IMPACT OF CASHLESS POLICY ON THE PERFORMANCE OF SMALL AND MEDIUM SCALE BUSINESS IN KARU NASARAWA STATE

IMPACT OF CASHLESS POLICY ON THE PERFORMANCE OF SMALL AND MEDIUM SCALE BUSINESS IN KARU NASARAWA STATE

CHAPTER ONE

INTRODUCTION

• Background to the Study

A cashless economy is an environment in which money is spent without being physically carried from one place to another. Electronic devices as means of information that reveal how much a person has deposited and has spent are needed. Information technology plays an important role in bringing about sustainable development in every nation. Without an optimal use of information technology, no country can attain a speedy social- economic growth and development. The future of all business particularly the small and medium scale lies in information technology, in fact, information technology has been changing the ways companies and banks compete. Information technology is more than computers, it encompasses the data a business creates and uses as well as a wide spectrum of increasing convergent and linked technologies that process such data. Information technology thus relates to the application of technical processes in the communication of data. It is no doubt that information technology can help to reduce transaction costs for banks, which will translate to lower prices for services to customers. Information technology for banks takes different forms which include: computerization of customers’ accounts and information storage and retrieval, deposit and withdrawal through Automated Teller Machine and networking to facilitate access to accounts from any branch of the bank. Other forms include bio-metrics used in finger- printing and identification which should dispense the use of passwords or personal identification by customers. The use of internet and websites to bundle a host of services that go beyond transactional financial services which is increasing among banks (Olajide, 2012).

The financial sector has undergone many organizational changes over time in order to facilitate easy production and trade of products and services. However, with accelerating development of the financial systems as a result of deregulation, globalization and new information system, new ways of handling money appeared among banks and their customers. The use of e-card, internet banking facilitates the ease and convenience in handling transactions (Olatokun, 2009). E-banking customers have possibility to access online or electronic banking for 24 hours which allows them to view historical banking transactions, transfer money between accounts, make savings, perform other operations at everywhere. Moreover increase in knowledge and ability to manage internet banking, banks and ATMs have resulted in more independent bank customers no longer requiring bank staff. The shift in bank customers’ behavior and attitude towards cash services offered at the banks gave birth to cashless policy. This means banking is entirely relying on monetary transactions that use electronic means rather than cash (David, 2012).

The cashless policy was conceptualized by the apex bank to migrate Nigeria’s economy from cash based economy to a cashless one through electronic payment system, not only to enable Nigeria monetary system be in line with international best practices or discourage movement of cash manually, but at the same time increase the proficiency of Nigeria’s payment system which will in turn improve the quality of service being offered to the banking public. Cashless policy aims to curb some of the negative consequences associated with the high usage of physical cash in the economy, including high cost of cash, high risk of using cash, high subsidy, informal economy, inefficiency and corruption (CBN, 2011).

The introduction of the policy in Nigeria therefore brings up issues that touch on security, privacy, crime and computerization. According to David (2012), Nigeria did not embrace electronic banking when compared to developed countries. Nigeria adopted electronic banking system in early 2000s. Electronic banking is defined as the use of computer to carry out banking transactions such as withdrawals through cash dispensers or transfer of funds at point of sale. Cashless policy started in Lagos, pilot state. The apex bank pegged withdrawal by individual and corporate accounts at N500,000 and N3million respectively. Processing (charges) fees for withdrawals above the limits for individual customers is 3% while that of corporate bodies is 5%. Charges for lodgements for individuals and corporate accounts are 2% and 3% respectively. However, ministries, departments, agencies, specialized banks, diplomatic missions, embassies, multilateral and donor agencies have been exempted from charges emanating from this policy.

The product of the exercise was to ensure a diversified, strong and reliable banking industry where there is safety of depositors’ fund, and reposition of the banks to play active developmental roles in the Nigerian economy” (Bamdele, 2017). The payments system plays a very crucial role in any economy, being the channel through which financial resources flow from one segment of the economy to the other. Therefore, it represents the major foundation of the modern market economy. Essentially, there are three pivotal roles for the payments system namely; the Monetary Policy role, the financial stability role and the overall economic role (CBN, 2011).

