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The eNaira: A Case Study in Poor Implementation of Cashless Policy

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The eNaira: A Struggling Pioneer in the World of Central Bank Digital Currencies

Two years after its launch and considerable investments in development and awareness campaigns, the eNaira, the world’s first Central Bank Digital Currency (CBDC), is facing an uncertain future. Its primary challenge remains its inability to attract users.

In May 2022, the International Monetary Fund (IMF) released a report that painted a bleak picture of the CBDC’s adoption. It revealed that, even after two years since its release on October 25, 2021, less than one percent of Nigeria’s banking customers had downloaded the eNaira wallet. The total transaction volume reached just 802,000, which was fewer than the number of downloaded wallets at 919,000.

However, by 2023, the number of eNaira wallets had surged, increasing more than twelve-fold to reach 13 million. The total transaction value also rose by 63 percent to N22 billion ($48 million). Nonetheless, these figures seem modest for a country with an adult population of nearly 110 million.

As of September 2023, the total eNaira wallet installations on the Google Play store remained below 1 million. Additionally, Similarweb rankings placed the eNaira website at 4,062 in Nigeria. User complaints about the platform’s poor service continue to persist.

Despite its challenges, some users like @Cicerorian on X (formerly Twitter) reported that the eNaira functions well for them. However, they also noted the significant absence of effective customer service, making it challenging to resolve basic issues.

When the Central Bank of Nigeria (CBN) introduced the eNaira in October 2021, it aimed to promote financial inclusion and generate fiscal benefits to boost the economy. However, experts argue that the deployment of the eNaira serves as a cautionary example of how not to implement a financial inclusion policy..

The eNaira: A Stumble from the Start

The eNaira’s launch coincided with the Central Bank of Nigeria (CBN) wielding a heavy hand against the booming cryptocurrency market in the country, resulting in the freezing of billions of naira in user funds on various crypto exchanges. The abrupt restrictions imposed on cryptocurrency platforms, barring them from accessing financial services and closing their accounts, left the market in disarray, with users experiencing significant negative impacts.

Consequently, when the same CBN introduced its digital currency, it encountered widespread apathy. The CBN struggled to provide a clear explanation of what the eNaira offered and how it differed from the digital currencies it had banned. According to the IMF report, it took 25 days to reach 500,000 downloads of the eNaira wallet. Progress from there to 600,000 units required an additional 63 days, and reaching 700,000 units took another 143 days. In October 2022, Bloomberg reported that less than 1.22 million Nigerians had used the eNaira wallet. User feedback hasn’t been favorable either, with the eNaira Speed Wallet app receiving ratings of 2.9 on the Android Play Store and 2.2 on the iOS App Store.

Notably, crypto industry experts claimed they were not consulted before the ban was enacted. There had been prior discussions with the apex bank, and some indications pointed to potential collaboration.

One of the initial shortcomings of the eNaira was its failure to convince the financial services industry that it was a viable project with assured returns on investment. The CBN’s tight control over the platform excluded third-party services, limiting its appeal.

The eNaira operates as a liability of the CBN, utilizing blockchain technology and digital wallets for payment transactions. While all eNaira transactions are processed and recorded in real-time by the CBN’s system, transactions with retail CBDC clients, such as exchanging CBDC with retail clients’ cash or deposit holdings, are exclusively handled by financial institutions, primarily banks, with the CBN directly transacting only with these banks.

With the CBN retaining significant control over the eNaira and offering minimal incentives for commercial banks to adopt the platform, only a few banks actively promoted digital money awareness. Moreover, the eNaira appeared to replicate the digital banking services already launched by individual banks, a limitation highlighted by the IMF regarding CBDCs.

The IMF report noted that a CBDC’s appeal as digital money could be limited when existing private digital money options offer similar or superior features, like bank deposits with fast payment. However, in jurisdictions with limited banking penetration and unreliable settlement platforms, a CBDC might gain more user attractiveness, especially if fully secured private digital money options, such as mobile money, are absent.

Without active buy-in from banks and other financial institutions, the eNaira’s reach will remain limited. The CBN has formed some partnerships with fintech companies like Flutterwave and upgraded the eNaira app with Near Field Communication (NFC) technology, allowing seamless contactless payments between devices in seconds.

However, user opinions remain divided, with some, like Goodnews Emmanuel, expressing concerns about issues like failed transfers and excessive bank charges, attributing these problems to poor marketing and banks viewing the eNaira as a competitor. The critical network effect necessary for mass adoption appears to be missing.

A senior officer at a prominent consulting firm in the country suggests that the way forward for the CBN may be to abandon the eNaira project entirely and explore other options.

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