Challenges and Limitations: the eNaira Struggle



Challenges and Limitations: eNaira Struggles to Fulfill Expectations in Boosting Remittances and Informal Economy

The eNaira, Nigeria's Central Bank Digital Currency (CBDC) and the Africa's first, has not met expectations in terms of boosting remittances and improving the informal economy, despite significant investments by the Central Bank of Nigeria to promote awareness of digital currency.

According to a new report by the International Monetary Fund (IMF), less than one percent of banking customers in Nigeria have downloaded the eNaira wallet, even two years after its launch. Among those who downloaded the wallet, less than 2 percent have used it for any transactions. Surprisingly, the total number of eNaira transactions stands at 802,000, which is lower than the number of downloaded wallets at 919,000.

The eNaira was introduced with three primary objectives, as outlined by the CBN. The first was to increase financial inclusion, which led to the expansion of the eNaira wallet in August 2022 to include anyone with a mobile phone, regardless of whether they have a bank account. It is estimated that around 38 million Nigerians, representing approximately 36 percent of the adult population, do not have a bank account. The CBN has taken regulatory measures, such as issuing Payment Bank Licences to telecom operators, to increase the number of adults with access to banking services, and recent data from the Payment Service Banks (PSBs) indicate some progress in this area.

However, the same level of success has not been seen with the eNaira. The IMF report reveals that retail eNaira wallets accounted for only about 860,000 as of November 2021, which is equivalent to 0.8 percent of the country's active bank accounts. Merchant wallet downloads reached approximately 100,000 in June 2022, representing just one-eleventh of the number of merchants with Point-of-Sale (PoS) terminals.

Another objective of the eNaira was to facilitate remittances, considering that Nigeria is a significant destination for remittances in sub-Saharan Africa. The plan was to reduce the transfer costs and make it easier for the Nigerian diaspora to send funds to Nigeria using their eNaira wallets. However, the challenge lies in the lack of public trust in Nigeria's monetary system and the eNaira's technological reliability. According to the IMF, the technological reliability of the eNaira is crucial to counter the pressures of substituting it with foreign fiat currencies and crypto assets, inflation rate and the absence of alternative inflation hedging mechanisms.

Furthermore, the eNaira aimed to reduce the size of the informal economy, which contributes over half of Nigeria's GDP and employs 80 percent of the workforce. The account-based nature of the eNaira was expected to bring individuals who download and register into the formal economy, thus increasing transparency in informal payments and strengthening the tax base, as noted by the IMF report.

However, the majority of eNaira wallets remain inactive, indicating limited progress in the informal sector. The IMF report reveals that the average number of eNaira transactions per week since its launch is only around 14,000, which accounts for just 1.5 percent of the total number of wallets. In other words, 98.5 percent of wallets have not been used at all in any given week. The average value of an eNaira transaction is approximately N923 million per week, with an average transaction value of N60,000.

Despite the CBN's announcement of over 700,000 transactions totaling about N8 billion on the eNaira platform during its one-year anniversary, the overall utilization and impact of the eNaira remain limited.

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