1.0 BACKGROUND OF THE STUDY
Government policies usually remarkably affect economic, political, and social well-being. Notwithstanding, the nature of these implications could be positive and(or) negative, which can be expected and(or) unxpected. The recent Naira redesign policy of the Central Bank of Nigeria (CBN) administer a live reality of the impact of government policy.
Cashless policy is a macroeconomic policy addressed at minimizing the total amount of physical currency in an economy thereby creating room for electronic-based payments (Ejiobih et al., 2019). It is a method that is usually set up by the Apex Banks of many nations to minimize the use of currency for carrying out transactions. To Meseigha and Ogbodo, (2013), it is a system that makes payment for goods and services possible and offered through the Internet or any type of electronic fund transfer system. These opinions explain the fact that a cashless economy/policy is meant to simplify transaction processes without the struggle and stress of getting to hold money physically. Nonetheless, this does not compulsorily mean that physical cash would completely be out of reach. In this vein, Akhalume and Ohiokha, (2012) are of the view that contrary to what is suggestive of the term, the cashless economy does not mean an outright absence of cash transactions in the economy in question, but when the amount of cash-related transactions are minimized to a great extent as possible. In such economies, transactions of any nature are principally carried out through electronic means: Automated Teller Machines (ATM) transfers, online banking and mobile applications, and other means like the use of cheques, direct bank transfers, mobile money transfer operations etc.
Introduced in October 2022, the redesign policy targets the Nigerian currency's three highest denominations (200, 500 and 1000 Naira notes). Citing the need to minimize the volume of currency in circulation outside the formal banking system, which as of September 2022 was 80 per cent (N2.73 trillion) out of the N3.23 trillion in circulation, as one of the motivations for the policy, Gov. Emefiele highlighted the need to promote the cashless policy to curb illicit financial transactions and terrorism funding. Other reasons emphasized by the apex bank's governor include minimizing the high rate of counterfeiting, shortage of clean and fit notes, discourage vote-buying and ransom payment to kidnappers and terrorists.
Howbeit, applying the policy through the roll-out of new notes by mid-December 2022 was slow amidst higher withdrawal of old notes from circulation, leaving thousands cashless for their daily activities. The cash crunch has bitten hard across the country since January 2023, evident in high withdrawal charges by PoS agents, limited withdrawals at banks due to CBN benchmark and an increase in queues across bank branches.
The informal economy is the most affected, accounting for 30 per cent of the Nigerian economy. This is because about 70 per cent of transactions in the informal sector are settled in cash, making cash unavailability a significant challenge and analysts projecting a decline in the country's GDP for Q1 2023.
Attempting to relax the cash crisis, the Supreme court, in the case between some State Governors and the Federal Government on the policy, ruled to extend the deadline of the validity of the old Naira notes to December 31, 2023. However, conformity with the verdict was delayed as currency in circulation dropped to N788.92 billion.
While many MSMEs were negatively affected by the Naira redesign policy, some survived and even recorded increased sales by leveraging numerous techniques. These techniques remain their unique selling points amidst the economic turmoil. The following are some of the techniques and measures to survive the hurdles of the Naira redesign policy:
Adoption of alternative payment solutions
Going cashless is the new trend; only businesses that can key into the trend will scale profitably. Most businesses, including some petty traders, have started accepting cash transfers through traditional banks' applications, card payments and digital banks such as Opay, Kuda and PalmPay. Limiting payment option to cash stifles business growth and increases customer turnover during this period. Some have also started partnering with PoS agents to receive payments from customers. However, maintaining a combination of a traditional bank account and a digital bank account solely for business would help limit banking service interruption issues, even though transaction cost in terms of charges needs to be considered.
Improved record keeping
While the provision of alternative payment solutions is desirable, keeping records provides added benefits, especially when dealing with first-time customers. There are instances of fund reversal, which can lead to conflicts. Hence, maintaining adequate records of customers who made digital cash transfer is essential.
Empathetic customer experience
The Naira redesign policy has thrown different challenges at distinct categories of Nigerians. As a result, being aggressive and lacking emotional intelligence in addressing customers' queries and complaints would do the business no good. Hence, an empathetic approach is important, as this will help retain customers and attract more through word-of-mouth from current customers.