• Statement of the problem

The introduction of the cashless policy in Nigeria by the central Bank of Nigeria has gotten Nigerians talking, the policy looks promising on paper, with several benefit Nigerians stand to gain which hopefully will include making Nigeria one of the “20” strongest economic in line with it vision 2020 projections. The question is what will the common Nigeria stand especially the small and medium scale business enterprises to benefit from this new policy and how will if contribute to the growth/ development of the economy. Small and medium scale business owners in Nigeria have been doing their business with nothing but cash, with this cashless policy, how is this trader who probably doesn’t have a bank account supposed to transact his/ her business? In a country where about seventy million people out of its one hundred and fifty million population are unbanked. Nigerian’s are wondering about what would happen to the unbanked populace who are vibrant business operators will they be kicked out of business? Despite the awareness on e-transaction created by the CBN, this unbanked populace are not in a living to open a bank account because of their convenience. These and many more unanswered question make the impact of cashless policy in Nigeria seem favoruable to the formal sector and unfavourable to the informal sector of business operations in Nigeria. It is against this background that this study seeks to examine the impact of cashless policy on the performance of small and medium scale business.

• Objectives of the study

The main objective of the study is to examine the impact of the cashless policy on the performance of Small and medium scale business in Karu – Nasarawa State. The specific objectives of the study include:

1. Examine whether sales transaction through mobile money service has significant impact on the growth of SMEs.
2. Assess whether purchases of stock through mobile money services has significant impact on the growth of SMEs.
3. To examine the impact of the cashless policy on the overall performance of SMEs.

• Research Questions
• To what extent does sales transaction through mobile money service significantly impact on the growth of SMEs in Karu Nasarawa State?
• To what extent does purchases of stock through mobile money services significantly impact on the growth of SMEs?
• How does cashless policy significantly impact on the overall performance of SMEs

1. Statement of Hypothesis

H₁₁: Sales transaction through mobile money service has significant impact on the growth of SMEs.

H₁₂: Purchase of stock through mobile money services has significant impact on the growth of SMEs.

H₁₃: The cashless policy has significant impact on the overall performance of SMEs

1. Scope and Limitation of the Study

The study majorly focuses on the impact of cashless policy on the performance of small scale business. The scope of the study is limited to analysis the impact of cashless policy on the transactions of small and medium scale business through the use of mobile money. Geographically, this study is limited to small and medium scale business enterprises located in Karu – Nasarawa State.

This research work has been limited due to the following reasons;

1. The time frame available for the research work restraint the effectiveness of the research.
2. Financial constraint: Insufficient finance to execute some research’s has actually limited this project work coupled with high cost of materials in the market has made me to resort to means that will reduce cost which has affected the quality of work.

1. Significance of the Study

The research work will give various insight into the various implication the introduction of the cashless policy will have on the performance of small and medium scale business in Karu Nasarawa, examining of the impact of cashless policy on the day to day transaction of small and medium scale business in the study area and Nigeria at large.

The findings of this study contribute to the knowledge and policy implementation on the impact of mobile money on the growth of micro, small and medium enterprises in Nigeria, to both small business stakeholders. The study adds value to the existing literature and establishes the gaps for future research on the same or similar topic by suggesting areas that need further studies to be conducted. This helps policy maker to come out with possible alternative policy intervention to improve micro, small and medium enterprises in Nigeria.

1. Historical Background of the Case Study

Karu is a Local Government Area in Nasarawa State, central Nigeria. It is close in proximity to the Federal Capital Territory of Nigeria. It has an area of 2,640 km². Karu local government has its headquarters in New Karu town. It was originally built to house the capital’s civil servants and lower income families, but had no running water or good sanitation system.

The Karu Urban Area is an urban area in central Nigeria. The urban area is majorly located in the Nigerian state of Nasarawa, but with some parts stretching into the boundaries of the Federal Capital Territory (FCT). It has an area of 40,000 hectares (400 km²) and a population of some 2 million. It is one of the fastest growing urban areas in the world, with a growth rate of 40 percent recorded annually. It consists of towns that developed as a result of urban sprawl from Abuja.

From west to east, the urban area includes towns like Kurunduma, New Nyanya, Mararaba, New Karu, Ado, Masaka and newer, fast-growing towns such as One Man Village (which contains over 1 million people) and Gidan  Zakara. Since the beginning of the 20th century, these districts have grown together into a large urban area and a major commercial centre of central Nigeria.

History: In the 1970s, it was decided to relocate Nigeria’s capital from Lagos to the centre of the country. The site chosen for the new capital was very close to the villages that made up the present Karu Area, which was a sparsely populated area typical of Nigeria’s Middle Belt. In the 1980s, the Nigerian government began transferring its activities to Abuja,and countries began relocating their embassies there. The Economic Community of West African States moved its headquarters to Abuja, and OPEC moved its regional headquarters there. The result was a rapid increase in Abuja’s population, which more than doubled in a short time. The Karu area was also affected, as its villages experienced rapid growth due to their close proximity to the new capital.

