Economics Project Topics

Effect of Cashless Policy on Small and Medium Businesses in Nigeria

Effect of Cashless Policy on Small and Medium Businesses  in Nigeria

Effect of Cashless Policy on Small and Medium Businesses  in Nigeria

Chapter One


The following are the objectives of this study:

  1. To examine the effect of the cashless policy on Small and medium businesses in Edo State.
  2. To determine the characteristics of small and medium businesses in Edo State.
  3. To analyze the challenges those have hindered the adoption of cashless policy by small and medium businesses in Edo State.




Cash-less banking is that banking system which aims at reducing, but not eliminating, the volume of physical cash circulating in the economy whilst encouraging more electronic based transactions. In other words, it is a combination of e-banking and cash-based system. It is essentially a mobile payment system which allows users to make payment through GSM phones with or without internet facilities (Odior and Banuso, 2012; Akhalumeh and Ohiokha, 2012). In 2011, it was estimated that 99% of over 215 million customer transactions in Nigeria banks were through ATM and over-the-counter, and this was valued at about N2.1 trillion. It is estimated that an average Nigerian transacts about N65 in cash out of N100 income earned (Princewell and Anuforo, 2013) The operation of the cash based system has been at a significant cost to the Nigerian economy. The estimate shows that cash distribution cost accounts for 60% overheads in the banking industry while cash management operations require up to 80% of the industry’s infrastructure base and staff strength (CBN, 2012). Furthermore, the direct cost of transporting, processing and storing (vault) huge volume of cash borne by the financial system was valued at N114.5 billion in 2009 and it was estimated to rise to N192 billion by the end of 2012. Again, heavy cash users (i.e. those with transaction value above N150, 000) account for only 10% of transaction volume but 71% of the transaction value. It appears therefore, that implicit cash holding costs for the minority class of cash users are being subsidized by the majority (Nweke, 2012). In response to this trend, the Central Bank of Nigeria by its legal mandate initiated the policy shift from cash-based system to cash-less one. In 2005, the CBN initiated the National Payment Systems (NPS) specifically to achieve the objectives of promoting efficiency and effectiveness of payment system, promoting safe and sound banking practices and protection against systemic risks. It also set the objective of migrating to cash-less mode of payment, such as electronic debit/credit instruments, credit/debit cards, ATM – sharing Electronic Fund Transfer at Point of Sales and Real Time Gross Settlement System (RTGS). Other objectives of NPS include; to ensure payment system audit transparency and full transaction reporting and to achieve acceptance and confidence through information dissemination, customer convenience and total quality delivery (Princewell and Anuforo, 2013). Eventually, the NPS initiative metamorphosed into the cash-less policy in April 20, 2011. According to CBN, the cash-less policy aims at reducing the amount of physical cash in circulation and to encourage more electronic based transactions. The policy came into effect in January 1, 2012 with partial implementation in Lagos State and later moved into full execution in that State in April 1, 2012. Thereafter, the policy was extended to five states (Kano, Ogun, Rivers, Anambra, and Abia) and Abuja on October 1, 2013 and to the entire country in July 1, 2014. The cardinal objectives of the policy are: (i) to drive development and modernization of Nigeria payment system in line with vision 2020 goal of Nigeria becoming one of the top twenty economies of the world by year 2020, (ii) to reduce the cost of banking services (including the cost of credit) and drive financial inclusion by providing more efficient transaction options and greater reach, (iii) to limit high cash usage outside the formal sector and thereby improve the effectiveness of monetary policy in managing inflation and encouraging economic growth, and (iv) to curb some of the negative consequences associated with high physical cash usage, including high cost of cash: robberies, corruption and leakages through money laundering, fraud and cash-related crimes (Central Bank of Nigeria, 2011; Odior and Banuso, 2012; Shonubi, 2012). However, the following are vital issues of the cash-less policy. First, there is a threshold of daily cumulative cash of N500, 000 and N3 million on cash withdrawals and lodgments by individual and corporate bodies respectively free of processing fees. At the conception of the policy in 2011, these were pegged at N150, 000 and N1 million but were later reviewed. This limit applies to all account so far as it involves cash, irrespective of the channel used. Second, there are processing fees for withdrawals above the limit, and it is 3% for individual and 5% for corporate bodies. Lodgment above the limit attracts 2% and 3% processing fee for individual and corporate bodies respectively. These processing fees are subject to review every six months. Thirdly, these fees do not apply to accounts operated by Ministries, Departments and Agencies of the Federal and State Governments, solely meant for the purpose of revenue collections. Exemptions are also extended to Embassies, Diplomatic Missions and Multi-lateral and Aiddonor Agencies, as well as Micro Finance Banks and Primary Mortgage Institutions (CBN, 2012) Reducing the huge population of Nigerians who do not have access to financial services is one of the major targets of the CBN. A survey on enhancing financial innovation and access in 2010, revealed a marginal increase of those served by formal financial market from 35% in 2005 to 36.3% in 2010; five years after the launch of Micro finance policy which was thought could massively mobilize rural Nigerians into formal financial services (Onyinye, 2012).






