Nigeria’s current cash crisis has thrown a light on the need for greater financial and digital education to allow people to reap the benefits of digital banking, writes Alison Lui.

In October 2022, the Central Bank of Nigeria announced plans to redesign its 200-, 500- and 1,000-naira notes in an attempt to crack down on inflation, on counterfeiting, and to promote cashless society initiatives.

The new notes entered circulation in February 2023, but the transition has created financial inconvenience and hardship for Nigerian citizens who have had to queue for hours to swap their old high denomination notes for new ones.

Whilst the currency swap is necessary to tackle inflation, currently at 21 per cent, by reducing the amount of cash in circulation, the Central Bank of Nigeria underestimated the heavy reliance of Nigerians on cash.

Naira cash crisis

Approximately 1.9 trillion naira of the old notes have been taken out of circulation and only 300 billion new naira have been printed. The reduction in the number of notes was part of the plan, but the shortage of notes has left people unable to pay for goods and services in an economy still heavily reliant on cash transactions. Chaos has broken out as a result of the lack of new notes, resulting in gunfire and panic.

The Nigerian Supreme Court has suspended the deadline of the currency swap meaning the old notes are now still legal tender, but many Nigerians are still suffering from the politically motivated currency swap ahead of the presidential election on 25 February. The current government (All Progressives Congress) claims that the currency swap will reduce corruption and vote bribing. However, Ezenwo Nyesom Wike, a politician from the opposing party, the People’s Democratic Party, has claimed the riots and financial instability were intended to delay the upcoming political election.

The Nigerian Naira crisis is also causing a foreign exchange crisis. With the Nigerian currency under pressure, many Nigerians are scrambling for US dollars to pay tuition fees, medical fees and import bills. The Central Bank of Nigeria’s failure to meet the demands in the official market has forced many to turn to the black market, causing price hikes of raw materials and energy costs.

The impact of the currency crisis is particularly harsh on ordinary Nigerians, especially those living in rural areas. An estimated 40 per cent of Nigerian adults do not have a bank account, with many of those living in rural areas. This compares with 16 per cent of Kenyans who do not have a bank account.

Digital hurdles

If more Nigerians had bank accounts and were able to use digital payments, the crisis could have been averted. A research project is seeking to increase access to digital financial payment services for women and minority groups in the semi-rural, Niger-delta region of Nigeria. It found that, amongst 600 women who work in the informal sector, most had mobile phones, but only half of them used these phones for banking services. Poor internet connectivity and concern over the security of banking on a mobile device have hindered uptake, but so has poor financial and digital literacy.

Many Nigerians learn about the internet from their local communities in an offline setting, leaving them with a limited view of what the internet offers. Nigerians in rural areas are less likely to understand how the internet can benefit them personally and for their businesses.

Go digital for women and small traders

Improving Nigerian women and petty traders’ confidence and knowledge of financial and digital literacy will see an increase in the use of digital financial services. Currently, insufficient financial inclusion for women in Nigeria drives them to the informal economy to earn a living.

It takes time to shift from a cash to cash light society. The proper incentives could encourage Nigerian women and petty traders to use digital payments.

For example, in Singapore, targeted campaigns such as “Hawkers Go Digital” and “Go Digital Campaign” aimed at small to medium-sized businesses have been launched to encourage these targeted groups to go digital. The percentage of hawkers (food stall vendors) using online ordering platforms has increased from 34 per cent in 2021 to 47 per cent in 2023.

Financial and digital education is key to averting another Nigerian currency crisis and restoring the country’s financial stability.

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