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Nigeria Sees Double-Digit Growth in Cash in Circulation

Categories : Cash and Crises, Cash is the first step of financial inclusion, Cash is the most widely used payment instrument
August 24, 2021
Published in : Africa, Cash, Digital payments, Financial inclusion, Nigeria
During the Covid-19 pandemic, digital payments did not overtake cash as the main payment instrument in Nigeria, despite initiatives and incentives from the banking sector and fintech firms.
Manuel A. Bautista-González

Columbia University in the City of New York

Early in the Covid-19 Pandemic, the Central Bank of Nigeria and the Banking Community Encouraged the Use of Cash Alternatives 

The Central Bank of Nigeria (CBN) urged the public to limit their use of cash and employ digital alternatives in March 2020, as the Covid-19 pandemic reached Nigeria. The measures seemed to strengthen the CBN’s bias towards cashless payments, manifest since at least 2012.

Isaak Orafor, the CBN spokesperson, said it was “advisable for Nigerians to adopt alternative payment methods and be wary of cash or Automated Teller Machines” as Nigerian naira (NGN) banknotes were “one surface that people touch every day. It will be wise for us to wash hands after handling money, especially if you are eating or touching food.”

The Chartered Institute of Bankers of Nigeria added that “individuals should explore online means of payment […] as it is possible for respiratory droplets to fall on cash held as well as ATM Machines.” The Institute said that further efforts were needed to sensitize “small businesses and petty traders in particular on the use of electronic/virtual means of payment [as] crucial [efforts] to prevent the spread of the virus.”

Currency in Circulation Grew by 22.32% between March 2020 and March 2021

Despite the CBN’s advice, currency in circulation increased by 22.32% during the first year of the pandemic (March 2020-March 2021). Currency outside banks grew by 21.93% in the same period, according to CBN data.

Graph 1. Nigeria: Currency in Circulation, January 2020-June 2021

Source: CBN Money and Credit Statistics (2021); CashEssentials.

The Contours of Financial Exclusion in Nigeria

According to a 2020 survey by NGO Enhancing Financial Innovation & Access (EFInA),

Digital Payments Growth During the Pandemic

The press has reported a decline in ATM transactions, although official data is lacking to verify these assertions. According to Uju Ogubunka, president of the Bank Customers Association of Nigeria (BCAN), this might have resulted from “the impact of Covid-19 on the economy, which has impaired income and created loss of jobs leading to a high unemployment rate; […] the economic recession; […] ATM dispense error; fraud.” The Association of Mobile Money and Bank Agents (AMMBAN) attributed the decline to an expansion in “alternative channels for payment asides cash” and “the state of the economy.”

New Payment Instruments Bring New Risks

According to Mastercard’s New Payments Index survey of May 2021, 96% of Nigerian consumers were likely to consider an emerging payment method in 2022, including contactless payments, wearables, biometrics, digital wallets, digital currencies, and QR Codes. The survey also found that 86% of consumers reported having access to more ways to pay than the first quarter of 2020.

However, the acceleration in digital payments has also brought an increase in digital criminality. In April 2020, the CBN alerted the public that cyber-criminals were employing phishing campaigns, relief package scams, and impersonation to “defraud citizens, steal sensitive information, or gain unauthorized access to computers or mobile devices using various techniques.”

“Only through concerted efforts […] can we then eliminate, reduce or ensure adequate measures are taken to combat cybersecurity challenges.” said Abumere Igboa, chairman of the Committee of Chief Information Security Officers of Nigerian Financial Institutions.

The Fintech Space in Nigeria: Dangers Lurking?

According to a recent McKinsey report, the Covid-19 pandemic and the acceleration in digital payments represents “an untapped opportunity to convert the underbanked and unbanked to fintech solutions and unlock the economic and social benefits that this promises.” However, the consultancy says little or nothing about the potential for incumbents to capture larger market shares through partnerships and investments from global digital payment giants.

CBN Launches Digital Currency Pilot

The Nigerian central bank plans to launch a digital currency pilot later this year, according to Rakiya Mohammed, director of the Information Technology Department. “The Central Bank digital currency will just be as good as you having cash in your pocket and even as you have the cash in your pocket, you are going to have the cash on your phone,” said Mohammed.

The CBN’s enthusiasm for the pilot contrasts with its stance towards cryptocurrencies. In 2017, the CBN prohibited commercial banks from using cryptocurrencies; in 2020, the CBN mandated commercial banks to close the accounts of clients transacting in crypto exchanges. However, as of 2021, Nigeria is the 6th country in crypto adoption and might have the largest crypto market in the world in terms of retail users doing transactions under USD10,000.

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