Can eNaira Be Nigeria’s Financial Inclusion Panacea?
The first central bank Digital currency in Africa: What Nigerians can expect.
In a bid to lure people away from crypto, the apex bank of Africa’s largest economy has attracted roughly half a million users in three weeks.
Osita Nwanisobi, a spokesman for Nigeria’s central bank, described the adoption rate for the eNaira as “excellent.”
Nwanisobi said recently that over 78,000 merchants from over 160 countries have enrolled. The consumer wallet required to transact in eNaira has been downloaded by 488,000 people.
The idea of fast-tracking the eNaira came about in response to the overwhelming interest Nigerians showed in crypto trading, more specifically bitcoin, which the CBN did not promote.
Due to the COVID-19 pandemic’s adverse impact on commerce, business activities, and foreign exchange availability, and a variety of other unquantifiable negative developments, cryptocurrencies have become more attractive for transactional interest as they can address real and potential problems.
Nigeria is one of many countries to explore the possibilities associated with central bank digital currencies (CBDCs), but it is the first in Africa to implement one.
Currently, South Africa is undergoing a pilot to evaluate a wholesale CBDC, and Ghana is also piloting a digital fiat currency, according to CBDC Tracker. Further, CBDC research is happening in Ghana, Eswatini, Morocco, Egypt, Tunisia, Kenya, Rwanda, and Madagascar.
To drive financial inclusion, which the National Financial Inclusion Strategy described as “when adults in Nigeria have access to a broad range of formal financial services that are affordable, meet their needs and are provided at an affordable cost,” and provide support for the stability of the Nigerian naira, the Central Bank of Nigeria launched the e-Naira in Africa’s largest economy.
The CBN has been making progress, with the financial inclusion rate reaching 63.2% in 2018, compared to 56.8% in 2016, according to a 2018 report released by the financial institution. However, the financial institution has not yet met its goals in this area.
When key stakeholders created the National Financial Inclusion Strategy in 2012, they outlined specific objectives. “The two overall financial inclusion targets were 80% overall (formal and informal) financial inclusion and 70% formal financial inclusion by 2020.”
The CBN has made many efforts to close the gap but to no avail. In 2018, the CBN released a financial inclusion strategy paper that proposed establishing payment service kiosks in “every local government office.”
Nigeria currently has more than 51 million bank verification numbers (BVNs), according to the Nigeria Inter-Bank Settlement System Plc (NIBSS).
38 million Nigerians do not have bank accounts, which means 36% don’t have access to the eNaira. By granting individuals with mobile phones access to eNaira, the government has the opportunity to increase financial inclusion and facilitate more effective social transfers.
A new goal of financial inclusion was set by the CBN in 2019: to provide financial services to 95% of Nigeria’s adult population by 2024.
It may seem like an unrealistic target, considering that the current state of the Nigerian economy is causing people to preserve the purchasing power of their fiat currency by exchanging it for digital currencies. However, many are worried that the CBN will convert these cryptocurrencies to naira.
With the launch of the eNaira, the CBN hopes to achieve its ambitious financial inclusion goal. eNaira could prove to be the CBN's best weapon against financial exclusion if managed effectively.
Although Nigeria’s central bank has delayed the launch of its electronic currency twice, the first time on the country’s Independence Day and the second time on Oct. 4, we can still draw some conclusions from the guidelines and information released thus far by the country’s financial watchdog.
In addition to boosting transparency, the proliferation of eNaira could help curb black-market currency trading that occurs in paper currency.
Due to blockchain’s open ledger technology, units of the eNaira are unique and cannot be duplicated or counterfeited, reducing the risk of fraud.
The most appealing feature of the eNaira so far is that individuals and financial institutions need to meet minimum requirements to use it. Users only need to provide their phone numbers to access financial services.
Government-issued wallets have four levels, which range from Tier 0 to Tier 3. To access the first level, you must provide your name, passport picture, date, and place of birth, gender, phone number, address, and your National Identity Number (NIN).
These requirements are easy enough to meet, and by reducing the complexity of the financial inclusion process, mass adoption is much more feasible.
With the built-in traceability that is enabled by blockchain technology, the eNaira should also reduce so-called leakages of state budgets, which refers to instances where money earmarked for state expenses goes missing.
As a result, the authorities will have much greater direct oversight of transactions due to this infrastructure.
The Central Bank of Nigeria printed 2.52 billion Naira notes valued at N1.1 trillion in 2020, spending N58.6 billion. Digital currency could reduce these costs.
Nigerian Bank applications are also including the eNaira feature. The rules for managing the digital fiat currency stipulate that financial institutions regulated by the CBN are required to maintain a Treasury eNaira wallet via the Digital Currency Management System.
Guaranty Trust Bank Plc, Nigeria’s most valuable bank by market value, has given its account holders the ability to get involved with eNaira. Interested parties can download eNaira Speed Wallet using various methods, choose Guaranty Trust Bank from the list of options, verify their identity and then fund their wallet.
In its e-Naira website, the CBN has emphasized the crucial role that financial institutions will play in establishing digital fiat currency.
“The framework of eNaira is such that it entrenches many pipelines of collaboration and further strengthens financial institutions' core service delivery,” the website stated. “By its very nature with regards to its mandates, eNaira enhances the structures of these institutions instead of replacing the same.”
The digital currency is also secure, easily accessible, and digitized, enabling it to be linked to bank accounts and other payment platforms.
As a result of the digitization of trade and commerce, one of the strongest arguments for eNaira is the need to create a viable alternative to cryptocurrencies. In some cases, individuals have leveraged privacy-oriented digital currencies like Monero to engage in illegal activities.
Since eNaira will exist electronically, and users will potentially be able to exchange it for other CBDCs, it will make it so interested parties can complete local and international money transfers much more quickly and at a lower cost. An increase in foreign remittances, in turn, could be expected.
Armed with eNaira, Nigeria’s central bank could also theoretically transmit the digital fiat currency directly to the accounts of users who receive intervention funds. As a result, it could support individuals by providing funds that could be spent immediately through electronic channels and traditional debit cards.
As a result of these interventions, aid will be increased particularly to those in rural areas, lending will be made to sectors of the economy that have an impact on employment, the economy will be diversified, jobs will be created, and macroeconomic stability will be increased.
Because of this, Nigeria’s digital currency could be a huge boost to crypto enthusiasts, as well as a clear demonstration of Nigeria’s interest in leveraging the benefits of digital currencies.
Up to 90% of the African nation’s population could have access to eNaira, as long as everyone with a mobile device can use the digital fiat currency, according to the International Monetary Fund.
This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.
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