Project – Financial Inclusion and E-naira in Nigeria; what is the impact of E-Naira on Financial Inclusion
CHAPTER ONE
INTRODUCTION
- Background to the Study
Financial inclusion, defined as the process of ensuring access to appropriate financial products and services needed by individuals and businesses to manage their finances effectively, has been a significant focus for policymakers in Nigeria. The Central Bank of Nigeria (CBN) has implemented various strategies to enhance financial inclusion, recognizing its importance in fostering economic growth and reducing poverty. One of the latest initiatives in this regard is the introduction of the eNaira, Nigeria’s central bank digital currency (CBDC). The eNaira aims to provide a digital alternative to cash, thereby promoting financial inclusion by making financial services more accessible to the unbanked and underbanked populations.
The eNaira, launched in October 2021, represents a significant step towards digital financial transformation in Nigeria. According to the CBN, the eNaira is designed to complement existing payment systems and provide a secure and efficient means of payment. The digital currency is expected to reduce the cost of transactions, enhance the efficiency of the payment system, and improve the overall financial ecosystem. By providing a digital platform that is accessible via mobile devices, the eNaira has the potential to reach a broader segment of the population, including those in remote and underserved areas who may not have access to traditional banking services (Central Bank of Nigeria, 2021).
One of the key impacts of the eNaira on financial inclusion is its potential to bridge the gap between the banked and unbanked populations. In Nigeria, a significant portion of the population remains unbanked due to various barriers, including lack of access to banking infrastructure, high transaction costs, and low financial literacy. The eNaira, being a digital currency, can be accessed through mobile phones, which are widely used across the country. This accessibility can help bring financial services to the unbanked, enabling them to participate in the formal financial system. A study by Akinola (2022) highlights that mobile money services have been instrumental in increasing financial inclusion in other African countries, and the eNaira could have a similar impact in Nigeria.
Moreover, the eNaira can enhance financial inclusion by facilitating easier and more secure transactions. Traditional banking systems often involve cumbersome processes and high fees, which can deter individuals from using formal financial services. The eNaira, with its lower transaction costs and simplified processes, can make financial transactions more attractive and accessible. Additionally, the digital currency’s security features, such as encryption and blockchain technology, can provide users with confidence in the safety of their transactions, further encouraging the adoption of digital financial services (Ogunleye, 2021).
The introduction of the eNaira also has implications for financial literacy and education. For the eNaira to be effective in promoting financial inclusion, it is essential that users understand how to use the digital currency and the benefits it offers. The CBN has recognized this need and has initiated various educational campaigns to raise awareness and educate the public about the eNaira. These efforts are crucial in ensuring that the population, especially those who are not familiar with digital financial services, can effectively use the eNaira to manage their finances (Central Bank of Nigeria, 2021).
The eNaira has the potential to significantly impact financial inclusion in Nigeria by providing a digital platform that is accessible, secure, and cost-effective. By bridging the gap between the banked and unbanked populations, facilitating easier transactions, and promoting financial literacy, the eNaira can help integrate more individuals into the formal financial system. However, the success of the eNaira in achieving these goals will depend on continued efforts to address barriers to access and ensure that the population is adequately educated about the digital currency. Further research and monitoring will be necessary to assess the long-term impact of the eNaira on financial inclusion in Nigeria.
- Statement of the Problem
The advent of digital currencies has sparked significant interest globally, and Nigeria is no exception. The introduction of the E-Naira by the Central Bank of Nigeria (CBN) is a bold step towards embracing digital financial solutions. However, the impact of the E-Naira on financial inclusion in Nigeria remains a critical area of concern. Despite the potential benefits, there are several challenges and uncertainties that need to be addressed to understand how effectively the E-Naira can enhance financial inclusion in the country.
One of the primary issues is the existing digital divide in Nigeria. A significant portion of the population, particularly in rural areas, lacks access to the internet and digital devices necessary to utilize the E-Naira. This digital divide poses a substantial barrier to the widespread adoption of the E-Naira, potentially exacerbating existing inequalities rather than alleviating them. The problem is further compounded by low levels of digital literacy, which can hinder the ability of individuals to effectively use digital financial services.
Moreover, there is a trust deficit among the Nigerian populace towards digital financial systems. Many Nigerians are skeptical about the security and reliability of digital currencies, including the E-Naira. This skepticism is fueled by past experiences with financial fraud and cybercrime, which have eroded confidence in digital financial transactions. The challenge, therefore, is to build and maintain trust in the E-Naira as a secure and reliable means of financial transaction.
Another significant issue is the regulatory and infrastructural framework necessary to support the E-Naira. The success of the E-Naira in promoting financial inclusion depends heavily on the robustness of the regulatory environment and the efficiency of the supporting infrastructure. Inadequate regulatory measures and infrastructural deficiencies can impede the effective implementation and operation of the E-Naira, thereby limiting its potential impact on financial inclusion.
Additionally, the economic implications of the E-Naira on the informal sector, which constitutes a large part of Nigeria’s economy, need to be carefully examined. The informal sector is characterized by cash-based transactions, and the transition to a digital currency could disrupt existing economic activities. Understanding the potential economic impact on this sector is crucial to ensure that the E-Naira does not inadvertently marginalize those who rely on informal economic activities for their livelihood.
Finally, there is a need to assess the overall awareness and acceptance of the E-Naira among the Nigerian population. For the E-Naira to significantly impact financial inclusion, it must be widely accepted and used by the populace. This requires comprehensive awareness campaigns and educational initiatives to inform and educate the public about the benefits and usage of the E-Naira. Without widespread acceptance and usage, the E-Naira’s potential to enhance financial inclusion will remain limited.
