FATE Foundation outlines benefits, costs of CBN’s withdrawal limit policy on MSMEs

By Cynthia Ezekwe 

• Reduction of unbanked, 

• Increased financial inclusion  

In its quest to curb the rise in money laundering activities and improve the economy of the country, the Central Bank of Nigeria (CBN) implemented a policy on cash withdrawal limit on  6 December 2022, which was revised on 21 December 2022 and took effect on 9 January 2023.

Under the reviewed policy, individuals can only withdraw a maximum of N500,000 weekly, while corporate organisations can withdraw N5 million cash weekly.

However, compelling  cash withdrawals  over the stipulated limits are  subject to three and five percent for individuals and companies, respectively, and subject to CBN approval.

Following the revised policy, FATE  Foundation,  a non-profit private-sector led organisation, through its research and policy arm  known as the FATE Institute, has thrown some light to the implications, challenges, and opportunities of the new withdrawal policy, as well provided recommendations to Nigeria’s small and growing businesses in a report titled, “The revised cash withdrawal limit: Implications for Nigeria’s small and growing businesses.’’

Commenting  on the implications of the policy for Micro, Small and Medium Enterprises (MSMEs), and the business environment, the report noted that the new policy will facilitate an increase in demand for electronic banking and electronic business options, as many businesses will adjust their modus operandi by opening bank accounts to enable usage of electronic banking options for  receiving and making transfers to facilitate trade and other business operations, thereby reducing  the number of un-banked businesses and individuals in the country and  increasing financial inclusion.

The report also remarked that the revised policy will create an avenue for the government to have a better overview of the economy, as banking and financial institutions  can easily keep track of financial activities which have to do with the economy of the country.

Referencing reports which disclosed that criminal activities such as kidnapping, terrorism, banditry, etc, are on the increase as a result of heavy cash-based economy of Nigeria, the report noted that implementation of the policy will help curb criminality and banditry, as tracking of financial flows and payments will enable law enforcement agencies to efficiently handle such cases.

It further stated that the policy would limit the amount of cash in circulation, which will lead to a black (un-regulated) market, and increase in the operating cost of businesses and individuals who resort to the black market for cash.

Commenting on the opportunities the new limits on cash amounts presents for Nano, Micro, Small, and Medium Enterprises (NMSMEs), FATE Institute disclosed that the revised policy would accelerate financial inclusion, as many entrepreneurs without a bank account will open  one, thereby formalising their businesses by financially including them with the formal banking system.

The report also observed that the policy will increase digital adoption and improve financial literacy for entrepreneurs, given the opportunities digital platforms and tools present, for better financial management, insights and reporting.

According to the report, the policy will create an avenue for NMSMEs to take advantage of electronic platforms, cost-effective technology applications to ease the flow of funds within their businesses, which will enable improved financial knowledge, better financial accountability and discipline.

FATE Institute also remarked that the revised policy will ensure the safety of small and growing businesses, as it will reduce cash related robbery by businesses who carry large amounts of cash.

The report further noted  that the policy will boost the volume of transactions recorded by NMSMEs as businesses will carry out transactions through electronic channels, thereby boosting business expansion.

Pointing out the challenges that NMSMEs would encounter from the new policy, the report said, “many nano businesses still operate a cash economy, and the policy might impede financial inclusion, particularly for those living in rural areas, where access to banking and technology infrastructure is a huge challenge.”

The report also noted that the increased cost associated with withdrawing cash above the limit might be cumbersome, and hamper the growth of NMSMEs, considering the NIgerian  environment, which they  operate from.

FATE institute further stated that business  complexities as a result of unsuccessful transactions associated with power/network failure from banking and technology platforms, is a big  barrier to Nigerian small businesses; especially those in the rural areas, where there is poor internet connectivity, as it leads to loss of customers/revenue, when such issues are not resolved on time.

To this end, the  institute made a number of recommendations to the apex bank to enable the successful implementation of the withdrawal limit, and expanded adoption by Nigerian NMSMEs.

The report  suggested that the apex bank extend the time to three months, so as to enable improved sensitisation, and better preparedness for adoption.

It  recommended that regulatory incentives in the area of reduced charges for NMSMEs, access to finance mechanisms and tax rebate for NMSMEs should be adopted, to encourage compliance.

The institute further recommended that nano and micro business owners, who are living in rural areas, should be enlightened in their local languages using various communication techniques such as radio, community centres, religious bodies, traditional groups, to enable understanding of revised policy, and encourage its adoption.