Growth and Urbanisation: In 2003, Mallam Nasir Ahmad el-Rufai, then minister of the Federal Capital Territory of Nigeria, wished to regain control of the population explosion of Abuja, which had led to the deterioration of the city’s infrastructure. He started a campaign of demolition, using bulldozers to demolish structures and clear shanty towns. The campaign made hundreds of thousands of residents homeless, as the remaining decent accommodation was highly priced, and lands approved for residential areas were too expensive for those on an average income, because of Abuja’s status as the capital of Africa’s oil giant, Nigeria, a country where most people live on less than US$2 a day. These people were thus driven to find affordable accommodation in the neighbouring satellite towns. Because it is so close to Abuja, many of them went to the Karu area, which underwent a population explosion that quickly transformed it into an urban area.

Urban Developments of Karu: The rapid growth of the Karu Urban Area began attracting businesses such as banks, hospitality providers and engineering firms, making it more popular than ever and further accelerating its population growth. People from other parts of the country, reluctant to live in the expensive Abuja, came to settle in Karu, which was regarded as a new urban area that grew as a result of Abuja’s influence. The towns in the area soon began to merge into a conurbation more than 24 kilometres long, with a population projected to be around 2 million.

Government and Administration: The Greater Karu Urban Area is governed by the Karu Local Government in Nasarawa state in Nigeria’s middle belt. The Karu Local Government is headed by a chairman elected for a four-year term. It has its headquarters and secretariat in New Karu town. The local government council is responsible for the development of infrastructure in the Karu Urban Area, with the backing of the state government of Nasarawa State. The EsuKaru, the traditional ruler of New Karu, is recognised as a traditional authority in the local government area. He is responsible for settling conflicts among members of the indigenous ethnic groups and serves as the record keeper of the area’s history.

Weather and Climate: The Greater Karu Urban Area has the tropical savanna climate of central Nigeria, with alternating rainy and dry seasons. The rainy season begins in April and ends in November. Rainfall in the Urban Area is high owing to its location on the windward side of the Jos Plateau and the zone of rising air masses. The annual total rainfall is in the range 1100 –1600 mm.

Health: The Greater Karu Urban Area serves as a health centre for central Nigeria, with many hospitals, medical centres, and clinics.

Economy: The Greater Karu Urban Area has a well-developed banking sector, and many construction firms carrying out a large number of construction projects. It is also emerging as an industrial base. The growing economy and the commercialisation of the Karu Urban Area has given the city a middle-income status.

Transportation: The Karu Urban Area is connected to Abuja by an expressway, which is owned by Nigeria’s federal government.

Education: The agglomeration in the Karu area has attracted private investments in education to provide for the growing young and illiterate adult population. The area has a number of primary schools, secondary schools and universities.

1. Definition of Key Terms

Cashless Policy: cashless policy is a policy that minimizes the use of cash by providing alternative channels for executing financial transactions.

Small And Medium Scale Business: SMEDAN (2005) defines small and medium scale enterprises based on the following criteria: small scale enterprises are businesses with ten to forty-nine people with an annual turnover of five to forty-nine million Naira while a medium scale enterprises that have fifty to one hundred and ninety-nine employees with a year turnover of fifty to four hundred and ninety-nine million Naira.

Access Products – Products that allow consumers to access traditional payment instrument electronically, generally from remote locations.

ATM Card – An ATM card (also known as a bank card, client card, key card, or cash card) is a payment card provided by a financial institution to its customers which enables the customer to use an automated teller machine (ATM) for transactions such as: deposits, cash withdrawals, obtaining account information, and other types of banking transactions, often through interbank networks.

CBN – Central Bank of Nigeria.

Electronic Money – Monetary value measured in currency units stored in electronic form on an electronic device in the consumer’s possession. This electronic value can be purchased and held on the device until reduced through purchase or transfer.

Internet Banking- This is a product that enables the Bank leverage on the Internet Banking System Module in-built on the new Banking Application (BANKS) implemented by the Bank to serve the Internet Banking needs of the Bank’s customers.

Mobile Banking – This is a product that offers Customers of a Bank to access services as you go such as account balance, transaction enquiries, stop checks, and other customer’s service instructions, Balance Inquiry, Account Verification, Bill Payment, Electronic fund transfer, Account Balances, updates and history, Customer service via mobile, Transfer between accounts etc.

Payment System – A financial system that establishes that means for transferring money between suppliers of fund, usually by exchanging debits or Credits between financial institutions.

Point Of Sale (POS) Machine – A Point-of-Sale machine is the payment device that allows credit/debit cardholders make payments at sales/purchase outlets. It allowed customers to perform the following services Retail Payments, Cashless Payments, Cash Bank Balance Inquiry, Airtime Vending, Loyalty Redemption, Printing mini statement etc.

Smart Card – A Card with a computer chip embedded, on which financial health, educational, and security information can be stored and processed.