CBN Policies and Demonitization: The Way Forward for Rural Agriculture

The Central Bank of Nigeria in the Circular to all Banks and Other Financial Institutions (OFIs) referenced as  BSD/DIR/PUB/LAB/015/073 (“the Circular”) dated 21 December 2022, directed banks and OFIs to comply with the reviewed maximum weekly cash withdrawal limit of N500,000 (Five Hundred Thousand Naira) and N5,000,000 (Five Million Naira) by individuals and corporate entities
respectively.

In compelling circumstances where cash withdrawal is required for legitimate purposes, such request shall be subject to a processing fee of 3% and 5% on individual and corporate entities, respectively. In addition, the financial institution shall obtain the following information from the customer and upload same on the CBN portal created for the purpose – valid means of identification of the payee, Bank Verification Number (BVN) of the payee, tax identification number of both the payee and the payer, and approval in writing by the MD/CEO of the financial institution authorising the withdrawal. The CBN in this Circular also recognized the vital role that cash plays in supporting underserved and rural communities and promised to ensure an inclusive approach as it implements the transition to more cash-less society.

In furtherance of the Naira Redesign Policy, the CBN on 21 January 2023 through its circular referenced as BSD/DIR/PUB/LAB/15/022 launched the Cash Swap Program (“the Program”) in Rural/Underserved Areas. The program was launched in partnership with Super Agent and Deposit Money Banks (DMBs) to maximise the channels through which underserved and rural communities can exchange their Naira Few days after, on Thursday 26 January 2023, the Central Bank in conjunction with the Nigerian Interbank Settlement System (NIBSS) launched the National Domestic Card Scheme named “AfriGo”, aimed at creating a more robust payment system that would drive financial inclusion in the country. The AfriGo card will work in the same way as the regular Visa, Verve and Master cards and will be used for both online and offline payment. The CBN put forward reasons like boosting financial inclusion, reduced demand for FX, reduction of operating cost
for financial institutions and data sovereignty as the reason for launching the domestic card scheme. Though there is no news as to the implementation of the use of AfriGo.

These recent policies of the CBN have sprouted a lot of debates and concerns for Nigerians. Some Economists are of the opinion that the country’s cashless policy and demonetization will help inflation management, tackle counterfeiting, and mop up liquidity, whereas, others are concerned on the timing and short transition period, and its impact on the economy. The impact of financial policies on the Agricultural sector as one of the largest contributors to the Nigerian economy is worth considering. For the past few years, the sector have experience direct cash injections into the sector aimed at economic growth. Most of this cash ingestion come with debt obligations and the primary source of repayment is usually the farmers conversion of working capital into cash flow
through the production season. If for some reason this conversation fails to generate sufficient cash flow to service the loan repayment, the farmers encounter extra cost or loss of assets. This can be counterproductive on the country’s economy. Therefore, promising and innovative approaches to scale up access to finance for rural agriculture in line with the country’s cashless policy is encouraged. These approaches could be in form of Value Chain Financing (VCF) like the out-grower
schemes or VCF with input suppliers. These schemes help financial flows between value chain actors as well as flows from financial institutions. Mitigation of risk for private investors should also be regulated by the government through securitization policies.

The objective of financial innovation is to use schemes that would mobilize additional resources to the agricultural sector and foster new partnerships between various stakeholders both within the private sector and between the public and private sector, while remaining cashless. Also, it is essential that robust system for collecting, tracking and analysing farmer data are developed and used for continuous improvement of the scheme.