The financial system of any economy is responsible for mobilizing savings for productive investments and ensuring efficient resource allocation. Banks have traditionally played an active role in this regard. A large volume of literatures such as those of Ajayi (2006), Adegbaju and Olokoyo (2008), and Babalola (2008) have documented the contribution of banks to socioeconomic development of nations. In recognition of this, various financial policy reforms targeting the banking sector have been pursued in Nigeria. The recent of such policies within the last decade are: the recapitalization of banks initiated by the Central Bank of Nigeria (CBN) in July, 2004 and concluded in December 31, 2005, formalisation of adoption of electronic banking, and transition from cash based to cash-less financial arrangement.

One of the prerequisite for the development of national economy according to Ajayi and Ojo (2006) is to encourage a payment system that is secure, convenient, and affordable. In this regard, developed countries of the world, to a large extent, are moving away from paper payment instruments toward electronic ones, especially payment cards (Humphrey, D. B. 2004). In these countries, for instance, it is possible to pay for a vending machine snack by simply dialing a number on one‘s phone bill. In recent times, the mobile phone is increasingly used to purchase digital contents (e.g. ringtones, music or games, tickets, parking fees and transport fees) just by flashing the mobile phone in front of the scanner at either â€—manned‘ or unmanned point of sales (POS). In Nigeria, as it is in many developing countries, cash is the main mode of payment and a large percentage of the populations are unbanked (Ajayi and Ojo (2006). This makes the country to be heavily cash-based economy.

Argument in favour of cash-based transactions abounds in the literature. A study conducted in UK in march 2010 (the future of cash in UK) argued that cash differs from other payment instruments in the following regards; it circulates, it is always valuable, it provides full and final settlement of a transaction, it allows for anonymity, once issued, the circulation of cash is uncontrolled, it is regarded as public good by its users. However, the cost of cash to Nigeria financial system is high and increasing; the cost was very close to fifty billion naira in 2008 (CBN, 2012). Recently, it has been revealed by the CBN that the direct cost of cash is estimated to reach a staggering sum of one hundred and ninety two billion naira in 2012. Other challenges resulting from high-cash usage among others include; robberies and cash-related crime, revenue leakage arising from too much of cash handling, inefficient treasury management due to nature of cash processing, high subsidy, high informal sector etc. Against these backdrops, the CBN introduced the cashless policy in April 2011 with the objective of promoting the use of electronic payment channels instead of cash . Presently, the CBN is conducting a pilot scheme of the cashless policy in Lagos, which commenced in January 1st 2012. So far, implementation of the policy in Lagos has not gained expected traction. Hence a rollout across the country has been substituted with phased implementation in Port Harcourt, Kano, Aba and the Federal capital territory (CBN 2012). This study therefore aims at two major objectives, first to look into the prospects of cashless policy in Nigeria and second its challenges. The study proceeds as follows. Section 2 offers an overview of cashless policy and some stylized facts on non-cash payment in Nigeria. In sections 3, a brief review of literature is undertaken. The study expatiated on the effectiveness and challenges of the CBN cashless policy on rural business development using Zenith bank as a point of reference.

1.2 Statement of the problem

Cashless economy is an economy where transaction can be done without necessarily carrying physical cash as a means of exchange of transaction but rather with the use of credit or debit card payment for goods and services. One of the prerequisite for the development of national economy according to Ajayi and Ojo (2011) is to encourage a payment system that is secure, convenient, and affordable. In this regard, developed countries of the world, to a large extent, are moving away from paper payment instruments toward electronic ones, especially payment cards (Humphrey, 2013). In these countries, for instance, it is possible to pay for a vending machine snack by simply dialing a number on one’s phone bill. In Nigeria, as it is in many developing countries, cash is the main mode of payment and a large percentage of the populations are unbanked.

1.3 Objectives of the study

1. To examine the features of cashless policy of CBN

2. To determine the effectiveness of cashless policy of CBN

3. To find out the challenges of cashless policy of CBN to rural business development.

4. To proffer a better way of implementing the cashless policy

1.4 Research Question

1. What are the features of cashless policy of CBN?

2. Is cashless policy of CBN effective? of cashless policy of CBN?

3. What are the challenges of cashless policy of CBN to rural business development?

4. What are the better ways of implementing the cashless policy?

1.5 Scope of the Study

The project is focused on the effectiveness and challenges of the CBN cashless policy on rural business development. the scope is limited to Zenith Bank Enugu.