recently, the CBN governor under the leadership of Sanusi Lamido Sanusi
announced the intending introduction of cashless economy where one can
withdraw N150, 000 and corporate body N1 million and any excess of that the
person concerned will pay penalty. The implications of these are;
The people who are doing business will be delayed in carrying out their normal
business
- It is also assumed that fraud will reduce, but it is obvious that ATM even
encouraged more fraud.
- It will also make people that have gotten some cash to withhold it, because
of the fear that it will be difficult t get another one in the bank.
- It will also make the people who engage in major transactions not to
engage in their normal business. It will indirectly create unemployment for
people who engage in business that needs a lot of cash.
- The intention of mobilizing fund from the rural dwellers may not be
achieved because they may keep the money so that they will not have

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problems of sourcing for cash from the bank because of the ceiling by the
apex bank on the maximum of withdrawal.
We are also aware that most of money laundering done in the bank are
connivance with bank managers, because of the bad moral hazard in
Nigeria, the managers may arranged with the withdrawers and
disadvantage other banks, so these has to be revisited for all the
participating banks have level playing ground.
Assuming that after purchases and there was no network from the cash
point or that the server developed problems, what will happen.
VARIOUS RISK INHERENT IN CASHLESS ECONOMY
The various risk inherent in a cashless economy may be positive or negative to
banks and customers during the course of business activities and financial
transactions.
And as stated by the central bank of Nigeria CBN, the various risk inherent in a
cashless economy is that the policy will face the challenges of inadequate power
supply, shortage of critical technological infrastructure, lack socio cultural
support and absence of regulatory framework that are required to operate
seamless and effective electricity payment system in the country. As it is today
many people have lost confidence in the security of an electronic payment

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system as ATM system is fraught with irregularities to the detriment of
unsuspecting customers.
It also expected that the policy may lead to the “explosion” of mobile financial
companies in Nigeria therefore creating more employment opportunities for ICT
knowledge workers. It will also stop people for taking money to the bank while
keeping this money in the house and this will lead to rubbery issues.
VARIOUS WAYS OF MANAGING SUCH RISKS
In a cashless economy, the aim is to avoid the risk of holding excess fund and
also to reduce the risks of all these internet scams.
But one thing is that if one if running from one risk, he is exposing himself to
another risk that is why it is always said that a man is a bundle of risk. Various
ways of managing the risk of cashless economy are;
Keeping some cash handy incase of any disappointment of the persons bank
through network. Again, to have bank accounts with some other banks so that if
one is disappointed in one bank, one can easily go to another bank cash point.
Again, one may have various accounts with different children of his to enable
him with draw more than the withdrawal limit.
It is also very necessary to have different banks to facilitate multiple withdrawal
from different banks.

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To the government, armed personnel should always be sent to guide banks and
protect both those depositing and those making withdrawals.
THE EXPECTED ROLE OF THE GOVERNMENT IN MANAGING
SUCH RISKS
The banker is eager to finance the expirations of a newly elected legislator,
however very much unwilling to finance a new small or medium scale enterprises
because the former is more viable. The simple truth is that most banks in Nigeria
are not really financing business enterprises as in their view, the attendant risk
accompanying is still too high. The cash carrying nature of the economy is also
responsible for large pool of money in the land the unbalanced income
distribution in Nigeria is also a serious concern.
Conversely in a mixed or cashless economy, a significant if not the entire
percent of the money must be routed through the conventional banking annuals.
Hence the picture of the size and nature of the economy is clearer. Government
policies easier to implement. Such international commercial crimes as money
laundering can be easier to track and possibly ripped in the land, these are just
some of the reasons why the present central bank target of making Nigerian
economy a cashless by the year 2015.
Bank will more eager to do business and give the businessman in the country
access to credit. Will the age long conventional albatross of collateral society

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end or is it possible to open the windows of other trendier forms of accessing
credit in this new regime when most of the money in circulation will obviously be
in banks? Will it be a new business haven or will it give room to a new set of
business challenges.
From the preview of secured credit transaction anything that makes the
repayment money more assured other than the promise by the borrower
qualifies as security. While some form of security is a sine qua non in a lending
transaction, realization security is often not costless. This is why a banker may
be reluctant go give the lead access to credit if he has the linking that the
transaction is likely to fail regardless of low attractive the venture may be.
INSURANCE INDUSTRY AS A PUT OPTION
Man by creation is a bundle of risk. Risk is one of the institutions created by God;
hence man cannot do without risk. It is because of the risk inherent in man’s
activities that brought about insurance. In the banking industry, staff work there,
and it has been noticed and reported in most cases that there has been fraud
from people using ATM, so to enable this work, the bank, individual need to take
different classes and types of insurance policies. For instance, individual who are
staff hold and play with people’s money, hence they have to take up dishonesty
insurance or fidelity insurance policies.

