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How CBN’s new withdrawal policy threatens financial inclusion, SMEs




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ECONOMIC and financial experts are apprehensive that the decision by the Central Bank of Nigeria (CBN) to limit cash withdrawals when the newly redesigned naira notes go into circulation could disrupt the financial inclusion of small and medium-scale enterprises.

The CBN had on Tuesday, December 6, 2022, issued a directive to commercial banks and financial institutions limiting daily automated teller machine withdrawal to N20,000, while also limiting over-the-counter withdrawals for individuals and corporate organisations to N100,000 and N500,000, respectively.


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What does this mean for SMEs

Some analysts did not see the new policy as sitting well with small-scale businesses, saying small and medium scale enterprises (SMEs) would find it difficult to effect banking transactions.

“It will negatively impact on the informal sector of the economy. The sector is a significant part of the economy accounting for over 80 per cent of trade and commerce in the Nigerian economy, and controlling a substantial component of jobs in the economy,” an economist and former Director-General of the Lagos Chamber of Commerce and Industry, Muda Yusuf, told The ICIR.

Yusuf: ‘Limited cash withdrawals will impact negatively on SMEs’

Yusuf explained that many informal businesses are in remote locations where there are no bank branches, and transact business largely in cash.

He added, “The distributive trade accounted for N23.3 trillion of the country’s GDP in 2021. This was about 15 per cent of GDP.  This restrictive policy will pose a major risk to this very critical sector of the economy.”

He further mentioned that the policy would negate the financial inclusion objective of the CBN itself, saying, “Some of the informal sector operators may begin to avoid the banking system entirely.”

The economist noted that the policy could infringe on the fundamental rights of the unbanked, stressing that the CBN needs a proper rethink of the policy to avoid creating more problems than it was meant to solve.

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‘The policy is not well thought-out’

To a lawyer and development expert, Eze Onyekpere, who is Lead Director for the Centre for Social Justice (CSJ), the policy initiative was not well thought-out and could eventually attract legal tussle.

Onyekpere: fears withdrawal limits could attract legal action

Onyekpere said, “The policy looks more like a knee-jerk reaction. With the level of taxation in the restrictive transaction, it is going to increase cost of doing business, which will be passed on to consumers.

“There are still tele-density concerns and IT coverage problems in Nigeria, which would create more problems for the rural unbanked as a result of this policy announcement.”

He argued that while doing cashless was justifiable, the CBN should consider 40 per cent of the population who are not into the banking regime.

He also wondered, “If you look at the value of money, N20,000 a day is peanuts. How will business people and those engaging in huge daily transactions cope with this?”

More economic concerns

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A development economist, Kelvin Emmanuel, told The ICIR that placing limits on cash withdrawals is not a priority in an economy where the records showed 119 million people were unbanked.

Emmanuel said, “Available records showed that 52 per cent of Lagosians earn between N50,000 and N70,000 a month. That means they are competing with so many things like house rent, food, and school fees. In that same money, you want them to get internet data and do internet banking.”

He stressed that the system is already killing agency banking, popularly known as PoS, which he pointed out has created employment in different districts accross the country.

“Explain to me how PoS operators will operate in this era where people don’t like going to the bank anymore,” he said.

What real sector operatives say

The Director-General of the Nigeria Employers’ Consultative Association (NECA), Wale-Smart Oyerinde, posited that the new approach serves only as a diversion from the pressing problems facing the country.

Oyerinde said that the government should refrain from further impeding economic activities. “It goes without saying that business sustainability and many people’s livelihoods will be affected,” he said.

He added that the timing of the policy, which he said did not allow adequate preparation and sensitization of the critical mass that drives the economy (the SMEs and MSMEs), could prove counter-productive and further push many citizens below the poverty line.

The NECA chief emphasised the importance of getting all bankable individuals and businesses into the banking system and promoting the CBN’s cashless policy.

Suspension of the policy

The House of Representatives has asked the CBN to suspend its order, which the apex bank had slated to commence on January 9, 2023, pending compliance with the provisions of the Act establishing the bank.

National Assembly Complex

The House also summoned the CBN Governor, Godwin Emiefele, in accordance with the provisions of the Central Bank Act, to brief the legislators on the several policies of the bank in recent times.

The Representatives took turns to condemn the proposed cash withdrawal limit, saying it would grossly affect small businesses and the economy since most rural communities do not have access to banks.

Following a point of order raised by Mark Gbillah on the provisions of the CBN Act, the House directed Emefiele to appear before it on Thursday, December 15, 2022 to brief it on why the policy should be allowed to stand.

What tax experts are saying

The Africa Tax Leader at Pricewaterhouse Coopers (PWC), Taiwo Oyedele, noted that the new cash withdrawal limits would have tax implications, especially for individuals and MSMEs.

Oyedele: ‘withdrawal limits will trigger various tax obligations’

According to Oyedele, the initiative would trigger various tax obligations, including income tax.

“If your business is registered as a company, you may be liable to CIT (company income tax), depending on your annual turnover (i.e. no CIT if your turnover is below N25 million; 20 per cent if your turnover is between N25 and N100m; and 30 per cent if your turnover is more than N100m), in addition to Education Tax at 2.5 per cent.

“If your business is not registered as a company, then you will be liable to personal income tax based on graduated taxable income bands between 7 per cent and 24 per cent,” he said.

On how it will affect the individuals, he explained, “The more transactions you make electronically, the more the tax authorities will get the intelligence to track your income and networth, making it easier to fish you out if you are a tax evader.”


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