eNaira fails to lift informal economy, remittance amid users’ rejection — IMF

By Sodiq Adelakun

Nigeria’s Central Bank Digital Currency (CBDC), eNaira, and the first to be issued in the world, is failing to live up to expectations in terms of boosting remittance and improving the informal economy.

This is despite huge investments from the Central Bank of Nigeria (CBN) in pushing awareness of digital currency in the public space.

A new report by the International Monetary Firm (IMF) has shown that less than one per cent of the banking customers in Nigeria have downloaded the eNaira wallet two years after it was launched. Among those who downloaded the wallet, less than two per cent have used it for any form of transaction. The total number of eNaira transactions at 802,000 is less than the number of downloaded wallets at 919,000.

The eNaira was supposed to achieve three objectives, according to the CBN. These include increase financial inclusion; this informed the expansion of the eNaira wallet in August 2022 to anyone with a mobile phone even if they did not have a bank account. It is estimated that 38 million Nigerians do not have a bank account representing around 36 per cent of the adult population.

The financial regulatory has taken a series of regulatory steps to grow the number of banked adults including issuing Payment Bank Licences to telecom operators which seem to be having some impact as recent data from the PSBs have shown.

But the CBN is not seeing similar success with the eNaira. The IMF report notes that retail eNaira wallets amounted to about 860,000 as of November 2021, about 0.8 per cent of the country’s active bank accounts. Merchant wallet downloads reached around 100,000 in June 2022, representing one-eleventh of the number of merchants with Point-of-Sale (PoS) terminals.

The CBN also intended the eNaira to facilitate remittance given that Nigeria is one of the key remittance destinations in sub-Saharan Africa. The plan was to reduce the transfer costs of remittance and make it easier for the Nigerian diaspora to remit funds to Nigeria by using their eNaira wallet. However, the challenge with the eNaira is the weakness in public trust in Nigeria’s monetary system and the eNaira’s technological reliability.

The IMF says the technological reliability is particularly pertinent for eNaira to counter the substitution pressures into foreign fiat currencies and crypto assets in the context of Nigeria’s high inflation and absence of alternative means of inflation hedge.

The eNaira was also meant to reduce the number of people in the informal economy which accounts for over half of Nigeria’s GDP and 80 per cent of employment. The account-based nature of the eNaira would ensure that people who download and register are captured in the formal economy.

“Once the eNaira becomes more widespread and embedded into the economy, it may bring greater transparency to informal payments and strengthen the tax base,” the IMF report noted.

Nonetheless, the majority of eNaira wallets remain inactive indicating that not much is happening with the informal sector. The IMF report shows that the average number of eNaira transactions since its inception amount to about 14,000 per week – only 1.5 per  cent of the number of total wallets. This means that 98.5 per cent of wallets, for any given week, have not been used even once. The average value of an eNaira transaction has been N923 million per week. The average value per transaction has been N60,000.

While marking the one-year anniversary of the eNaira, the CBN said over 700,000 transactions amounting to about N8 billion have been recorded on the platform; over 2.5 million daily basis to the eNaira website.