Whether na eNaira, Meffy you've got me...
A quick primer on the CBN's eNaira. Also, what Meffy cannot do, does exist, actually...
“Whether na one naira, whether na one million, baby you got me, baby you got me”
Is a standout line in MI’s track featuring Waje… but best wishes to anyone singing that in these inflationary times tho… 🤷🏽♂️
Well, whether it’s the eNaira or a digital representation of a physical Naira, is there much of a difference in the CBN’s new announcement? Today, we will be talking about a key regulatory directive that may come to bear much influence on Nigeria’s financial sector in the coming months (and years?).
eNaira! Nigeria’s Central Bank Digital Currency and issues arising.
Court Rules: What Meffy Cannot Do, Does Exist
eNaira! Nigeria’s Central Bank Digital Currency and issues arising.
Yes. E-money is now in town. (technically, has always been around but oh well).
Earlier this week, Nigeria launched its eNaira project, as anticipated.
The eNaira is a digital currency project of the CBN which has been mulled since 2017. Initially planned for a launch on 1st October, a further date was announced and now the good times are here? Maybe.
In the meantime, I have seen a copy of the eNaira design paper -which you can access here- that shows CBN’s plan of how the eNaira is intended to work and a copy of the eNaira Guidelines.
If you are like me, a lot of questions have swirled your head for a second when you hear stuff like CBDCs and whatever new word DeFi people string upon us… “What are Central Bank Digital Currencies?” “What is the eNaira?” “What is a digital coin?” “How is it different from sending money electronically?” These are a few questions I’ve been bothered about on the eNaira so we will try and break down the concepts without using the commonplace crypto buzzwords.
In simple terms, what is eNaira?
The eNaira is a digital form of the Naira (N1 = 1eNaira), which can be collected, held, and transferred through electronic wallets managed directly by the CBN.
Let’s talk about how eNaira is designed.
What is the eNaira Platform?
The eNaira platform is built like a private distributed ledger technology blockchain. (Take it like that, I don’t know what it means too.)
Just kidding.
So, this is the way I think a private blockchain works: imagine that you have a number of laptops at your place of work (about 5 in number). Whenever you open an MS Word Document on Laptop 1 and write a short memo on it, Laptops 2, 3, 4, and 5, automatically have the same copy of that memo you created on Laptop 1. This means the owners of Laptops 2 to 5 can easily confirm the content of the memo on Laptop 1 without needing you to send an email with an attachment and whatnot. I think that fairly explains what crypto heads mean by Distributed Ledger Technology. Possibly, lol.
The same way our memo in Laptop 1 is synchronized across the other laptops is probably the same way transaction settlements, are automatically synchronized on the CBN private blockchain wallet - I think?
Enough of that.
Who are the key participants?
The eNaira Guidelines identify the key participants as follows: the Central Bank of Nigeria, Financial Institutions, Merchants, MDAs (government agencies and the like), and private individuals.
These highlighted participants can all technically create wallets on the CBN eNaira Wallet platform - the Digital Currency Management System (think NIBSS built on a private blockchain). Principally, there would be four kinds of wallets on the DCMS; (i) the CBN Stock Wallet, which would contain all minted eNaira; (ii) the Treasury Wallets & Branch Wallets that will be managed by financial institutions and banks; (iii) the Merchant Speed Wallet for receiving and making payments for goods and services (iv) and the Speed Wallet for regular end-users like you and I.
What I just highlighted above looks a little like the image below. You can draw imaginary lines of interaction between the different boxes to form the possible transactions that would be allowed under the eNaira Guideline.
What kinds of transactions will be possible?
Like I said, you can draw an imaginary line between any of the wallets above and you’d have the different kinds of transactions that can be serviced on the eNaira platform. In addition, it will also be able to pay Ministries, Departments, and Agencies of government through the eNaira app, after they have also been onboarded.
You can exchange your Naira deposits in the bank for the eNaira currency which would then be held in your Speed Wallet, from where you can do all kinds of payments.
Following the money…
There has been a (mis)conception that transactions on the eNaira would generally be free. I guess this was the initial plan from a copy of the eNaira guide which most of us saw initially. However, from the current eNaira Guidelines, the charges would be free for the first 90 days, starting from October 25, 2021. After the 90-day period, transactions would revert to applicable charges under the CBN Guide to Charges by Banks, Other Financial and Non-bank Financial Institutions, 2020.
