Business

Naira redesign, cashless policy: Law firm questions role of Bank Neutral Cash Hubs

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2 years ago

By Chima Nwokoji | Lagos

As the naira redesign policy of the Central Bank of Nigeria (CBN) passes through different stages of implementation since it was recently reintroduced, a law firm, Banwo & Ighodalo, has questioned the role of Cash Hubs in the economy.

The firm, in a position paper seen by Nigerian Tribune, wants the CBN to encourage eligible promoters to set up Cash Hubs under the operational guidelines in rural and underserved areas, as well as in central business districts of urban areas and designate them as old notes redemption centers across the length and breadth of the country.

In March 2022, the CBN released an exposure-draft on guidelines for Bank Neutral Cash Hubs operations in Nigeria. The guidelines were finalised after receiving and considering comments from stakeholders, leading to the final issuance in June 2022 of the “Guidelines for the registration and operation of Bank Neutral Cash Hubs (BNCH) in Nigeria”.

The main objective for setting up Cash Hubs is to achieve improvement in operational efficiency in the country’s cash management value chain by reducing the risks and costs borne by banks, merchants and huge cash handlers.

Cash Hubs are also expected to leverage on shared services in the cash management ecosystem and deepen financial inclusion. Only DMBs and cash processing companies (CPCs) are eligible to apply to the CBN for a license to establish and operate a Cash Hub.

Eligible activities by a Cash Hub as prescribed in the guidelines are: receipt of naira-denominated deposits on behalf of financial institutions from individuals and businesses with high volumes of cash; disbursement of naira-denominated withdrawals on behalf of financial institutions to individuals and businesses with high volumes of cash, and any other activities that may be permitted by the CBN based on business needs.

Cash Hubs are required to be located in areas with high volumes of commercial activities and cash transactions and they are to provide a platform for customers to make cash deposits and receive values irrespective of the banks with which their accounts are domiciled.

“As the CBN continues to mop up excess cash from outside the banking system and begins the first stage of redemption of the old notes with the N500 and N1000 at its offices nationwide and at any other locations it may designate for that purpose, Cash Hubs appear like a more optimal option for designated redemption centers, going by their cash deposit role,” the firm noted.

However, it is unclear what the roles of established Cash Hubs would be in the post-demonetisation era when the naira redesign policy would have ended and the economy would have been substantially on-boarded into a cashless ecosystem.

“Will the volume of cash handling permissible under the CBN’s revised cash withdrawal limits be sustainable for the operations of Cash Hubs? Will there be enough incentives for DMBs and CPCs to set up Cash Hubs?

“Perhaps, the prescribed daily and weekly cash withdrawal limits may work for Cash Hubs that are set up in rural and underserved areas, where banking facilities are either inadequate or non-existent or perhaps, the CBN may consider an upward revision of these limits in such rural and underserved areas which would truly struggle to undertake cashless transactions,” the law added.

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