Research design

The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought effect of cashless policy on small and medium business in Nigeria

Sources of data collection

Data were collected from two main sources namely:

(i)Primary source and

(ii)Secondary source

Primary source:                          

These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.

Secondary source:

These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.

Population of the study

Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information the effect of cashless policy on small and medium business in Nigeria. 200 staff of CBN in Edo state was selected randomly by the researcher as the population of the study.




Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey.  This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.




It is important to ascertain that the objective of this study was to ascertain effect of cashless policy on small and medium business in Nigeria

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of cashless policy on small and medium business in Nigeria


This study was on the effect of cashless policy on small and medium business in Nigeria. Three objectives were raised which included: To examine the effect of cashless policy on Small and medium businesses in Edo State, to determine the characteristics of small and medium businesses in Edo State, to analyze the challenges those have hindered the adoption of cashless policy by small and medium businesses in Edo State . In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of CBN in Edo State. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up human resource managers, accountants, customer care officers and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


The implication of the findings from this study is that the introduction of cashless policy has a negative significant influence on the operation, performance and growth of small scale businesses in Edo state. The results of the study revealed that the characteristic of small scale businesses is a strong indicator for measuring the level of adoption of cashless policy was statistically low. Generally, the characteristics of small scale businesses in Edo state do not support the adoption of cashless policy in the area. This study therefore opines that small scale businesses do not rely on heavy capital; hence, the introduction of cashless economy could be a hindrance on its operations and growth


Based on the study’s findings, the following suggestions are discernable:

  1. Low capital by small scale businesses have been implicated as a ban on the adoption of cashless policy. Therefore, there is need for government to harness efforts which should be directed at improving the activities of small scale businesses through concerted policies, regulations and actions that will encourage and empower small scale businesses financially thereby making the sector vibrant and productively ready to withstand a cashless economy.
  2. Low based ICT knowledge was implicated as one of the challenge of adopting cashless policy. Hence, there is need to build capacities in small scale businesses operators through adult literacy programme, seminars, and mass ICT training programmes in rural areas. This will ensure readiness to go cashless, and also enhance personal abilities for cashless transactions.
  3. There is need to build synergy between formal/informal financial institutions, and operators of small scale businesses. This will consolidate a more effective working relationship which could boast rural small scale businesses capital based, ensure high turn-over in investment, as well as address the challenge of lack of trust to utilize internet banking transactions.


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  • Akhalumeh, P. B. & Ohioka, F. (2012). Nigeria’s Cash-less Economy: The imperatives. IJMBS vol 2 (2)
  •  Asaolu, T. O. (Jan/March 2013). Cash-less Policy as a Panacea for Stemming Corruption in Nigeria: The Accountant Perspective. The Nigerian Accountant. Vol. 40 (1) pp 43-41
  • Azeez, K. (2011). Cyber insecurity threatens Nigeria Cash-less Economy Drive. Retrieved on June 10, 2013.From…/…/22594.htm
  •  Babalola, R. (2008). “E-payment: Toward a Cash-less Economy: A Keynote Address of the Finance Minister of State at CardExpo Africa Conference. Retrieved on June 10, 2013.From
  • Basel Committee (1998).“Risk management for e-banking and e-money activities”. Basel Committee Publication No 35
  •  Claudia, C. & Grauwe, P. (2001). “Monetary policy in a cash-less society. Brussel CEPR Discussion Study CBN (1994).
  •  CBN Brief CBN (1994). Central Bank of Nigeria Annual Report Lagos: CBN Publications CBN (2011).Cash-less Policy: policy guidelines Abuja:



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