THE EFFECTS OF CASHLESS POLICY ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Employment creation is one manner in which small and medium-sized businesses can contribute to the expansion of an economy. To effectively manage the augmented influx of financial resources, it is critical to devise and implement policies that enhance the performance and expansion of the economy (Gboski et al. 2018). Due to the CBN's new cashless policy, however, SMBs are no longer the shining heroes that they once were. Achievements, expansion, and continued operations of small and medium-sized businesses are all illustrative of this. In a frictionless economy, transactions do not require the physical exchange of currency. For electronic devices to monitor a user's deposits and withdrawals, they are required. Particularly those in the service industry must implement information technology to achieve success. Through advancements in information technology, the competitive landscape for businesses and financial institutions has been altered. Information technology encompasses a vast array of topics beyond computers alone. Without a doubt, advancements in information technology will aid financial institutions in reducing transaction expenses, thereby resulting in decreased service charges for clientele. Banking institutions implement various information technologies—such as networking, computerization of client accounts and information storage and retrieval, automated teller machine (ATM) deposit and withdrawal, and information retrieval and account management—to enable customers to access their accounts from any location within the institution. Thanks to biometric measures such as biometrics and other forms of authentication, consumers might eventually be exempt from the need for passwords and other forms of personal identification. A proliferation of financial institutions are providing comprehensive service bundles through their websites and online platforms, surpassing the scope of their customary transactional banking offerings (Gboski et al. 2018). 

The implementation of the cashless policy was in response to the changing demands and expectations of bank clientele regarding cash-based services. Put simply, electronic money transactions have completely replaced cash transactions within the banking system. The cashless policy was devised by the central bank of Nigeria with the intention of facilitating the transition of the country's economy from a cash-centric payment system to an electronic one. Implementing this measure aimed to enhance the efficacy of Nigeria's payment system and, consequently, elevate the standard of service provided to the country's banking clientele; it also sought to standardise the monetary system with global standards and discourage the manual handling of currency. The extant cash-based economic system endeavours to address several challenges, including the substantial subsidy, the informal sector, inefficiency, and corruption, in addition to the high cost and risk associated with cash usage (CBN, 2015). The policy's implementation in Nigeria gives rise to concerns pertaining to computerization, security, privacy, and criminal activity. It appears that Nigeria was comparatively slower in adopting electronic banking than other affluent countries (David, 2022). Given the recent advancements in financial transaction technology, policymakers and financial institutions may wish to reconsider whether the existing institutional arrangements and instruments are sufficient to ensure financial stability, efficiency, and the effectiveness of monetary policy. As per the Central Bank of Nigeria (CBN), the introduction of the novel currency policy was motivated in part by an aspiration to assist Nigeria in approaching its Vision 2020 objective of ranking among the top 20 global economies by 2020. The existence of a sophisticated and user-centric payment system is positively correlated with economic expansion.

1.2 Statement of the Problem

Banks engage in competition by offering a variety of services and products that are convenient, acceptable, and easily accessible in order to attract consumers. An essential service among these is the digital economy, which encompasses electronic services and has substantially widened the gap between small and medium-sized businesses and banks (Kannabira & Narayan, 2019). In the current banking landscape, the need for ongoing innovation to satisfy the desires and ambitions of consumers who are constantly demanding is paramount. As a result, financial institutions must efficiently and promptly introduce novel offerings and solutions by employing state-of-the-art technologies (Augusto, 2022). A cashless economy facilitates the following for financial institutions: enhanced service provision, queue decongestion in banking halls, round-the-clock cash withdrawals for customers, assistance with international payments and remittances, transaction tracking for personal banking, online statement requests, and deposit transfers to third-party accounts. 

Undoubtedly, the provision of such services will have a substantial influence on the overall operations of small and medium-sized enterprises. In contrast, small and medium-sized enterprises (SMEs) can benefit from expedited service delivery, decreased frequency of in-person visits to banks, and simplified cash management. These factors collectively contribute to an increased turnover volume (Fagbuyi, 2018). These developments in the Nigerian banking sector, nevertheless, do not appear to have accomplished their objectives. Notwithstanding the endeavours of financial institutions to guarantee that customers benefit from electronic banking, they encounter customer grievances pertaining to the following: online theft and fraud, unavailability of financial services, obligation to pay hidden charges for electronic banking features such as Short Message Services (SMS) for alert transmission, requirement to obtain ATM cards, incompatibility of Nigerian cards for international transactions, malfunctioning Automated Teller 

Additional challenges identified are linked to the cash-based economy of Nigeria. These encompass disruptions in financial transactions, such as lengthy lines at banks or ATMs to withdraw cash, as well as network issues that impact mobile banking and online banking. Contagion of bacteria via physical currency handling, Due to its cash-based economy, there is a high incidence of crime, illicit drug trade, terrorism, unauthorised immigration, human trafficking, and corruption. "Instability manifests itself in the form of violent crimes, including robberies of banks and ATMs" (Okafor, 2021).

 Based on the foregoing, the study examined the effects of cashless policy on the financial performance of small and medium enterprises in Nigeria.

1.3 Objectives Of The Study

The main study objective is to examine the effects of cashless policy on the financial performance of small and medium enterprises in Nigeria. while the specific objectives of the study include; 

Investigate the effect of automated teller machine on financial performance of small and medium scale enterprises in Nigeria.

Investigate the effect of point of sale(POS) on financial performance of small and medium scale enterprises in Nigeria.

Investigate the effect of mobile banking(POS) on financial performance of small and medium scale enterprises in Nigeria.

1.4  Research Questions

The study will be guided by the following questions;

Does automated teller machine have a significant positive effect on the financial performance of small and medium scale enterprises in Nigeria?

Does point of sale have a significant positive effect on the financial performance of small and medium scale enterprises in Nigeria? 

Does mobile banking have a significant positive effect on the financial performance of small and medium scale enterprises in Nigeria? 

1.5. Research Hypotheses

Ho1: There is no significant and positive effect of automated teller machine on performance of small and medium scale enterprises in Nigeria.

Ho2: There is no significant and positive effect of point of sale on performance of small and medium scale enterprises in Nigeria.

Ho3: There is no significant and positive effect of mobile banking on performance of small and medium scale enterprises in Nigeria.

1.6  Significance Of The Study

The study will give various insights into the various implications the introduction of the cashless policy doe have on businesses in Nigeria.

The result from this study will educate the managers of small and medium business and the general public on the effect of cashless policy on SMEs recommending coping strategies to ensure profitability with the use of the modern technology.

Empirically, the study will add to the body of existing literature and serve as reference material to scholars who wishes to conduct further studies in related field.

1.7 Scope Of The Study

The general focus of this study boarders on  the effects of cashless policy on the financial performance of small and medium enterprises in Nigeria. Hence, the study will delimited to selected SMEs in Edo state.

1.8. Limitations Of The Study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents.

In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed. 

More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other schools, local governments, states, and other countries in the world.

1.9 Definition Of Terms

Cashless:designating of financial transactions handled by means of credit cards, bank transfers, and cheques, with no money handed from person to person.

E-banking:A system allowing individuals to perform banking activities at home, via the internet.

Mobile Money: this is a product that enables users to conduct funds transfers, make payments or receive balance enquiries on their mobile phones.

Cashless policy: cashless policy as a policy that minimizes the use of cash by providing alternative channels for executing financial transactions.

Small and Medium Scale Enterprises: Small and medium-sized enterprises (SMEs) are businesses whose personnel numbers fall below certain limits.