Little note on costs and charges, I think even after the 90-day period, there may still be a cost advantage to doing transactions on the eNaira platform compared to existing Bank App transactions. Because not all transactions, especially Person A to Person B (P2P) transactions on the eNaira App, would require interacting with your Bank - where charges come in. The CBN Guide to Charges, 2020 does not envisage the kind of payment arrangement we have under the eNaira wallet, yes.
So for now, you may only be charged when you move money from your Bank account into your eNaira wallet. You should not be charged when, for instance, you do a P2P transfer on the eNaira app. So maybe it is NOT REALLY (?) a misconception that some transactions on the eNaira app will be free of charge.
Another key thing to note is the Know Your Customer/Customer Due Diligence guidelines. Before we dive in, it is important to note that the three unique identifiers which would aid individual users include the NIN, BVN, and TIN (for corporate entities).
Also, the Guidelines create Tiered level accounts to allow different kinds of individuals to participate (financial inclusion) - literate, non-literate, in hard-to-reach rural areas, and urban areas. The 4 tiers of account for individuals are namely Tier 0, Tier 1, Tier 2, and Tier 3.
The Tier 0 category would only require users to provide their Name, and other biodata as well as a passport photograph and a Phone Number, not yet linked to the NIN. So I assume this will be good for potential users who are illiterate and live in hard-to-reach areas. Other Tiers would be in line with CBN Tiered KYC requirements.
To the prominent questions in the room. How is the eNaira any different from the digital form of the Naira which we have today?
Well, one of the good things we have highlighted is the possible lower charges that may come under the eNaira wallet. The eNaira platform operates like a blockchain-based wallet (a bunch of connected wallets) which would not need the interaction of different bank accounts before Person A can send money to Person B.
Which brings us to the point of disintermediation. If the eNaira becomes a thing, it is likely that we will have a reduced role of banks in the process of banking - disintermediation. What a successful eNaira means for banks is that they will generate less revenue from charges and fewer deposits. This is why it has been sort of ironic to me that banks have been kinda compelled to educate their customers in using the eNaira platform. It’s quite like mandating a goat to teach the abbatoir guy how to use a knife, while morosely whispering to the goat “Hey well, you know, that’s the cycle of life…”
Another possible low-hanging fruit of the eNaira platform is the Tier 0 Account which effectively is almost designed to cater to people who cannot access the normal kinds of transactions available to people with NIN or BVN. Though under the current deployment, only smartphone users can even open accounts, with a USSD-based Tier 0 account, people in rural areas can send and receive payments with just their phone number - subject to daily transactions and account balance limits. Other advantages that come to mind include having an alternative to NIBSS, faster settlement of transactions, and easier tracking of financial information.
My view of the current state of the eNaira is that we are still at the early stages of something that could potentially be ‘hooj’ so I imagine more regulations will emerge in coming months to cater for loopholes like this.
Much more can really be said about the eNaira but I think this article does a lot of justice in analyzing the several issues arising.
That being said, dear Meffy, whether na eNaira or physical naira, just do giveaway for boys abeg.
Court Rules: What Meffy Cannot Do, Does Exist
Some months ago, while discussing the exparte order the CBN obtained against some Stock trading startups, I may have wrongly asserted that “with BOFIA, what Meffy cannot do, does not exist.”. Well, I’m glad to admit I was wrong.
The update so far on that exparte order is that in a recent decision of the Federal High Court, the Court lifted the interim exparte order which effectively froze the account of startups like Risevest. In its decision, the Court further held:
“I have perused the counter affidavit of the Respondent and I see that the reason for freezing the account of the applicant is based on the alleged infraction of the circular of the CBN.”
“The law is trite that any conduct that must be sanctioned must be expressly stated in a written law.”
“Being unknown to law, circulars cannot create an offence because it was not shown to have been issued under an order, Act, Law or Statute.”
Effectively, we can say this has clipped the wings of the CBN Governor and the nature of administrative decisions coming out of the CBN. It is an interesting test of judicial review of administrative action, as it distinguishes the kind of backing that bodies like the CBN must use in making administrative decisions. Arrogating executive powers through additional circulars and bye-regulations would not be enough to justify decisions like freezing of accounts, as the Courts are beginning to show.
That would be all for this week.
Cheers!