CHAPTER
ONE

INTRODUCTION

1.1     
Background
of the study

The financial system of any
economy is responsible for mobilizing savings for productive investments and
ensuring efficient resource allocation. Banks have traditionally played an
active role in this regard. A large volume of literatures such as those of Ajayi
(2006), Adegbaju and Olokoyo (2008), and Babalola (2008) have documented the
contribution of banks to socioeconomic development of nations. In recognition
of this, various financial policy reforms targeting the banking sector have
been pursued in Nigeria. The recent of such policies within the last decade
are: the recapitalization of banks initiated by the Central Bank of Nigeria
(CBN) in July, 2004 and concluded in December 31, 2005, formalization of
adoption of electronic banking, and transition from cash based to cash-less
financial arrangement. One of the prerequisite for the development of
national economy according to Ajayi and Ojo (2006) is to encourage a payment
system that is secure, convenient, and affordable. In this regard, developed countries
of the world, to a large extent, are moving away from paper payment instruments
toward electronic ones, especially payment cards (Humphrey, D. B. 2004). In
these countries, for instance, it is possible to pay for a vending machine
snack by simply dialing a number on one‘s phone bill. In recent times, the
mobile phone is increasingly used to purchase digital contents (e.g. ringtones,
music or games, tickets, parking fees and transport fees) just by flashing the
mobile phone in front of the scanner at either manned‘ or unmanned point of
sales (POS). In Nigeria, as it is in many developing countries, cash is the
main mode of payment and a large percentage of the populations are unbanked
(Ajayi and Ojo (2006). This makes the country to be heavily cash-based economy. Argument in favour of cash-based transactions abounds
in the literature. A study conducted in UK in march 2010 (the future of cash in
UK) argued that cash differs from other payment instruments in the following
regards; it circulates, it is always valuable, it provides full and final
settlement of a transaction, it allows for anonymity, once issued, the
circulation of cash is uncontrolled, it is regarded as public good by its
users. However, the cost of cash to Nigeria financial system is high and increasing;
the cost was very close to fifty billion naira in 2008 (CBN, 2012). Recently,
it has been revealed by the CBN that the direct cost of cash is estimated to
reach a staggering sum of one hundred and ninety two billion naira in 2012.
Other challenges resulting from high-cash usage among others include; robberies
and cash-related crime, revenue leakage arising from too much of cash handling,
inefficient treasury management due to nature of cash processing, high subsidy,
high informal sector etc. Against these backdrops, the CBN introduced the
cashless policy in April 2011 with the objective of promoting the use of
electronic payment channels instead of cash. Presently, the CBN is conducting a
pilot scheme of the cashless policy in Lagos, which commenced in January 1st
2012. So far, implementation of the policy in Lagos has not gained expected
traction. Hence a rollout across the country has been substituted with phased
implementation in Port Harcourt, Kano, Aba and the Federal capital territory
(CBN 2012). This study therefore aims at two major objectives, first to look
into the prospects of cashless policy in Nigeria and second its challenges. The
study proceeds as follows. Section 2 offers an overview of cashless policy and
some stylized facts on non-cash payment in Nigeria. In sections 3, a brief
review of literature is undertaken. The study expatiated on the effectiveness
and challenges of the CBN cashless policy on rural business development using
Zenith bank as a point of reference.

1.2
STATEMENT OF THE PROBLEM

Cashless economy is an economy where
transaction can be done without necessarily carrying physical cash as a means
of exchange of transaction but rather with the use of credit or debit card
payment for goods and services. One of the prerequisite for the development of
national economy according to Ajayi and Ojo (2011) is to encourage a payment
system that is secure, convenient, and affordable. In this regard, developed
countries of the world, to a large extent, are moving away from paper payment
instruments toward electronic ones, especially payment cards (Humphrey, 2013).
In these countries, for instance, it is possible to pay for a vending machine
snack by simply dialing a number on one’s phone bill. In Nigeria, as it is in
many developing countries, cash is the main mode of payment and a large
percentage of the populations are unbanked.

1.3 OBJECTIVE OF THE STUDY

The objectives of the study are;

1. To examine the features
of cashless policy of CBN

2. To determine the
effectiveness of cashless policy of CBN

3. To find out the
challenges of cashless policy of CBN to rural business development.

4. To proffer a better way
of implementing the cashless policy

1.4
RESEARCH HYPOTHESES

For the successful completion of the study, the
following research hypotheses were formulated by the researcher; 

H0:
there
are no challenges of cashless policy of CBN to rural business development.

H1:there
are challenges of cashless policy of CBN to rural business development.

H02:there
is no effectiveness of cashless policy of CBN

H2:
there
is effectiveness of cashless policy of CBN

1.5
SIGNIFICANCE OF THE STUDY

This study, which is primarily aimed at
explaining the effectiveness and challenges of CBN cashless policy on rural
business development, will provide an insight into the problems associated with
cashless policy on rural business development.This report would be of great
benefit for CBN, to expose them to the effectiveness and challenges of CBN
cashless policy on rural business development.The findings will be useful for
researchers to further generate knowledge in the field.

1.6 SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the effectiveness and
challenges of CBN cashless policy on rural business development. The
researcher encounters some constrain which limited the scope of the study;

a)
AVAILABILITY OF RESEARCH MATERIAL:
The research material available to the researcher is insufficient, thereby
limiting the study       

b) TIME:
The time frame allocated to the study does not enhance wider coverage as the
researcher has to combine other academic activities and examinations with the
study.

c)
Organizational privacy: Limited Access to the selected
auditing firm makes it difficult to get all the necessary and required information
concerning the activities

1.7 DEFINITION OF TERMS

EFFECTIVENESS: Effectiveness is the capability of producing a desired result or the
ability to produce desired output. When something is deemed effective, it means
it has an intended or expected outcome, or produces a deep, vivid impression.

CHALLENGES:a call to
someone to participate in a competitive situation or fight to decide who is
superior in terms of ability or strength.

CASHLESS POLICY: Cashless policy is a policy established in the year
2012 by the Central Bank of Nigeria to curb excesses in the handling of cash in
Nigeria.  The policy was enforced not to
eliminate the use of cash but to reduce the volume of cash in circulation.

RURAL DEVELOPMENT: Rural
development is the process of improving the quality of life and economic
well-being of people living in rural areas, often relatively isolated and
sparsely populated areas

1.8 ORGANIZATION OF THE STUDY

This research work is
organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which
consist of the (overview, of the study), historical background, statement of
problem, objectives of the study, research hypotheses, significance of the
study, scope and limitation of the study, definition of terms and historical
background of the study. Chapter two highlights the theoretical framework on
which the study is based, thus the review of related literature. Chapter three
deals on the research design and methodology adopted in the study. Chapter four
concentrate on the data collection and analysis and presentation of
finding.  Chapter five gives summary,
conclusion, and recommendations made of the study

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