Buy now pay later
Returning customers, especially the trusted, can be given the opportunity to make purchases now and make payments later. This deepens customer loyalty and facilitates an increase in customer base and retention.
1.1 PROBLEM OF THE STUDY
On October 26, 2022, the Nigerian central bank announced plans to redesign some denominations of the country's currencies. The denominations in question are N200.00, N500.00 and N1000.00. The CBN stated that, the new redesign policy aims to reduce counterfeiting, promoting financial inclusion, & implement a cashless policy. The new series were distributed in mid-December, but not all citizens had access to these funds. At the moment, one would expect the economy to be stable, but this is not the case owing to the government's ineffective monetary and fiscal policies. According to Olujobi (2022), the effectiveness of the government's monetary and fiscal policies will go a long way toward ensuring that a large number of naira notes circulating outside banks are crammed in. By increasing deposits in commercial banks, banks will have more money to lend, which may result in lower interest rates, capital flight, and more investment opportunities. Although the policy has encouraged electronic payments and reduced counterfeiting, the policy's ability to reduce inflation remains in doubt. Given the vulnerability of SMEs, their survival may be jeopardized in an economy characterized by instability, inflation, and fluctuations. According to Aroghene and Imene (2023), apex bank and the government must make a rigid commitment to taking the needed actions in order to make sure that the new currency is viewed as reliable by the general public, businesses, and the international community.
During the first quarter of 2023, Nigerians experienced cash circulation shortages due to the naira redesign policy. This policy negatively impacted several informal sector businesses, such as local retail shops, artisans, and commercial bus drivers. Trading activities for small-scale manufacturers were also affected. The impacts of the naira redesign policy show a need to restore the cashless policy for small businesses to address cash scarcity. On this basis, the study seeks to examine the impact of naira redesign and cashless policy on small and medium scale enterprises in Nigeria (A case study of Eti osa LGA, Lagos).
1.2 Objectives of the Study
The purpose of this enquiry was to investigate the impact of naira redesign and cashless policy on small and medium scale enterprises in Nigeria (A case study of Eti osa LGA, Lagos). The specific goals are as follows:
(1) to examine the impact of curbing naira stockpiling on the growth and performance of small and medium scale enterprises in Eti osa LGA, Lagos.
(2) to ascertain the influence of retrenching inflationary tension on the performance of small and medium scale enterprises in Eti osa LGA, Lagos.
(3) to ascertain the impact of restraining fraud on the performance of small and medium scale enterprises in Eti osa LGA, Lagos.
1.3 Research Questions
(1) What are the impacts of curbing naira stockpiling on the growth and performance of small and medium scale enterprises in Eti osa LGA, Lagos?
(2) What are the influence of retrenching inflationary tension on the performance of small and medium scale enterprises in Eti osa LGA, Lagos?
(3) What are the impacts of restraining fraud on the performance of small and medium scale enterprises in Eti osa LGA, Lagos?
H1: Curbing naira stockpiling does not have a significant impact on the growth and performance of small and medium scale enterprises in Eti osa LGA, Lagos.
H2: Retrenching inflationary tension does not have a significant impact on the performance of small and medium scale enterprises in Eti osa LGA, Lagos?
1.5 Significance of the study
The following are the significance of the study:
The outcome of the study will go a long way to educate managers of small and medium scale enterprises and the general public on the effect of naira redesign and cashless policy on SMEs recommending approaches to make sure productivity with the use of modern technology.
The research will also contribute to the body of literature in the area of the effect of personality trait on students academic performance, thereby constituting the empirical literature for future research in the subject area.
1.6 Scope of the Study
The scope of the study is limited to impact of naira redesign and cashless policy on small and medium scale enterprises in Nigeria (A case study of Eti osa LGA, Lagos) only. The study was carried out in Eti Osa LGA, Lagos Nigeria. The study was also limited to activities of 2023 general election. The study made use of both primary and secondary data. Questionnaires will be distributed and used for data collection from respondents.