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Again, people may be taken to court by the attitude of the staff. Variously, hence
need to take up legal expenses insurance.
Banks also give advise to people and their advise may not be in line with the
approved norms, hence need to take professional indemnity insurance, because
the person is a staff of the banks and the bank concerned may be held
vicariously liable .
Banks also carry cash about from place to the other, so they also need to take
up cash in transit insurance some risks also arises in cash in vault.
It has also been noticed that attacked by arm robbers is a big problems to the
banking industry hence need to take theft insurance fire can occur to the
building, damaging people’s property, hence need fire insurance, accident,
keyman insurance etc.
IMPLICATIONS OF EFFECTIVE MANGEMENT OF RISK INHERENT
IN CASHLESS ECONOMY
Most business transactions in the country are still cash-based which means
businessmen would need to withdraw huge sums of money to purchase their
product or goods and pay for transportation to Lagos. For instance. the traders
in the hinterland from whom they buy their goods know only one form of payment
that is except cash would thus be confronted with a bigger dilemma if this policy
is eventually implemented as it is in interviews, with newsman, Ade Martins

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Odigie, president national union, banks, insurance and other financial institutions
employees (NUBIFIA) warned against implementing such monetary policy in
Nigeria.
According to him, current CBN’s management should be called to order
instance, if you compel an entrepreneur who is transacting a daily business of
buying and selling for about N400,000 to limited his cash lodgments and
withdrawal to N150,000, it means his operations would be reduced by 60
percent. This unimaginable and should not be accepted in any form.
Austin Airbornian, a medical equipment supplier also believe that the policy
would cause some distortions in the economy in the economy in the short term.
According to him, some customers always insist on cash payment before they
would release their goods. How do we make these changes in a short time?
Airobamin however stated that CBN ought to have carried out sensitization
programme to prepare Nigerians for transition. Not everybody sees it as a wrong
policy.
Ogho Okiti Business Day’s Chief Economic believes that Sanusi is right on
matters limited amount of cash in circulation. Nigeria is one of the only few big
countries where people move huge amounts of cash around. When cash is not
in the banking system means banks cannot lend that cash that simply means
that the cash is not working for the economy.

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The second thing is if Sanusi is right on first principle what are the things he
wants to correct? But there are underlying principles; there is the issue of
efficiency, there issue of corruption and issue of waste or mismanagement.
Okiti, however admitted that the policy is not sufficient for the implementation of
new measure. For instance, he wants CBN as a matter of urgency to commence
other means of payment outside cash.
PROBLEMS OF RISK MANAGEMENT IN CASHLESS ECONOMY
There are always two sides to a coin, to cashless economy. It will not be
achieved in Nigeria and it will cause the following problems.
1. It will disturb business transactions in Nigeria.
2. It will frustrate business men from paying for their transactions incase of
power failures.
3. There are poor infrastructural development in Nigeria, which we all know
4. Banks are concentrated in the urban cities and the level of insecurity in
Nigeria is at a very rate. How can we improve our security over night.
5. Theft is very high in Nigeria and the level of the cashless economy work in
Nigeria with those in the village.
6. If there is big organizations that engages in millions of business, it will be
difficult for them.

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7. It will create even more unemployment in Nigeria because most of the
work will be done by machine.
8. It will encourage more hoarding of fund.
PROSPECTS OF RISK MANAGEMENT IN CASHLESS ECONOMY
The prospects of risks management in a cashless economy is as follows:
1. More funds will be in the bank to use in transacting any business.
2. The major functions of bank will come back as fund mobilization
3. Nigerian can always know the money in the economy and control inflation
4. It will reduce theft and arm robbery which is very prevalent today in
Nigerian economy.
5. It will help the government to plan because they can understand the
general financial situation of the public.
6. All these politicians that steal our money will be exposed, if well managed.
7. It will even encourage the operation of due process among the people in
power.

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8. It will reduce capital flight in Nigeria which have paralyzed our economy
and improved that of foreign countries.
9. It will place Nigeria in the world globally that has embraced cashless
economy. All these are on one side.
CONCLUSION
Its important to note that the nation is not very ripe for a stringent analysis of
expected risk inherent in a cashless economy. As Nigerian economy is
dominated by informal sector where use of banking services is highly limited. A
survey by Gallop (A Notable research firm in US) revealed that about 38 percent
of Nigerians have bank account while about 62 percent of Nigerian have no
relationship with the banking industry.
Another report by EFINA research company stated that as at the year 2010, only
25.4 million Nigerians representing 30 percent adult population as members of
informal sector may find the policy cumbersome at the beginning.
Definitely, there will be decline or operating exposes per customer in the finance
sector. In the long run, there will be less traffic in the banking hall when many
Nigerians would have adopted culture of e-transaction or keeping cash at home.
By and large, human habits and socio cultural attachments to the traditional use
of money in Africa may also be another hurdle that may be faced by the policy
amongst many Nigerian. I wish to urge central bank of Nigeria (CBN) to

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encourage and intensify awareness among citizens especially amongst the
informal sector of the economy and put in place necessary measures to make
the dream for cash economy a success hence it is difficult for cashless economy
to work now in Nigeria.
RECOMMENDATION
Risk is also said to be the sugar and salt of life so since risk is inherent in all
human activities and finance attracts more risk than others. It is recommended
that
1. Banks should embrace various insurance policies.
2. Insurance companies also should educate banks on the importance of their
policies.
3. Individuals and corporate organizations should also embrace insurance
business and their services mostly in his era of cashless economy.
4. Security is the business of all, both the government, individual should do
everything possible to provide adequate security in Nigeria.
5. Banks should also be made to have security to guide the customers that
are doing such transactions
6. There should be adequate provision of infrastructures to facilitate cashless
economy.

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7. Enough training and education on people about the economy should be
gradual to enable people understand and get acquainted with the practiced
of cashless economy before making it compulsory.
8. Adequate security provision in the rural areas and also providing
infrastructures will be encouraged, with no more banks branching in the
rural areas.