With Dele Sobowale
“In any series of elements to be controlled, a selected small fraction in terms of number of elements always accounts for a large fraction in terms of effect.” Wilfredo Pareto, Italian economist, 1848-1923..
The governor of Central Bank of Nigeria, CBN, gave among the reasons for the cash withdrawal policy the fact that research has shown that 80% of withdrawals were below N150,000 for individuals and N1 million for firms. There is no need at this point to dispute the result of that research.
However, it is also true that bank deposits also follow some variety of the Pareto Principle which has taught us that 20 to 30 per cent of individuals contribute 70 to 80% of results in any endeavour, financial or social as well as deposits.
In Nigeria, the disparities could be much higher. It is generally believed that this country, among all nations of the world, has entrenched the worst kind of inequitable income and wealth distribution as a result of which a mere one to two per cent of the 150 million people control close to 75% of wealth, income and deposits in banks.
Had the CBN carried its survey further, it might have discovered that the 20% who daily issue cheques for more than N150,000, also collect more than 80% of the cash. Pareto has taught us that in every aspect of our lives, we are dealing with the vital few (the 20-30%) and the dispensable many (70-80%).
One cheque issued against his personal account by either Dangote or Mike Adenuga, in one day might result in more cash being paid out than a thousand others by small depositors that very day.
For that reason alone, the CBN, by promoting this new measure might be penalizing the essential few depositors on who banks depend for their survival thereby undermining the banking sector itself.
Meanwhile, the banks have taken some measures on their own which threaten to send more cash under mattresses and holes in the ground by Nigerians.
One of my banks, the United Bank for Africa, UBA, recently announced that the minimum balance in any account acceptable will, henceforth, be N25,000 (twenty-five thousand naira).
Simultaneously, the bank also decreed (the word decree is deliberate because depositors were not warned before opening their accounts that they will be subjected to such arbitrary requirements in the future) that cash withdrawals below N80,000 (eighty thousand naira) will from July 1, 2011, be through ATM machines, despite the mounting problems Nigerians continue to experience with the use of those infernal machines.
Certainly UBA has only moved ahead of other banks and similar announcements will soon be made by the rest. It is the nature of oligopolies.
One obvious consequence of the combination of measures is to empty the banking halls of depositors and throw them to the sidewalks.
In effect, what this means is: all customers are welcome inside the banks for deposits but small depositors – those withdrawing less than N80,000 — have the gates slammed in their faces when the time comes to withdraw their money.
Raising minimum deposit and raising the minimum amount that can be withdrawn over the counter, undoubtedly, constitute strategic approaches to crowd control inside banking halls.
They will make banking easier for the middle and high income earners who will be left to enjoy over-the-counter services. But, they will bring in their wake other unintended consequences which might not have been considered. One of them is retrenchment of staff!!!
As complaints mount as a result of increased use of ATMs, small depositors will flee the banks in droves. Prior to those measures, the vast majority of depositors, earning wages and salaries under N25,000, and who spend virtually every kobo by month end, will henceforth find banks closed to them.
Meanwhile, those of them employed by companies or even governments and their agencies, who have been forced to open accounts into which salaries are paid, will be thrown back into the laps of their employers whose maximum cash withdrawal will soon be pegged at N1 million per day.
The administrative mess which will result is at the moment unquantifiable; but it will surely be considerable – sufficiently, so, as to make the measures counter-productive.
Indeed, if the CBN and the banks had started out with the intention to close all the banks by the end of 2012, they could not have adopted a better action plan.
Fortunately, all is not lost. In a PUNCH story of July 1, 2011, titled, “We are open to discussion on withdrawal limit”, the Deputy Governor, Economic Policy, Central Bank of Nigeria, Dr Sarah Alade, was reported to have said that “the bank is open to dialogue to see if there is need for amendment to its cash withdrawal limit policy”. That was the good news.
But, she also made the, admittedly valid, point that “we know the danger involved in moving cash around. Other less developed countries have transited to that and people now go with credit cards to be able to transact”. Agreed; but those societies never started out with people purchasing large ticket items with cash in the first instance.
Furthermore, the largest movers of cash in Nigeria are large corporations, governments, public employees and their agencies. The ill-gotten gains of public servants, elected or appointed, and criminals, as well as politicians constitute a large percentage of the cash in circulation.
Additionally, given a generally corrupt society, where laws go largely un-enforced, the dangers of using cards might outweigh carrying cash for most people as the following real examples will show.
A woman trader went to her bank to withdraw N500,000 for purchase of provisions for her shop. Two minutes after coming out of the bank a two-man gang on motor-cycle accosted her and robbed her of the money. Her loss, though heavy , was limited to the N500,000.
On the same day, a housewife received notice that N50,000 had been transferred to her account by her husband. She decided to wait until the next day to withdraw the money.
Next day she inserted her card and received the shock of her life; not only the N50,000 transferred the day before but every kobo, hitherto, in her account had been fraudulently withdrawn by someone else. The bank refused to make good till today. The point here is obvious.
The risks associated with carrying cash around might be considerable but they are limited to the cash in transit. Cards, on the other hand, expose the owner to unlimited liabilities.
Without strong and unfailing punishment for fraud, the transition from cash to cards can prove to be more perilous than bankers suppose.
At any rate, no country had transited from cash to cards in one leap. A strong tradition for cheque-based transactions inevitably precedes that change. In Nigeria, lack of enforcement has rendered cheques untenable for transactions.
SHOPRITE is my favourite supermarket and I will, glady, use cheques, if acceptable to them, instead of carrying loads of cash just to buy cornflakes; so would a lot of honest people.
But, that option is not available to us now. Meanwhile, cards continue to pose a greater risk than cash as the ATM experience has demonstrated. At any rate there are other obstacles before us.
For instance, it was widely known that several of the delegates to the Presidential primaries of the Peoples Democratic Party, PDP, in Abuja, in February this year, were “rewarded” for their votes with US dollars running to billions.
Most of it ended up with Malams illegally trading in foreign exchange and converted to naira which again landed in bank accounts – no questions asked. Most of the billions reportedly found in the accounts of the staff of the Secretary to the Government of the Federation, SGF, Pension Department, were deposited in cash; often several millions at a time.
Yet, these were personal; not corporate accounts. Undoubtedly, withdrawals of millions at a time were also made from the same accounts with equal ease. Some members of the National Assembly had confessed to receiving $50,000 – cash – to vote in favour of the third term ambition.
That was not the only illegal payoff they probably received that way and they in turn purchase everything from automobiles to parcels of land costing millions in cash. Invisible transactions running to trillions are involved.
That, to me suggests two approaches. The first is to strengthen the law against issuance of dud cheques making jail sentence mandatory after the first offence.
The second is to outlaw the sale of everything that must be registered –cars, land, etc – as well as anything costing more than N1 million for cash; except for farm produce and other rural based transactions.