A CRITICAL EVALUATION ON THE IMPACT OF E-NAIRA ON FINANCIAL INCLUSION

 CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The availability and equality of opportunities to receive financial services are characterized as financial inclusion. It's a method for individuals and organizations to obtain relevant, inexpensive, and timely financial goods and services. Banking, loans, equities, and insurance goods are among them (Nanda, K. Kaur, M. 2016). In the realms of economic and financial policy, the problem of financial inclusion is a source of concern. This is due to its ability to stimulate economic growth. Another reason for the focus on it is that it enhances the sensitivity of aggregate demand to interest rates, which has been suggested to be beneficial to monetary policy success. The financial system's stability is ensured through monetary policy. Financial inclusion, defined as a bigger population's access to and usage of low-cost financial services (credit, savings, payments, and insurance), may explain the success of monetary policy, particularly in developing nations. The trade-offs that monetary policymakers confront are influenced by the amount of financial inclusion. One of the main reasons for this is the impact of financial inclusion on consumer behavior. This is because consumers who are financially included are better equipped to smooth their consumption in reaction to shocks than those who are not. The coefficient for the number of bank branches has the wrong sign, which is explained by the fact that when banks open branches, they are primarily focused on profit rather than financial inclusion, which is a policy goal, resulting in clusters of branches that are underutilized and numerous locations that are considered unfavorable for balance sheets. Unbanked and underbanked people are usually the focus of financial inclusion efforts, which aim to provide them with long-term financial services (Ranjani, K. Bapat, V. 2015).

Financial inclusion is defined as a process that extends beyond simply obtaining a bank account. Individuals who are banked may be denied access to financial services. Financial inclusion has been linked to stronger and more sustainable economic growth and development, and as a result, achieving financial inclusion has become a priority for many countries around the world, which is why some have adopted the digitization of money rather than relying solely on cash currencies.

The usage of digital currencies is typically regarded as a complement to traditional financial transactions rather than as a required or beneficial replacement. Digital currencies (also known as digital money, electronic money, or electronic currency), whether privately or publicly issued, are a sort of cash available in digital form, according to Gilbert, Scott, and Loi, Hio. (2018). Virtual currencies, cryptocurrencies, and central bank digital currencies are examples (CBDC). The article goes on to say that digital money can be centralized, with a single point of control over the money supply, or decentralized, with power over the money supply coming from a variety of places. With the benefits of security, speed, minimum transaction fees, ease of storage, and relevance in the digital era, digital currencies have the potential to drastically revolutionize payments, banking, central banking, and the balance of economic power. Digital money can be saved in a distributed internet database, a centralized electronic computer database controlled by a firm or bank, digital files, or even a stored-value card. Digital currencies have qualities comparable to traditional currencies, but unlike printed banknotes or minted coins, they do not have a physical form. This absence of physical form allows for near-instantaneous transactions through the internet and eliminates the costs associated with distributing notes and coins, allowing for financial inclusion to be achieved.

1.2 Statement of the problem

The purpose of monetary policy in emerging economies is to keep their financial systems and currencies stable. The paper naira in Nigeria experienced a major foreign currency problem prior to the introduction of the electronic naira, and the naira's rate of depreciation caused significant concern among residents, prompting the need to test an alternate legal tender. Taking advantage of fast technical advancement and financial market growth, international economies have begun to transition from paper to digital money, with Nigeria not far behind. In his study, Emmanuel (2021) stated that approximately central banks around the world are delicately working on their digital currency by gradually weaning themselves off rapidly-declining cash payments, which is why the Central Bank of Nigeria joined the fray so that Nigeria is not left in the lurch, which led to the launch of her e-Naira. Kalu (2021) also claims that the e-Naira is based on block chain open-ledger technology in a Daily Trust article. This means that the e-naira money's obligation lies directly on the CBN, comparable to real currency. As a result, Nigerians would be able to bank with the Central Bank of Nigeria. He went on to say that the e-Naira will bring the great majority of unbanked Nigerians into the formal financial market, even if they don't have a bank account. Salary payments and payments for products and services may be made with ease using the e-Naira. A plumber may receive payments on his phone, save them in his wallet, and conduct business with anyone.

According to Abdulkareem (2021), unlike digital banking, which includes users dealing with money held by the bank, eNaira is actual money generated and held by customers in their e-wallets, thus, users will be able to transact with it like if it were fiat cash, without the need for middlemen as in digital banking. He further added that this  removal of intermediaries is intended to lower transaction costs and time.and also give unbanked Nigerians the ability to conduct transactions without having a bank account, paving the way for financial inclusion. Therefore it is upon this premise that  this study seeks to  examine  the impact of the e-Naira on financial inclusion.

1.3 Objective of the Study

The broad objective of the study is to present a critical evaluation of the impact of the e-naira on financial inclusion. Specifically, the study seeks to:

1.        Examine the perceived nature of e-Naira in Nigeria.

2.        Determine if the invention of the eNaira has the parity to serve as a complementary "legal tender" in Nigeria.

3.        Ascertain if the invention of the eNaira will aid easy transactions for unbanked Nigerians.

4.        Investigate if the invention of eNaira  will have any significant effect on financial inclusion.

1.4 Research Question

The research is guided by the following research questions:

1.        What is the perceived nature of eNaira?

2.        Will the eNaira have the parity to serve as a "complementary" legal tender in Nigeria?

3.        Will the invention of eNaira facilitate unbanked Nigerians' ease of performing financial transactions?

4.        Will the invention of eNaira   have any significant effect on financial inclusion?

1.5 Significance of the Study

Findings from this study will be relevant to academia, policy makers, and economic dimensions, and it is significant in these respects. It contributes to the ongoing debate within and among governments, civil society groups, scholars, and development experts. The study will also facilitate the financial inclusion of unbanked Nigerians. The study will be  Finally, the study will add to the body of existing literature and serve as reference material for both scholars and students who wish to conduct further studies in related fields.

 1.6 Scope of the Study

The scope of this study borders on a critical evaluation of the impact of the e-naira on financial inclusion. The study will ascertain the nature of the E-naira and whether it has the parity to serve as a "complementary" legal tender in Nigeria. It will also be examined if eNaira will aid easy transactions for unbanked Nigerians. The study is, however, delimited to the Ikotun area of Lagos State.

1.7 Limitation of the Study

Like in every human endeavour, the researcher encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. More so, the researcher will simultaneously engage in this study with other academic work. As a result, the amount of time spent on research will be reduced.

1.8 Definition of Terms

Financial Inclusion: This means that individuals and businesses have access to useful and affordable financial products and services that meet their needs in transactions, payments, savings, credit, and insurance, delivered in a responsible and sustainable way.

E-Naira: eNaira is a central bank digital currency (CBDC) issued by the Central Bank of Nigeria as a legal tender. It is the digital form of the Naira and will be used just like cash.

Digital currency: Digital money (or digital currency) refers to any means of payment that exists in a purely electronic form. Digital money is not physically tangible like a dollar bill or a coin. It is accounted for and transferred using online systems.

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