Key Takeaways
- The Naira redesign policy has had mixed effects on the Nigerian society.
- MSMEs and other petty cash businesses are worst-hit by the policy.
- The Nigerian GDP is projected to decline in Q1 2023.
- MSMEs can leverage the adoption of alternative payment solutions and other initiatives to drive sales and retain customers.
- The business environment has evolved, and keying into the dynamics is essential.
Background
Government policies often significantly affect economic, political, and social well-being. However, the nature of these implications could be positive and(or) negative, which can be intended and(or) unintended. The recent Naira redesign policy of the Central Bank of Nigeria (CBN) provides a live reality of the impact of government policy.
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 reduce 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 emphasised the need to promote the cashless policy to curb illicit financial transactions and terrorism funding. Other reasons highlighted by the apex bank's governor include reducing the high rate of counterfeiting, shortage of clean and fit notes, discourage vote-buying and ransom payment to kidnappers and terrorists.
However, implementing 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 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.
In a bid to ease 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, compliance with the verdict was delayed as currency in circulation dropped to N788.92 billion.
Opportunities in challenges
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 availed the opportunity to make purchases now and make payments later. This deepens customer loyalty and facilitates an increase in customer base and retention.
Concluding Thoughts
Surviving the challenges posed to businesses by the Naira redesign policy requires the development of initiatives and techniques which can serve as unique selling points. However, understanding the application of each technique and a combination of all is crucial to reaping the benefits of evolving with the business environment. Although access to cash is gradually easing, the drive for a cashless policy is here to stay. This is why the Lagos State Employment Trust fund was proactive in partnering with MasterCard to drive the financial inclusion of MSMEs in Lagos State. Empowering MSMEs is essential because of their contributions to job and wealth creation. Thus, ensuring that MSMEs leverage opportunities in the current challenges is vital to Nigeria's economic and social well-being, especially Lagos State, the country's commercial hub.
