• Counter transactions restricted to N20,000
• Cash points fleece customers through arbitrary charges
• Rural dwellers charged 10% by rent-seeking currency traders  
• Bank-neutral cash hubs in limbo two years after introduction
• Over 93 per cent of currency in circulation held outside banks

 
A year and a few months after relief from the worst cash crunch in the modern economy, Nigeria appears to have slid into another dimension and created a new business from commoditising the national currency.
  
As it was during the prolonged cash crunch that almost ruined the economy in the first quarter of last year, an increasing number of bank depositors are turning to street currency traders, who operate under the guise of agent banking, to source cash for daily transactions as automated teller machines (ATM) and banking halls run out of banknotes.
 
But this time, the Central Bank of Nigeria (CBN), which pulled the trigger that set the economy bleeding for months when it activated its infamous naira redesign, seems to be uninformed of the cause of ongoing currency scarcity like the ordinary citizens.
 
The CBN’s ignorance is understandable. For one, currency in circulation (CiC) is at an all-time high and now higher than the pre-naira redesign era at N3.97 trillion, a 57 per cent year-on-year growth.  The CiC balance has remained healthy since March last year when it reached N1.68 trillion from its February low of N982 billion at the height of currency redesign confusion.   
   
However, the banks may have been constrained by the rising volume of currency outside the banking system. As of May, out of N3.97 trillion banknotes in circulation, only 6.8 per cent or N270 billion was retained in the banking system, leaving a whopping N3.7 trillion to the vagaries of informal and personal vaults.    
   
Many banks in Lagos and elsewhere in the country, it was gathered, have restricted cash withdrawals to as small as N20,000 as against the N500,000 daily withdrawal limit set by the regulator.
 
The cash scarcity, The Guardian learnt, is caused by an unholy collaboration between banks and agent ‘bankers’.  On another scale, sources hinted at growing relationships, albeit unofficial, between bank employees and the agents, who are now transforming themselves into cash hubs for the financial institutions, starving the banking halls of cash to service depositors.
  
Currency trading is becoming a standard business, emerging as the fastest-growing financial offering in the country. The growth of the number of traders who brand themselves as agency banks triples the number of agents deposit money banks sign up, findings have shown, suggesting that the vast majority of operators with merchant point of sale (PoS), procured for the purchase of electronic payment.
 
Cash requests at banking halls reduced to between N20,000 and N50,000 by tellers who claim CBN has cut down the volume of cash given to banks.
 
But sources, who are familiar with the tricks said the tellers hoard and trade the cash holdings through the backdoors. Queries over suspicious cash management are regular occurrences at branches, a top banker told The Guardian at the weekend.
  
At the weekend, a source at the CBN also told The Guardian that the apex bank has not turned down any request for banknotes from any bank in recent times directing our correspondent to interrogate what banks and the agents do with the cash in their holdings.
 
“Challenge the banks to show you proofs of requests for cash that have been turned down by the CBN. There is none, at least, not in the six months. If you can trace how the agent banks get their cash, you will identify where the problem is coming from,” the official said.     
   
At the official level, some banks may be on deliberate efforts to decongest banking halls to wean themselves off the burden of cash management. A top bank disclosed at the weekend that decongestion is policy direction “whose time has fully come” and that there is no other way the banks could justify the billions of naira they spend on electronic channels.
 
On why ATMs, which operate with limited human interventions, are also starved, the executive argued that nobody can manage ATMs without cash sorting and bullion services, which “became a major cost item” some years ago.
 
“If you buy diesel to power your operation for 12 hours and put so much in electronic platforms, should you add another major spending item you can do away with?” the banker asked.
 
Worried about the consequences of the rising cost of cash handling, The CBN rolled out a guideline for the operation of cash collection centres called bank-neutral cash hubs (BNCH), to be established by registered processing companies or DMBs, in 2022.
 
Over two years after it was unveiled, the initiative that was met to wean the banks from the risk of cash management has not taken off, leaving the operators to find an innovative way to navigate the challenge individually.  
 
There is no up-to-date data on the number of agent banks in Nigeria. But as of the first quarter of 2023 report, the most recent data available at press time, there are reported 264,000 active agents. This came on the sharp increase of 40,000 Mobile Money (MoMo) agents in the quarter.
  
Growth of the number of agent banks, which are supposed to deepen financial inclusion, especially in rural areas where they were expected to sign up new bank account holders as opposed to their restricted cash outlet function, has been slow due to stringent operating rules set by the regulator. For instance, the guidelines for the regulation of agent banking issued in 2013 require the operators to submit statutory returns of their operations regularly.
  
