eNaira through financial Inclusion Lenses
As Nigeria rolled out the drums to celebrate on October 1, the CBN teased us with a new topic of argument with our West African counterparts in Ghana. The subject certainly was not jollof rice, if you haven’t already caught on, but Africa’s first set of Central bank issued digital currencies (CBDC). Nigeria is to launch one to be called “eNaira”.
The apex bank was set to deliver “Project Giant” on one of Nigeria’s most iconic dates but delayed, pushing the launch to a yet to be set date. The race to Africa’s first general purpose Central Bank digital currency is being powered by Bitt Inc on the Nigerian side of the divide, in its capacity as technical partner. Unlike Nigeria, Bitt.inc, isn’t making its debut with digital currencies and is in fact, one of a few organizations to have spearheaded sovereign digital currencies. Bitt.inc was instrumental in the Eastern Caribbean Central Bank’s (ECCB) launch of Dcash (the ECCB digital currency) in April 2021, an achievement the CBN was pleased to brandish as it announced plans for eNaira.
Since 1962 when the national currency reflected Nigeria’s republican status, the currency has evolved in form and substance; higher denominations (there are now 8 bank notes and 3 coins) and higher exchange rates versus the dollar have been established in the 49 year history of the Naira.
You might wonder what the overarching aim of a digital currency is given Nigeria’s decent if not admirable position with payments; the most common answers include, promoting the inclusion of those currently excluded from the financial system, improved effectiveness of monetary policies, ease in tax remittance and collection to support growth and ease in deployment of targeted social interventions. Increased cross-border trade, accelerated financial inclusion, cheaper and faster remittance inflows all make the list.
So what is “eNaira”? eNaira is a Central Bank of Nigeria-issued digital-currency version of the Naira paper notes. eNaira will serve as both a medium of exchange and a store of value and is billed to offer better payment features for retail transactions, as against cash payments in the economy. But all this, is the future; the history of the eNaira cannot be divorced from some of the CBN’s circulars (2021) undermining the adoption of cryptocurrencies in the country.
In a very clear attempt to create a substitute token in a market eager for faster payment speed, unhindered remittance flow and a global reach, the CBN conceived the eNaira. In short, the CBN has decided “not to throw the baby and the bath water away”. The baby here being the technology on which major cryptocurrencies are hoisted; Blockchain. The Blockchain platform which is the critical infrastructure for this project creates robust opportunities for integration with the existing suite of financial payments gateways and even novel applications.
But a critical difference between the eNaira and other cryptocurrencies is that the former is a direct liability of the Central Bank, zoning issuance and regulatory powers to the apex bank. This means that the apex bank can approve or override transactions since it is in control of the infrastructure. In contrast, a cryptocurrency revolves around the concept of decentralized validation and the absence of a central authority. So, what will be missed?
The super-charged, intense episodes of volatility on Bitcoin and other altcoins, rendering the eNaira as plain vanilla as possible. The eNaira will be pegged to the Naira so its value remains the same, just like stable coins pegged to the dollar.
Perhaps, one of the fundamental reasons the CBN dashed for the creation of the eNaira, is the success story of the payment ecosystem in Nigeria, largely facilitated by private capital. Nigeria boasts of a unicorn and several fintech companies extending the frontiers of payments beyond Nigeria. Add to the mix, well established banks announcing strategic business verticals to be focused solely on payments and the picture becomes clearer — this is one of Nigeria’s true success stories.
The pandemic took things to a new pedestal as ecommerce boomed in the context of limited mobility during and after the lockdown in different parts of the country. According to data by the Nigeria Interbank Settlement System (NIBSS), e-payment transactions from January to August 2020, stood at N92.71tn. This figure increased to N171.99tn in the corresponding period in 2021, reflective of an 85.52% increase y-o-y in value of transactions.
So, we ask ourselves, will the eNaira become the new flavour in a seemingly crowded e-payment space? Will financial inclusion shift gears with this initiative, making e-payments possible for those without bank accounts and smartphones, where other initiative have failed or seen limited progress? Is the diaspora merely more concerned with the speed of remittance or a fair value for their transfer back home? The jury is out on these questions.
Nevertheless, the eNaira may well usher in a period of cheaper payments in keeping with recent banking regulations that have forced commercial banks to charge only a fraction of the fees they previously collected on transfers.
With recourse to the mode of operation of the eNaira, the first step would be the creation of an electronic wallet by prospective end-users. This is needed to receive, hold, and spend the eNaira. This would be done via downloading an app from the Google Playstore or the Apple store. An invitation/validation code, Bank Verification Number (BVN), account number and other sundry information will be needed to open a full options wallet, while Interoperability between bank accounts and eNaira wallets should facilitate easy transfers. eNaira can be spent in wallet-to-wallet transfer or wallet to bank account exchanges. Conversion of eNaira to cash will not be possible as this would defeat the purpose of promoting a cashless policy.
In terms of propositions, eNaira users are graded into different tiers:
- Tier one caters to individuals without existing bank accounts, minimum account opening requirement is having the National Identification Number (NIN), daily transaction Limit is set at N50,000 and a maximum cumulative daily balance of N300,000.
- Tier two gives users slightly higher spending abilities; minimum account opening requirement is having a BVN, daily transaction limit is set at N200,000 while the maximum cumulative balance allowed is N500,000.
- Tier three caters to users with regular spending needs; minimum account opening requirement is the BVN, daily transaction Limit is put at N1,000,000 while maximum cumulative balance is N5,000,000.
- Tier four is for business / merchant outfits; minimum account opening requirements are full KYC as stipulated in the CBN’s Anti Money Laundering, Counter Financial Terrorism regulation and a tax identification number (TIN). Daily transaction limit is put at N1,000,000, while for this tier, the maximum cumulative balance is Unlimited.
A potential drawback to the widespread adoption of the eNaira particularly among the unbanked is the requisite ownership of a smartphone to download the eNaira app and run it. Granted, Nigeria has roughly 170 million mobile phone users based on subscriptions, the number of smartphones in the country is estimated to be less than 25% of the smartphone ‘geng’. It is also harder to believe that only a minority of the people who own smartphones have a bank account or are financially included.
Whereas the drive for financial inclusion in Kenya has been very successful with an infrastructure that supports even basic feature phones. Enter M-pesa; a product with its origins in Kenya is now an export across 8 African countries. Since its pilot in 2007, it has evolved into a payment infrastructure incorporating payments, microfinancing and even remittances. It is what one may call a stirring rendition of agency banking if the concept were musical.
All a transaction needs to take place is an exchange of phone numbers and both parties receive an SMS notification with the full name of the counterparty and the amount of funds deposited or withdrawn from the user’s account. The mobile receipt, which is received within seconds, helps to promote transparency for all individuals involved in a transaction. The number of subscribers on the M-Pesa platform has grown by 63% in the last four years from 29.5 million in 2017 to 48 million in 2021.
Our view is that if Project Giant is to morph into Africa’s leading digital currency network, then the tenets of simplicity and access must be upheld, and the failures of past initiatives sequenced into features of new products.
