*Says CBN cashless concept is a misnomer
BY UDEME CLEMENT
Dr. Kalu Idika Kalu, served as a member of the Development Committee of World Bank. He worked as former Commissioner for Finance and Economic Planning in Imo State, ex- Minister of Finance, under two regimes, Federal Minister of National Planning and Minister of Transport. He was designated Nigeria’s Candidate for the Deputy Director General position at the World Trade Organisation (WTO) in 1999. He served in a special Niger Delta Technical Committee on the final resolution of the Niger Delta crisis. In January 2012, he was also appointed to chair the Special Task Force on the Nigerian refineries. In the concluding part of the interview with him, he speaks on the banking consolidation, on-going reforms in the financial sector and the need for the Central Bank of Nigeria to ensure increased rural banking in the country.
You worked as Commissioner of Finance and Economic Planning in Imo State, Finance Minister under two regimes, With your experience, how will you assess the cashless monetary policy of the Central Bank of Nigeria (CBN), being implemented in some parts of the country?
To start with, there should be a proper definition of the monetary policy of the CBN in trying to reduce cash transactions in the economy. The reason being that, the word cashless, is a misnomer. We can’t be talking cashlessness in the cities, rather we should emphasize non cash instruments and not cashless economy. Not America, Japan, China, Russia,Indonesia, Singapore Switzerland and other advanced economies have reduced cash to zero. That is why I called it a misnomer, because there must still be cash transactions. For instance, in America, you pay cash for hair cut. The Fiduciary policies on management of currency and financial instruments in the economy are geared towards reducing the use of cash and correspondently moving into the use of non cash methods of transactions. Such methods include the use of cheques, Automated Teller Machines (ATM), Point of Sales (PoS), credit cards, electronic money transfers and other financial instruments other than cash. These instruments when adequately utilised can reduce the proportion of cash in the system. For instance, in super markets, shops, everywhere people need goods and services, they should be able to issue credit cards for immediate transactions instead of carrying large volumes of cash about.
The apex bank as the monetary authority has the autonomy to formulate and implement monetary policies to regulate the financial sector of the economy. Don’t you think that the current cashless policy is one of such initiatives?
Obviously, it is the duty of CBN to regulate the financial industry in order to reduce inflation in the economy. In doing that, the apex bank should not be talking about cashlessness, because there are areas you cannot talk of cashless economy since people in such places need cash for daily business transactions. For instance, a good number of people live in the rural areas where there are no banks and they use cash on a daily basis. So, if CBN is talking of cashless economy, where will these individuals be classified?
Banking recapitalisation has further shrunk the number of banks in Nigeria , even as new banks are not coming up. From your experience as a member of the Development Committee at the World Bank, don’t you think the banking sector is over regulated?
I had cautioned that the financial sector is not separate on its own but providing services to align with the market forces of demand for money in the economy. This demand for money is the function for distribution and production of real goods and services. You cannot get up one day and say all banks must get minimum capital of 25billion. Instead, the assets they are asked to operate must be function of demand in the system. There should be thrust of banking expansion and not forceful consolidation. Small banks must be efficiently managed not by the functions of their capital base. They should promote agriculture and people in real farming getting easy access to small loans.
Are you saying that the consolidation policy was wrongly conceived?
It was a fundamental error in policy. You can advise banks to increase their assets base and to merge if need be. Consolidation ought to reflect the growth of market demand for financial services in the economy and not a situation where banks are forced by the law to consolidate. The current management of the CBN has been trying to correct this mistake to ensure focus and realignment in the system. For instance, I chaired the launching of a recent book, ‘Financialism: Water from an empty well’, published by the former Governor of Lagos State, Bola Tinubu, which talked elaborately on the real work of capital on procurement, goods and services in the economy. We must grow the economy in order to develop the banking system by deepening the growth of banking industry.
Why are many places in the rural areas un-banked?
This is the question that CBN should answer. We need banks in rural areas to give loans to farmers, to enable them buy fertilizer, weeds killer and other basic things they need to increase productivity in large scale farming. Though some people also complain of insecurity especially for few banks operating in the rural areas, the merit system must be kept. It is the duty of government to secure the economic environment, because without security, we cannot have tangible savings and investments in the country.
What made government not to take IMF loan after so many debates on the issue?
What I want people to understand here is that, borrowing or resources mobilisation to expand capacity in the economy does not necessarily mean IMF loan. It simply means sourcing for funds from the big financial institutions and global lenders to invest in capital projects already identified by government. This is a function of demand. These projects must be viable to outweigh the cost, for government to develop the economy and pay back the loan like what obtains in developed countries.