Understanding the Impacts of Nigeria’s Cash Crisis on Remittances

New Naira notes
New Naira notes

Nigeria is the largest recipient of remittances in sub-saharan Africa according to data from the World Bank, receiving up to $20.9 billion in 2022, a 7.5% growth compared to 13.2% in 2021, but what happens when the majority of Nigerians are unable to withdraw their funds in a nationwide cash crisis. In December 2022 the Nigerian Apex Bank issued a directive to deposit money banks on cash withdrawals and several months since then, Nigerians have experienced different impacts of this policy across the nation which has led to a nationwide cash crisis. Like other services, remittances are not left out and issues relating to sending, receiving and withdrawing of funds amongst Nigerians has been on a steady increase.

The Nigerian Cash Crisis: How It Began

In an effort to encourage a cashless policy, the Nigerian government and CBN introduced new Naira notes and restricted cash withdrawals to a weekly maximum of N100,000 for individuals and N500,000 for organizations. To discourage cash-carrying, a processing fee of 5% and 10% was imposed for individuals and organizations respectively on cash withdrawals above these limits, which should not exceed N5,000,000 for individuals and N10,000,000 for organizations on a monthly basis. Controversially, the Nigerian economy still relies heavily on cash, and about 40% of its citizens are unbanked. Varying viewpoints on the policy's implementation, shows concerns that it was inadequately executed, consequently exacerbating the financial challenges of millions of Nigerians in the cash-driven economy.

Despite the government's decision to extend the use of old Naira notes and revise the cash withdrawal policy, the cash crisis has had extensive impacts on remittances, resulting in significant challenges for individuals to send and receive money. These impacts encompasses:

Delayed Transaction Payouts

The scarcity of cash in Nigeria has led to a significant increase in the demand for a limited supply of cash, resulting in Nigerian banks delaying numerous transaction payouts. As a result, users are faced with significant challenges in receiving their remittances, even when these payments have been authorized and processed by the remittance providers. These delays due to a shortage of cash is causing financial inconvenience and stress to many.

Increased Transaction Fees

The cash shortage in Nigeria also has an adverse impact on the cost of sending and receiving money, resulting in an increase in transaction fees for many banks and non-bank operators. The increase in fees is a measure to discourage people from sending money due to the inability to maintain liquidity. Although some remittance providers like Africhange have zero transaction fees, this increase to some has resulted in financial inconveniences for individuals and families who rely on remittances as a crucial source of income.

Volatility of Exchange Rates

As the impacts of the cash crisis permeates throughout the country, the exchange rates for the naira becomes unstable and subject to significant fluctuations. This unpredictability in exchange rates creates uncertainty for individuals and businesses, making it challenging to plan and manage their remittances effectively.

Reduced Remittance Activity

The cash shortage in Nigeria also impacts the ability of many Nigerians to withdraw their funds, leading to a reduction in remittance inflows both within and outside the country. This decrease in remittance inflows is discouraging for families and businesses which rely on these funds to cover their day-to-day expenses and investments. Additionally, this reduction in remittance inflows also has negative impacts on the economy, particularly in terms of foreign exchange earnings, investments in education and other key areas of community development and purchasing indexes.

Duality of Exchange rates

Another impact on remittances by Nigeria’s cash crisis is the duality of exchange rates. As a result of the scarcity of the Nigerian naira, recipients who opted for digital transfers received a higher exchange value for their remittance, while those who preferred cash withdrawals were faced with a lower exchange value. This duality of exchange rates has made it more difficult for recipients to make the most of their funds, as they are faced with the advantages of receiving a higher exchange value or the convenience of an immediate cash availability.

Overdependence in Parallel Market

In a bid to seek alternative means of accessing cash, many Nigerians resorts to alternative means of accessing cash, such as the parallel exchange rates or black market, which takes advantage of the high demand for cash. While using the black market rate to send money offers a way to access cash, it often results in a reduction in the value of remittances sent, especially at a higher risk, further compounding the challenges faced by Nigerians struggling in the cash-driven economy.

The impending risks of adverse economic developments such as inflation, current accounts deficits, and a weakening currency relative to the US dollar, it is predicted that Nigeria will experience a lower remittance flow of 4.5% in 2023, and with the cash crisis in the country, significant impacts on remittances will be felt amongst Nigerian individuals and households sending and receiving money. Regardless of this outlook, some remittance providers like Africhange are actively employing innovative ways to ease the process of sending and receiving money for Nigerians. By offering flexible exchange rates and different payment options, Africhange aims to make remittances more accessible and convenient for customers. To experience a better way of sending money with ease, click Here.