Still on the proposed CBN cash withdrawal limits

First and foremost, it is important to recall the content and import of this policy. By its monetary policy circular with reference number COD/DIR/GEN/CIT/05/031 dated 20th April, 2011 but released on 28th April, 2011, the apex bank has directed that from June 1, 2012 a daily cumulative limit of N150,000 and N1,000,000 on free cash […]

First and foremost, it is important to recall the content and import of this policy. By its monetary policy circular with reference number COD/DIR/GEN/CIT/05/031 dated 20th April, 2011 but released on 28th April, 2011, the apex bank has directed that from June 1, 2012 a daily cumulative limit of N150,000 and N1,000,000 on free cash withdrawals and lodgements by individuals and corporate customers respectively with Deposit Money Banks (DMBs) shall be imposed. The circular went further to state that withdrawals above the limits shall attract a penal fee of N100/thousand and N200/thousand for individuals and corporate customers respectively. This penal fee explains the ‘free’ cash withdrawals and lodgements contained above as withdrawals above the specified cumulative limits attract this outrageous fees. It is instructive to equally note and imagine the effect of the element of cumulativeness contained in the circular. The circular went further to state, among others, that even third party cheques above the specified limits shall not be eligible for encashment over the counter. What a policy for a country with a very low banking habit/penetration like Nigeria.

While the reasons given for the introduction of this policy which includes cost of cash management to the banking industry, security, money laundering, etc. are laudable as they were, the implications for the common man and the larger economy are far reaching.  The reasons adduced above are germane considering the prevalence of corruption in our system and the state of insecurity we witness on a day-to-day basis. But what to me seems not right is that the initiative is deemed to have been taken without weighting the tremendous negative impacts the policy will have on the citizenry. The development of banking culture and more importantly, the move from a cash economy to that of a cashless one should evolve gradually and not suddenly by administrative fiat such as this policy tends to engender.

I have been a supporter of most of the policy initiatives brought about by the present CBN regime. While the Soludo era is to be rightly credited with the increase in share capitals of banks with a view to enhance their capacities and increase global competiveness, the Lamido Sanusi era has brought about the needed sanity in the system. Whether the capitals were ‘genuinely’ increased and capacity enhancement attained is a different kettle of fish. The present regime in CBN introduced a limit of N10,000,000 for cheque transactions in 2010. This has the effect of, among others, ensuring that high volume transactions can be monitored through the banking system and hence the policy, for me, is a welcomed one. The issue with the subject matter of this write up is that the negative implications on the wider economy seem not to have been carefully thought through. There is need for rigour in decision making/policy formulation process by the appropriate authorities as a well-intentioned policy could turn out an albatross if the needed rigour is not exercised in policy formulation process.

A few examples will explain my worry on the policy. A typical farmer in my village does not have, and hence does not operate, an account with the banks. He would want to be paid for his produce in cash and could have produce worth over N150,000 for sale at a point in time.  In the same vein, the buyers may be required to buy piecemeal to meet up a supply contact issued by a company, say a brewer. While it may be possible for individual sellers to have produce that are within or below the N150,000 threshold established by this policy, the buyer would definitely need more than N150,000 (or even N1,000,000 for corporates) to meet the quantities required by his contract. Considering the fact that majority of these sellers do not operate bank accounts, coupled with the fact that the buyer may not have more than N150,000 (or N1,000,000 for corporate buyer) how then can a buy and sell deal be consummated. It is instructive to note that the value of the individual block of these Local Purchase Order (LPO) contracts would in most cases exceed the N1,000,000 threshold. From this example, the introduction of this policy will definitely result in hardships for these peasant farmers.

While it is good to import very good policies for application in our local economy, the peculiarities presented by our circumstances should, and must, be taken into recognition. Another example that may appear mundane and commonsensical could be in the acquisition of a typical household item. A typical 42’ plasma television currently cost above N150,000. It may be a hard sell, going by the way our retail markets are presently configured, to buy this item from a typical Alaba market, Lagos trader with a cheque rather than cash. While the confidence that the cheque may be returned unpaid is an issue, the conventional waiting clearing period presents another. In climes where electronic payment systems are effective, this may not be an issue but for us, we are not yet there and hence, the need to tread cautiously.

Another issue with the policy is the limits themselves. Though it is a common saying that little drops of water makes an ocean, it should be noted that the fraudulent and money laundering practices that the policy seeks to prevent and/or minimise are done in the millions, if not in billions. A threshold of N150,000 for individuals and N1,000,000 for corporate bodies in my opinion, appears low considering the current cost of items vis-à-vis the inflationary trend in the economy. June 1, 2012 may appear far but there do not seem to be in the pipeline, any ‘feasible’ drastic policy that will change our banking culture, the subsistence nature of our economy and the retail nature of our markets before that date which is barely a year away.

Worthy of a brief mention too is the penal fee attached to non-compliance. A penal fee of N100/thousand and N200/thousand for individuals and corporate organisations respectively are high. Where exigencies would compel an account holder to exceed these limits, and hence, pay this penal fees, such fees will no doubt be transferred to financial consumers through the chain of demand and supply process. To add this cost to our already very high cost of doing business resulting mainly from the decay/non-existence of infrastructures will be overkill.

In conclusion therefore, I would like to suggest that all stakeholders, including the relevant committees of the National Assembly, take a critical look at this policy with a view to make its implementation less painful to the common man. An analysis of the envisaged benefits vis-à-vis the potential hardships should be carried out before the implementation date. The result of such analysis and review could make for the fine tuning of the policy as against its present original raw state.

John Abuh Oyidih wrote from Abuja