On the 21st of December 2022, the Central Bank of Nigeria (“CBN’) issued a circular titled “Re: Naira Redesigned Policy – Revised Cash Withdrawal Limits” (the “Circular”) which seeks to limit cash withdrawal to a maximum of N500,000 (Five Hundred Thousand Naira) per week for individuals and N5,000,000 (Five Million Naira) per week for companies.
The rationale of this policy is to accelerate the cash-less policy of the CBN. With this policy, the CBN intends to stimulate economic growth through the redirection of payments and exchange of value via the Nigerian electronic payment systems. The CBN has indicated that the policy will ultimately improve the effectiveness of the monetary system.
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Although, the impact of the circular on the overall financial landscape is apparent, the effect on Agency Banking in Nigeria is more pronounced. This newsletter provides an overview of the circular with the aim of appraising its effect on Agency Banking in Nigeria.
THE CIRCULAR
For the avoidance of prolixity, we have reproduced the part of the circular which is the focus of this newsletter in extenso;
(1) The maximum weekly limit for cash withdrawal across all channels by individuals and corporate organizations shall be N500,000 and N5,000,000 respectively.
(2) In compelling circumstances, where cash withdrawal above the limits in (1) above is required for legitimate purposes, such requests shall be subject to a processing fee of 3% and 5% for individuals and corporate organizations respectively.
The circular was addressed to Deposit Money Banks (DMBs) and other financial institutions, Payment Service Banks (PSBs), Primary Mortgage Banks (PMBs), Microfinance Banks (MFBs), Mobile Money Operators (MMOs) and Agents. Financial institutions are required to implement a withdrawal limit on the amount of cash withdrawable over-the-counter (OTC), via automated teller machines (ATM) and point-of-sale devices (POS) deployed by them. While we recognize the intention of the CBN to improve the effectiveness of the monetary system through this policy, it is imperative to consider its effects on the financial ecosystem, particularly Agency Banking.
THE SIGNIFICANCE OF AGENCY BANKING
Agency Banking is a remote banking model through which a licensed financial institution in Nigeria provides financial services to its customers through a third party (an agent). Agency banking and agent relations in Nigeria are regulated by the Guidelines for the Regulation of Agent Banking and Agent Banking Relationships in Nigeria (the “Guidelines”). Under the Guidelines, deposit-taking financial institutions and mobile money operators in Nigeria may provide agency banking services as the “principal” through a third party, who acts as an agent of the principal.
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In 2021, key findings published by EFInA, a financial sector development organization, in its Access to Financial Services in Nigeria 2020 Survey revealed that more than forty-two million adults live in rural areas of Nigeria and lack access to basic banking services. Clearly, there is a use case for agency banking in Nigeria as evidenced by the growth recorded in recent years. Many financial institutions including banks and licensed financial technology companies now partner with agents all across the country to provide banking services in underserved areas. This penetration has activated access to banking services through a range of channels, including POS terminals, mobile devices, and other digital platforms.
In Nigeria, the Agency Banking model has recorded remarkable success as a strategy to increase financial inclusion. It serves the unbanked and underbanked population, including low-income population, small and medium enterprises, farmers, people living in rural areas and so on who generally rely on cash as their primary exchange of value. Contextually, agency banking allows Amina, who resides in an undeserved village in Gombe State, to have access to banking services like withdrawal, deposit and transfer of money without having to travel several miles to the nearest bank or even owning a bank account.
EFFECT OF THE CIRCULAR ON AGENCY BANKING
As highlighted above, Agency Banking plays a pivotal role in ensuring that financial services are enjoyed by the underbanked and low-income population as the primary means of exchange for persons in this category is cash. It is therefore imperative to examine the effect of the circular on the operation of Agency banking in Nigeria. Whilst it may be premature to quantify the effects of the circular, the following outcomes are reasonably predictable:
(1) The withdrawal limits mean that customers who transact above the limit will incur more charges;
(2) Customers may have to make multiple trips, spread over a longer period of time to withdraw cash without triggering more processing fees;
(3) Adoption levels by customers may drop drastically;
(4) Participants in the Agency Banking sector may begin to record lesser revenues due to lower adoption;
(5) Customers may be forced to keep cash in their custody thereby increasing the probability of theft and fraud; and
(6) We may experience reduced investments in companies operating in the Agency Banking sector.
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CONCLUSION
The crippling effect of the Circular on Agency Banking is discernable. It is worthy of note however that the CBN indicated in the Circular that it recognizes the vital role that cash plays in supporting underserved and rural communities and that it will ensure an inclusive approach as it implements the transition to a more cash-less society. In view of this, it is expected that there may potentially be flexibility in the implementation of the circular to accommodate the needs of those in the underserved areas.
