Low financial inclusion increases dirty banknotes in circulation

Despite financial technology advancement and innovations in the banking sector, demand for cash had continued to grow in the country. Over the …

The low usage of banking facilities by the financially excluded citizens will aid the existence of dirty and mutilated naira notes in circulation despite initiatives introduced to clear them from the country; NIKE POPOOLA reports

Over the years, the growth in economic activities and the upsurge in population had necessitated the rise in the volume of banknotes in circulation.

The volume of naira notes in circulation in the country as of the end 2012 rose significantly by 10.34 per cent to 7.9tn pieces, as of half year of 2018, according to the Central Bank of Nigeria.

The bank noted that a large proportion of the notes in circulation were dirty, mutilated, not fit for Automated Teller Machines and over-the-counter payments.

Despite financial technology advancement and innovations in the banking sector, demand for cash had continued to grow in the country.

Over the years, the CBN had continued to increase the supply of clean notes and withdraw the soiled and mutilated notes from circulation.

The bank said it had introduced different currency management initiatives to ensure that the production, issuance of new notes, processing by third service providers as well as recirculation by deposit money banks conformed to the predetermined standards.

The CBN, as part of its statutory obligations, is charged with the responsibility of providing adequate supply of clean banknotes to facilitate seamless payment and settlement of transactions by the public, government and banks.

In view of technological advances, the CBN said it had introduced various forms of electronic payment systems for effective and efficient settlement of transactions and to reduce the volume of cash usage with its attendant cost implications.

Yet, people still preferred to use cash in making payments, either because they were not technologically savvy or because they lacked access to digital payment platforms.

To ensure that the banknotes in circulation were clean and of high quality, the CBN issued the Clean Note Policy in April.

The policy contained diverse currency management activities geared towards the efficient circulation of premium quality banknotes and withdrawal of unfit/soiled banknotes to guarantee public confidence and usage of the naira banknotes as a medium of exchange.

“This policy is intended to be used by the public and major cash handlers such as Deposit Money Banks, microfinance banks, third party service providers, among others,” the CBN stated.

The CBN stated that the policy would remain open for future amendments in tandem with emerging currency management issues.

According to a survey by Enhancing Financial Innovation & Access, the banked population in the country rose from 36.9 million in 2016 to 39.5 million in 2018.

The CBN Governor, Godwin Emefiele, while speaking on financial inclusion drive in the sector, said in the next five years, through initiatives and policy measures such as the Shared Agent Network and the payment service banks, it planned to broaden access to financial services to individuals in underserved parts of the country.

He said its ultimate objective was to ensure that 95 per cent of eligible Nigerians had access to financial services by 2024.

“Today, less than 10 per cent of adult Nigerians who have a bank account, utilise financial products offered by banks such as credit cards, personal loans, mortgage loans, auto loans and consumer durable loans,” he said.


Most of the financially excluded in the society seem to be uninterested in the drive to ensure clean naira notes in circulation.

A trader in Isheri market, Lagos, Fatimah Ibrahim, said she was not aware of any policy to remove dirty naira notes from circulation.

She said she did not have a bank account and would continue to keep her money by herself.

Ibrahim said, “Sometimes my customers give me mutilated money and I may reject it or accept it if it is not too bad. Sometimes, I take okada or public bus and they give me dirty notes if they don’t have ‘change’.

“I cannot go to the bank and return it because I have no bank account. I can only look for how to spend it and give it to another person.”

A trader in Osun State, Fatai Tayo, said he had no bank account for many years until he was encouraged to open one recently by a relative who wanted to send money to him from abroad.

He said, “I opened the bank account and I was given an ATM card but I have never used the card for anything because I am afraid to use it.

“I have never gone to the bank to keep money there because I keep my money myself. If they give dirty naira notes to me, I will spend with another person.

“I’m not aware of any directive to return dirty money to any bank.”

A mechanic in Ogun State, Wale Ajala, said his clients paid him cash for his services.

“I don’t have a bank account and I am not aware of any policy that says you can return dirty notes to the bank. If they give me dirty money, I will spend it with another person,” he said.

A student, David Olanrewaju, said he was not aware that the banks had been instructed to take dirty notes from depositors.

According to him, he still gets some dirty notes from the bank when he makes a withdrawal.

He said, “I stuck some mutilated notes in a bundle of money I took to the bank recently. They collected the money from me and did complain.”

September target

The Director-General, Chartered Insurance Institute of Nigeria, Mr Richard Borokini, said it might be impossible to get the dirty banknotes

out of circulation in a very short time.

He observed that many people were still unbanked and they preferred to store money at home and in their shops.

Many of these small traders, he noted, might not see the need to handle the naira neatly, which would make them to continue to circulate dirty notes.

He also noted that many people were not yet using the electronic means of transfer or the ATM.

The high level of cash transactions in the country will increase the quantity of dirty notes in circulation, he said.

To reduce dirty notes in circulation, he said it was important for the CBN to ensure circulation of more clean notes and removal of dirty notes.

He also said it was important to ensure that the ATMs dispensed clean currency notes.

The Chairman, Constance Shareholders Association, Shehu Mikail, said it was not possible to clean the dirty notes from circulation by September.

“It is not even easy to see the new notes around because they are scarce,” he said.

According to him, it is important for the CBN to pump more new notes in the economy through the banks and the ATMs.

He worried that the banks were still giving out mutilated naira notes, while the ATMs still dispensed dirty notes.

If a policy to rid the country of mutilated and dirty notes was in place, he said, such should be backed up with proper implementation.

He said the CBN must order the banks to stop giving out dirty notes and ensure their compliance. He also said it was cogent to take the awareness to the rural areas.

Mikail said, “There are lots of mutilated and dirty notes in the rural areas. Most of those in the rural areas don’t know how to take care of the notes.

“It is common to see market women just squeeze the money. A pepper seller will wrap naira notes in her wrapper.

“These people need to be sensitised to keep the naira notes neat. They should not be squeezing it and putting it in a small jar.”

He said they needed to change their orientation so that they would not soon turn a clean note to a mutilated note if they got the new notes.

He also said people should be urged to reject dirty notes when given.

Clean-up initiatives

The CBN had extended the time for depositors to change their mutilated notes in the banks to September.

The clean note policy, signed by the Director, Currency Operations Department, CBN, Mrs Patricia Eleje, aimed to ensure that the banknotes in circulation were clean and of good quality.

In the circular, she stated that the DMBs must ensure that they processed their banknotes using registered processing companies and classify them into fit and unfit.

Any counterfeit notes discovered were to be returned to the CBN, she said.

She explained that only the banknotes which had been authenticated (verified free from counterfeit and unfit notes according to the CBN standard) would be issued over the counter by banks or through their cash dispensing machines.

She said, “Unfit banknotes shall not be re-circulated by DMBs and CPCs. However, a penal charge of N12, 000 per box, or any amount determined by the management of the bank shall apply for the deposit of unsorted banknotes. In addition, penalties as may be determined by the bank, shall apply for the re-circulation of unfit banknotes.”

Also, as part of measures to have clean notes, the CBN recently issued a circular on the guidelines for the disbursement of lower denomination banknotes for microfinance banks.

In the circular, Eleje stated that the MFBs must have a Composite Risk Rating of above average in the most recent Risk Base Supervision/target examination.

She said the MFBs must accept a mixture of new and counted audited clean banknotes under the intervention scheme.

The director said the MFBs should put in place effective internal control measures to ensure that banknotes disbursed to customers with accounts and customers without accounts were not sold.

She added that the bank would monitor the disbursement of banknotes periodically and appropriate sanctions would apply for non-compliance with the modalities.

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