Furthermore, while the E-Naira holds promise for improving financial inclusion in Nigeria, several critical issues need to be addressed. These include bridging the digital divide, building trust, ensuring robust regulatory and infrastructural support, understanding the economic impact on the informal sector, and promoting widespread awareness and acceptance. Addressing these challenges is essential to harness the full potential of the E-Naira in enhancing financial inclusion in Nigeria.
- Aim and Objectives of the Study of the Study
The aim of the study is to examine Financial Inclusion and E-naira in Nigeria; what is the impact of E-Naira on Financial Inclusion
- To assess the current level of financial inclusion in Nigeria.
- To analyze the implementation of E-Naira in the Nigerian financial system.
- To evaluate the impact of E-Naira on access to financial services for underserved populations.
- To examine the role of technology in promoting financial inclusion through E-Naira.
1.4 Research Questions
The research questions are buttressed below:
- What is the current level of financial inclusion in Nigeria?
- How has E-Naira been implemented in the Nigerian financial system?
- What is the impact of E-Naira on access to financial services for underserved populations?
- How does technology play a role in promoting financial inclusion through E-Naira?
- Research Hypothesis
The hypothetical statement of the study is buttressed below:
Ho: E-Naira has no significant impact in the Nigerian financial system
H1: E-Naira has significant impact in the Nigerian financial system
1.6. Significance of the Study
The significance of studying the impact of E-Naira on financial inclusion in Nigeria cannot be overstated. Financial inclusion, which refers to the accessibility and availability of financial services to all segments of society, is a critical factor in economic development. In Nigeria, a country with a large unbanked population, the introduction of E-Naira represents a transformative step towards bridging the financial divide. By examining the effects of E-Naira on financial inclusion, we can gain insights into how digital currencies can be leveraged to enhance economic participation and improve the livelihoods of millions of Nigerians.
E-Naira, Nigeria’s central bank digital currency (CBDC), has the potential to revolutionize the financial landscape by providing a secure, efficient, and accessible means of transaction. Unlike traditional banking systems that often require physical presence and extensive documentation, E-Naira can be accessed via mobile devices, making it particularly beneficial for rural and underserved communities. This digital currency can facilitate seamless transactions, reduce the cost of banking services, and eliminate barriers to entry for individuals who have been historically excluded from the financial system.
One of the most significant impacts of E-Naira on financial inclusion is its ability to promote cashless transactions. In a country where cash is still the dominant medium of exchange, the shift towards digital payments can reduce the risks associated with carrying physical money, such as theft and loss. Additionally, digital transactions can be tracked and recorded, providing a transparent and accountable system that can help curb financial fraud and corruption. This increased security and transparency can build trust in the financial system, encouraging more people to participate in the formal economy.
Furthermore, E-Naira can play a crucial role in enhancing access to credit and financial services for small and medium-sized enterprises (SMEs). SMEs are the backbone of Nigeria’s economy, yet many struggle to obtain financing due to a lack of credit history and collateral. With E-Naira, transaction histories can be easily documented and analyzed, providing financial institutions with the data needed to assess creditworthiness. This can lead to more inclusive lending practices, enabling SMEs to grow and contribute to economic development.
The introduction of E-Naira also has implications for government policy and social welfare programs. By digitizing financial transactions, the government can more effectively distribute social benefits and subsidies, ensuring that aid reaches the intended recipients without leakage or delay. This can improve the efficiency of social welfare programs and provide a safety net for vulnerable populations. Additionally, the data generated from E-Naira transactions can inform policy decisions, allowing for more targeted and effective interventions to promote financial inclusion.
The study of E-Naira’s impact on financial inclusion in Nigeria is of paramount importance. This digital currency has the potential to address many of the challenges associated with traditional banking systems, providing a more inclusive, secure, and efficient means of financial transaction. By promoting cashless transactions, enhancing access to credit, and improving the distribution of social welfare, E-Naira can play a pivotal role in fostering economic development and reducing poverty in Nigeria. As such, understanding its impact is essential for policymakers, financial institutions, and stakeholders committed to advancing financial inclusion and economic growth.
1.7. Scope of the Study
The study examines Financial Inclusion and E-naira in Nigeria; what is the impact of E-Naira on Financial Inclusion. The study is limited to selected banks in Lagos, Nigeria.
1.8. Operational Definition of Terms
Financial Inclusion: Financial inclusion refers to the process of ensuring access to appropriate, affordable, and timely financial products and services for all individuals and businesses, regardless of their income level or location. This includes services such as banking, credit, insurance, and payment systems. The goal of financial inclusion is to provide everyone with the opportunity to participate in the formal financial system, thereby promoting economic growth and reducing poverty.
E-Naira: E-Naira is a digital currency issued by the Central Bank of Nigeria (CBN). It is a form of Central Bank Digital Currency (CBDC) designed to complement the physical Naira, Nigeria’s official currency. The E-Naira aims to provide a secure, efficient, and accessible means of payment for individuals and businesses, facilitating transactions and promoting financial inclusion. It leverages blockchain technology to ensure transparency, security, and traceability of transactions.
Impact: Impact refers to the effect or influence that one thing has on another. In the context of financial inclusion and E-Naira, impact would refer to the changes or outcomes resulting from the introduction and use of E-Naira on the financial inclusion landscape in Nigeria. This could include increased access to financial services, improved economic participation, and changes in financial behavior among the population.
Money: Money is a medium of exchange that is widely accepted in transactions for goods and services. It serves several key functions: as a unit of account, a store of value, and a standard of deferred payment. Money can take various forms, including physical currency (coins and banknotes), digital currency, and other financial instruments. It is a fundamental component of the economy, facilitating trade and enabling the efficient allocation of resources.
Project – Financial Inclusion and E-naira in Nigeria; what is the impact of E-Naira on Financial Inclusion