But the expansion of PoS machines has been rapid perhaps because they operate with more relaxed rules set by DMBs and fintechs who issue the machines. The number of PoS machines deployed by merchants and individuals across Nigeria rose to 2.7 million, the Nigeria Inter-Bank Settlement System (NIBSS) disclosed.
 
Getting the operators to embrace significant transparency protocols is a challenge. For instance, over 1.9 million of the operators, perhaps the active ones, are said to battling with a new directive that requires them to register their business with the Corporate Affairs Commission (CAC) by July 7.
 
Observers say a lot of those operating as agent banks today deploy their machines for merchant purchases. An official of the CBN, during the cash crunch, also disclosed that the agent banks in operations were much more than those licensed.
 
Less than one in every five agent banking operators in Lagos, some have argued, use PoS machines given by banks who do little or nothing about knowing your customers or the merchants. The operators are dubiously funded at the cost of cash availability at the counters by rent-seeking bank branch managers and tellers.
 
This comes at a high cost for depositors. In some rural areas where the trade has become lucrative, the merchants charge as much as N100 per N1000 withdrawal. The same charge applies to N5,000 in cities, where it is now common to have operators erect their makeshift tents beside branches of banks, whose ATM galleries gather dust for limited use.
 
With about 22,600 machines deployed as of December, ATMs are increasingly losing their relevance as cash centres. Many people have blamed cash scarcity, especially in the region, on insecurity in the country.
 
An economist, Kelvin Emmanuel argued that the regulator needs to address the issue of PoS vendors used as a conduit for conducting questionable transactions by third parties who are not captured in the banking system.
  
“Agency banking has sparked a revolution for the unbanked, but the NIBSS needs to look for solutions along with interested stakeholders to bring more people into the formal financial system.”
 
Mohammed Ande said the CBN has allowed the banks freehand to determine how ATMs are deployed and serviced.Ande, who is a retired banker added: “More than 80 per cent of ATMs here in Abuja do not function but PoS functions. The financial inclusion slogan of the CBN has been abandoned. No one is talking about financial inclusion again because the CBN is now promoting financial exclusion by the reason of their behaviour. Yes, I appreciate the challenges banks are going through to provide the services, but they are also collecting money from customers. Yes, there is no electricity 24 hours, but there are ATM maintenance charges banks collect from their customers to augment that.”
 
What Ande cannot understand are the charges on cash inflows saying, “It is only in Nigeria one can receive a credit alert of N3,000 and get N2,950. How does the CBN explain such a deduction? Then, other sundry charges are so frivolous.”
  
He charged the CBN to direct banks to deploy more ATMs in rural areas as well as areas of need. He said: “The CBN must direct banks to service their ATMs. There should be sanctions against banks that allow their ATMs to run dry for months. That can’t be a standard operation. Where are the PoS getting the cash they use? Is it not better for a bank customer to withdraw free of charge at his bank or pay N75 after a third withdrawal from a bank other than theirs? That is far cheaper than paying N100 for every N5,000 and below. I think that the CBN needs to intervene in this lack of cash. Or is the country experiencing a cash crunch even at the CBN?”
 
As the ATMs compete with PoS, there are insinuations that banks are no longer investing in the deployment of new ATMs while leaving the old ones to rot.
 
While there is an urgent need for the CBN to reign in PoS rising charges, Nigerians must also be encouraged to embrace digital payment as opposed to over-reliance on cash transitions.
 
There is no doubt that POS operations have helped the country fast-track its ambitions to meet set financial inclusion targets as agency banking springs up in every nook and cranny of the country.
 
Tolulope Alayande opined that PoS operators incur transaction fee costs, purchase or lease of POS terminals, setting up of physical locations, recurring expenses for trips to banks, data for the POS devices, utility bills and other critical operational expenses.
 
Alayande who is an investment banker held that PoS must not be labelled villains in terms of the charges incurred by customers when they make cash withdrawals.
 
He added: “This does not make much sense because they run a legitimate business because no one does business to incur losses.” A PoS operator, Sanusi Idris, said contrary to insinuations, most operators struggle to get cash to stay in business.
 
He said: “I know that most of us get cash from the same banks. We withdraw daily by using family members and opening more accounts to get some money to operate. I know some of our people use the channel for other things, but those are in the minority. We just want to earn a living through a clean path. Since there are no jobs, won’t people survive? PoS business gets many Nigerians their daily bread. The government should reform it but not scrap it or make it complex for us to engage in.”