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BANKING FINANCE

EFFECTIVENESS AND CHALLENGES OF THE CBN CASHLESS POLICY ON RURAL BUSINESS DEVELOPMENT

EFFECTIVENESS AND CHALLENGES OF THE CBN CASHLESS POLICY ON RURAL BUSINESS

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EFFECTIVENESS AND CHALLENGES OF THE CBN CASHLESS POLICY ON RURAL BUSINESS DEVELOPMENT

INTRODUCTION

1.1 Background Of Study

Any economy's financial system is in charge of allocating resources effectively and using savings for profitable investments. In this regard, banks have frequently taken the initiative in the past.

Numerous books, including those by Ajayi (2006), Adegbaju and Olokoyo (2008), and Babalola (2008), have described how banks contribute to the socioeconomic growth of countries. Numerous financial policy reforms aimed at the banking industry have been explored in Nigeria as a result of this.

The Central Bank of Nigeria (CBN) began recapitalizing banks in July 2004 and finished the process on December 31, 2005. Other recent measures include formalising the usage of banking and switching from cash-based to cashless financial arrangements.

Ajayi and Ojo (2006) state that encouraging a secure, practical, and economical payment system is one of the requirements for the growth of the national economy.

In this regard, developed nations are, to a significant extent, switching from paper to electronic payment methods, particularly credit cards (Humphrey, D. B. 2004).

For instance, one can pay for a vending machine snack in these nations by just dialling a number from their phone bill. Recent years have seen a rise in the usage of mobile phones to pay for digital goods including ringtones,

music, games, tickets, parking and transportation costs by simply flashing the device in front of the scanner at either “manned” or “unmanned” point of sales (POS).

Cash is the primary form of payment in Nigeria, as it is in many other developing nations, and a sizable portion of the population lacks access to banking services (Ajayi and Ojo, 2006). The result is a predominantly cash-based economy in the nation.

Literature abounds with justifications for cash-based transactions. Cash differs from other payment instruments in the following ways, according to a study published in the UK in March 2010 (the future of cash in UK):

it circulates, it is always valuable, it provides full and final settlement of a transaction, it allows for anonymity, once issued, the circulation of cash is uncontrolled, and it is regarded as a public good by its users.

The cost of cash to the Nigerian financial system is, nevertheless, substantial and rising; in 2008, the cost was very nearly fifty billion naira (CBN, 2012). The CBN has disclosed that the direct cost of cash is anticipated to soar to an astounding amount of 102 billion naira in 2012.

Robberies and cash-related crime, income leakage resulting from excessive cash handling, ineffective treasury management due to the nature of cash processing, high subsidy, high informal sector, etc. are additional issues brought on by heavy cash usage.

In light of these circumstances, the CBN implemented the cashless policy in April 2011 with the intention of encouraging the use of electronic payment methods rather than physical cash. The CBN is now running a cashless policy trial programme in Lagos, which started on January 1st, 2012.

The policy's in Lagos has not yet made the anticipated headway. In place of a nationwide rollout, Port Harcourt, Kano, Aba, and the Federal Capital Territory have all undergone gradual adoption (CBN 2012).

Therefore, this study has two main goals: first, it will examine the prospects for Nigeria's cashless policy and, second, its difficulties. Following is the study's progression.

The overview of cashless policy and some stylised information about non-cash payment in Nigeria are provided in Section 2. A quick survey of the literature is done in section 3.

The study used Zenith Bank as a point of comparison to elaborate on the benefits and difficulties of the CBN's cashless policy on the development of rural businesses.

1.2 Statement of the Problem

A cashless economy is one where transactions can be completed using credit or debit cards instead of carrying actual currency as the primary medium of exchange for goods and services. Ajayi and Ojo (2011) state that encouraging a secure, practical, and economical payment system is one of the requirements for the growth of the national economy.

In this regard, developed nations are, to a significant extent, switching from paper to electronic payment methods, particularly credit cards (Humphrey, 2013). For instance, one can pay for a vending machine snack in these nations by just dialling a number from their phone bill.

Cash is the primary form of payment in Nigeria, as it is in many other developing nations, and a sizable portion of the population lacks access to banking services.

1.3 objectives of the Study

1. To study the CBN's cashless policy's characteristics

2. To assess the success of CBN's cashless strategy

3. To determine the difficulties the CBN's cashless policy presents for the growth of rural businesses.

4. To suggest an improved method for carrying out the cashless policy.

1.4 Research

1. What characteristics does CBN's cashless policy have?

2. Is the CBN's cashless strategy ? of the CBN's cashless policy?

3. What are the obstacles the CBN's cashless strategy presents to the growth of rural businesses?

4. How can the cashless policy be implemented more effectively?

1.5 Scope of the Study

The research focuses on the advantages and disadvantages of the CBN's cashless policy for the growth of rural businesses. The focus is only on Zenith Bank in Enugu.

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