Nigeria has been plagued with severe cash shortages, which have led to riots across the country in recent times. Despite the introduction of the eNaira, Nigeria’s national digital currency, there hasn’t been a significant shift towards digital payments. Several factors, including infrastructure, low merchant participation, and interest, may have contributed to this phenomenon.
Cash Shortages in Nigeria
The cash shortages in Nigeria can be traced back to the government’s decision to change the currency design in late 2022. The government sought to swap old banknotes for new ones, and the slow changeover caused ATMs to dry out quickly. This situation resulted in the government placing limits on withdrawals, which adversely affected Nigeria’s $220 billion informal economy. The crisis worsened, and the already weak naira fell even further against the U.S. dollar on the local forex black market. The informal economy in Nigeria depends significantly on cash. The cash shortages have left everyone from street vendors to bus drivers frustrated.
Slow Adoption of eNaira
The eNaira is the digital version of Nigeria’s currency, which was introduced in October 2021 by the Central Bank of Nigeria. The eNaira’s adoption has been slow, with less than 0.5% of Nigerians using it a year after its launch, as reported by Bloomberg. By August 2022, the eNaira had only been used to carry out transactions worth 4 billion naira ($9.3 million). In comparison, in 2020, Nigerians conducted $26 billion worth of ATM transactions.
The Central Bank of Nigeria has tried to push adoption by limiting cash withdrawals for individuals and corporate organizations to 100,000 naira ($217.19) and 500,000 naira ($1,085.97), respectively, since January 2023. Banks have also been encouraged to turn customers to cash alternatives like the eNaira. However, these measures have not yielded significant results as the necessary infrastructure wasn’t in place to foster adoption.
Lack of Infrastructure
A significant factor that may have hindered eNaira’s adoption is the lack of infrastructure. The Nigerian native Adesoji Solanke, a director at Renaissance Capital, which is an emerging and frontier markets-focused investment bank with a branch in Nigeria, posits that there is a dearth of merchants willing to accept the eNaira. This situation may have created a chicken-and-egg problem, according to London-based Varun Paul, CBDC and market infrastructure director at institutional crypto custody platform Fireblocks. He previously worked at the Bank of England as an economist and head of its fintech hub and now leads Fireblocks’ efforts to build out infrastructure for CBDC integration.
Need for Education
Another factor that may have contributed to the slow uptake of eNaira is the lack of education. People might have needed to be educated more on the benefits of a digital naira. In June 2021, Nigeria announced it may be kicking off a CBDC pilot program before the end of that year. A Central Bank of Nigeria official also said that the institution had been researching a digital currency for two years. Just four months later, the eNaira went live. Meanwhile, the European Union has set up a two-year research and experimentation project for a digital euro ahead of deciding whether to issue one. If it does decide to go ahead, officials have said it could take several more years to launch. The U.K. is seeking public feedback on its recently published multiyear plan for a digital pound.
Benefits of eNaira adoption
While there may be some initial hesitations, eNaira adoption can offer numerous benefits for Nigerians in the long run. Here are a few advantages of using the eNaira:
Reduced fraud
One of the main benefits of eNaira adoption is the reduced risk of fraud. Cash transactions can be risky, and there are always chances of receiving counterfeit notes. Since the eNaira is a digital currency, it eliminates the risk of counterfeits. Additionally, eNaira transactions are more transparent and traceable, making them less susceptible to fraudulent activities.
Faster transactions
Another advantage of the eNaira is faster transactions. With traditional cash transactions, it can take some time to count and verify notes. In contrast, eNaira transactions are near-instantaneous, allowing for faster and more efficient transactions.
Convenience
The eNaira can also offer convenience to users. With cash, individuals have to carry physical notes, which can be bulky and inconvenient. With the eNaira, individuals can make transactions from their smartphones, eliminating the need to carry cash.
Financial inclusion
The eNaira can help increase financial inclusion in Nigeria. Many Nigerians are currently unbanked or underbanked, making it difficult for them to access financial services. With the eNaira, individuals can access financial services more easily, even if they don’t have a traditional bank account.
eNaira adoption challenges
Despite the benefits of eNaira adoption, there are still some challenges that need to be addressed before more people in Nigeria can start using the digital currency. Here are a few of those challenges:
Infrastructure
Infrastructure is one of the biggest challenges facing eNaira adoption. To use the eNaira, individuals need access to the internet and a smartphone. While smartphone adoption has been on the rise in Nigeria, there are still many people who don’t have access to the necessary technology. Additionally, there needs to be more infrastructure in place to support eNaira transactions, such as point-of-sale terminals and eNaira ATMs.
Merchant adoption
Another challenge is merchant adoption. For the eNaira to be successful, there needs to be widespread adoption by merchants across the country. However, many merchants are hesitant to adopt the eNaira because of the lack of infrastructure and uncertainty around regulations.
Education
There is also a need for more education around the eNaira. Many people in Nigeria may not fully understand how the eNaira works or its benefits. To encourage more people to adopt the eNaira, there needs to be more education and awareness campaigns around the digital currency.
Regulatory framework
Finally, there needs to be a clear regulatory framework in place for the eNaira. The Central Bank of Nigeria is currently responsible for regulating the eNaira, but there needs to be more clarity around the rules and regulations surrounding the digital currency. This will help build trust among consumers and merchants and encourage wider adoption.
Conclusion
While the eNaira may have had a slow start, it still has the potential to revolutionize retail payments in Nigeria. However, to make this a reality, there needs to be more infrastructure in place, greater merchant adoption, more education around the digital currency, and a clear regulatory framework. If these challenges can be addressed, the eNaira has the potential to improve financial inclusion, reduce fraud, and make transactions faster and more convenient for Nigerians.
