Nigeria: Fintech growth in peril due to central bank’s cash withdrawal limits

By David Whitehouse
Posted on Thursday, 22 December 2022 10:57

New 1000 naira note. REUTERS

Limits on cash withdrawals imposed by Nigeria’s central bank put the growth of the country’s fintech industry at risk, Victor Olojo, president of Nigeria’s Association of Mobile Money and Bank Agents, tells The Africa Report.

The central bank said on December 6 that it would reduce limits with effect on 9 January. Individuals will only be able to withdraw 100,000 naira ($224) per week, with a daily limit of 20,000. The previous weekly limit was 2.5m naira. Corporates will be restricted to 500,000 naira per week, versus a previous daily limit of 3m naira.

Amounts beyond the limits will generate processing fees of 5% for individuals and 10% for companies. Banks are expected to encourage their customers to use other channels, such as internet banking and mobile apps, the central bank said.

That’s currently not a realistic option given Nigeria’s underdeveloped digital infrastructure, which lags behind that of Ghana and Kenya, Olojo says. The new rules will “strangulate” the growth of fintech as Nigerians will be discouraged from putting their money into electronic wallets, he argues.

No-one prepared or planned for this. No-one saw it coming. Fintechs won’t be able to make their bottom lines

Before such a drastic change, “we need to ensure we have the right infrastructure and technology in place”, with the onus falling on telecoms as well as the central bank to help achieve it.

Fintech companies had made their strategic and financial projections without suspecting that such a change would happen, Olojo says. “No-one prepared or planned for this. No-one saw it coming. Fintechs won’t be able to make their bottom lines.”

Mobile money agents, who the association represents, currently carry out transactions worth about $300 a day, on average. The new rules on withdrawals could cut that to $60, he says.

Consultation needed

The move follows the redesign of the currency announced by Central Bank Governor Godwin Emefiele in October. The redesign, under which the old 200, 500, and 1,000 naira notes cease to be legal tender at the end of January, is aimed at controlling the amount of money in circulation, while reducing fraud and making kidnap and ransom harder.

Olojo endorses the central bank’s aim of trying to reduce the use of cash and says there is “no perfect time” to do it, but currently, he argues, the timing is clearly wrong. The country first needs to develop wallet-to-wallet transaction capability, which is now lacking, a process that he estimates could take another two or three years. New cash limits should also be implemented at a time of economic strength rather than stress, he says.

Soaring inflation rates for essentials, such as food and fuel, have created a cost of living crisis that makes the rules on withdrawals even more ill-timed, Olojo says. “This will make life even more difficult for Nigerians. It’s hard enough already and now they are told that they cannot access their own money? What is the mechanism that the central bank is using to make such a policy?”

A collaborative approach is essential, Olojo argues. Rather than policy simply being handed down overnight, “all stakeholders need to come together and discuss the issues”.

More education is also needed first as Nigerians are “yet to fully trust the payments system”.

New withdrawal limits should be phased in gradually to allow individuals and companies time to adapt, Olojo says. Signals from the central bank that it would be flexible on implementation have, so far, not been followed up by any concrete actions, he adds.

Bottom line

Good policies can become bad ones if implemented too fast and without consultation.

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