Engage MFBs to drive naira redesign policy, analyst tells CBN

By Rosemary Iwuala

The Central Bank of Nigeria (CBN) has been urged to involve microfinance banks (MFBs) in the country in the implementation of its naira redesign policy in order to drive acceptance of the policy at the grassroots.

Adolphus Aletor, a banker and finance analyst, said MFBs’ involvement could help push the message to the grassroots, thereby reducing the attendant cost of publicity that the CBN may incur. It is also capable of quenching the tension and panic that will characterise the implementation of the policy as poor and illiterate citizens may be comfortable dealing with financial institutions they are close to and trust.

The CBN had in October announced plans to redesign the N200, N500, and N1,000 banknotes, citing the need to curb counterfeiting, contain inflation, and hamper ransom payment to terrorists and kidnapper. The apex bank said the new currency notes would be in circulation with effect from December 15, 2022.

While opposition trailed the announcement by the CBN from some quarters, Aletor said it is a good policy consistent with standard practice by central banks all over the world to reduce inflation, curb currency counterfeiting and manage excess cash in circulation.

He, however, stressed the need for the CBN to carry the MFBs along in the strategy to deliver on the policy.

Writing in a recent article titled “Opportunities for microfinance banks in CBN’s Naira redesign”, Aletor, who is also managing director/CEO of Rigo Microfinance Bank, said there is no better time than now to put the over 900 licensed microfinance banks spread across the country to good use.

“In 2020, when the CBN extended palliatives to the public under the Target Credit Facility (TCF), it missed the opportunity to leverage the network’s closeness to the unbanked and operational flexibility. As a core agent of financial inclusion, which currently stands at 45 percent (World Bank) and 65 percent (CBN) against a target of 95 percent (CBN target) by 2024, the CBN could prove critics wrong with regards to the ability of the banking system to handle the expected upsurge by engaging the microfinance banks,” Aletor said.

He argued that with the recent capitalization and regulatory oversight by the CBN, NDIC and FRCN, the microfinance banks are well-equipped to play a significant role in implementing the naira redesign policy, adding that through a comprehensive and inclusive guideline that recognises the functions required for MFBs to play, the CBN may have doused one of the critics’ concerns.

“The use of microfinance banks can eliminate possible brokers or intermediaries that may arise from the need for a few individuals to make quick money at the expense of unsuspecting citizens. Apart from the contributions above, microfinance banks can increase liquidity, financial inclusion rate, confidence in the banking system, trust in the government and a vote of confidence for the apex bank,” Aletor said.

He further deflated the argument that the policy will cause citizens untold hardship as they will stay in endless queues in banks, have access to a limited new currency while families go hungry, saying the introduction of electronic banking could readily address those concerns.

“Unlike the last exercise, multiple channels for a transaction now exist for seamless banking. Moreover, the presence of the e-naira introduced by the CBN and other approved payment platforms will guarantee access to funds,” the finance expert said.

“Coincidentally, with the continuous expansion of agency banking and the fact that most microfinance banks have digitalised their operations to facilitate transactions and bring banking closer to the people, there may be no need to insist on cash after this exercise,” he said.

He said MFBs’ active participation in the naira redesign policy can improve their liquidity, deeper penetration and account opening.

“Improved quality service, expanded revenue lines, increased revenue, and enhanced visibility forms part of the possible incentive. There is also a possibility of improved confidence from customers. In addition, it can eliminate potential regulatory distrust and promote greater reliance and dependence,” he said.