ABSTRACT
The introduction of
the cashless policy in Nigeria has significantly transformed the banking
sector, influencing the profitability and overall performance of financial
institutions, including Islamic banks. This study examines the impact of the
cashless policy on the profitability and operational efficiency of Jaiz Bank
PLC, a leading Islamic bank in Nigeria. The research explores key aspects such
as electronic banking services, transaction costs, customer adoption, and
regulatory compliance within the framework of Shariah-compliant banking. A
mixed-method approach is employed, utilizing both primary and secondary data to
assess the effectiveness of the cashless policy in enhancing service delivery,
reducing operational costs, and increasing financial inclusion. The findings
indicate that while the policy has improved transaction speed and convenience,
challenges such as technological limitations, cybersecurity threats, and customer
resistance persist. The study concludes that effective implementation of
cashless banking can enhance Jaiz Bank's profitability and performance while
aligning with Islamic financial principles. The implementation of the cashless
policy correlates positively with the bank’s profitability. Jaiz Bank’s net
profit margin improved from 11.43% in 2018 to 16.67% in 2024. It recommends continuous investment in
digital infrastructure, customer education, and regulatory support to maximize
the benefits of a cashless economy.
TABLE OF CONTENTS
COVER PAGE - - - - - - - - - -i
CERTIFICATION- - - - - - - - - - -ii
APPROVAL PAGE - - - - - - - - - -iii
DEDICATION - - - - - - - - - -iv
DECLARIATION - - - - - - - - - - -v
ACKNOWLEDGMENT - - - - - - - - -vi
TABLE OF CONTENTS - - - - - - - - - -vii
ABSTRACT - - - - - - - - - - - viii
CHAPTER ONE
INTRODUCTION
1.1 Background of the study - - - - - - - - 1
1.2. Statement of the general problem - - - - - - -2
1.3. Aims and objectives of the study - - - - - - - 3
1.4. Research Questions - - - - - - - - -4
1.5. Research Hypothesis - - - - - - - - -4
1.6. Significance of the study - - - - - - - - 4
1.7. Scope of the Study - - - - - - - - -4
1.8. Definition of Terms - - - - - - -- - -4
CHAPTER TWO
LITRETURE REVIEW
2.1 Conceptual Framework - - - - - - - -- -6
2.1.1 Cashless Policy - - - - - - - - - -6
2.1.2 Patterns of Cashless Policy Implementation - - - - - - 8
2.1.3 Challenges and Drawbacks of the cashless policy - - - - - -8
2.1.4 The Policy of Cashless Banking in Nigeria - - - - - - -8
2.1.5 The Operational Mechanisms of Cashless Banking - - - - - 11
2.1.6 Benefit of the Cashless Policy - - - - - - - -13
2.1.7 An Overview of Nigerian Experience in Respect to the
Development of E- Banking
2.1.8 Electronic Banking - - - - - - - - - -16
2.1.9 Security aspect of Cashless Banking (E-Banking.) - - - - - -20
2.1.10 Nature to Detect and Curb E-Banking Frauds - - - - - -21
2.2 Theoretical Framework - - - - - - - - -24
2.2.1 Technological Acceptance Model - - - - - - - -24
2.2.2 Theory of Reasoned Action (TRA) - - - - - - -25
2.3. Empirical Review - - - - - - - - - 25
CHAPTER THREE
3.0 Methodology - - - - - - - - - -28
3.1 Research Design - - - - - - - - - -28
3.2 Data Collection - - - - - - - - - - -28
3.3 Data Analysis- - - - - - - - - - -28
3.4 Variable Definition - - - - - - - - -28
3.5 Data Analysis Techniques - - - - - - - - 29
3.6 Ethical Consideration - - - - - - - - - -29
CHAPTER FOUR
DATA
PRESENTATION AND ANALYSIS
4.1 Introduction - - - - - - - - - -31
4.2 Data Presentation - - - - - - - - - 31
4.3 Descriptive Statistics - - - - - - - - -33
CHAPTER FIVE
SUMMARY, CONCLUSION, AND RECOMMENDATIONS
5.1 Introduction- - - - - - - - - - -37
5.2 Summary of Findings - - - - - - - - -37
5.3 Conclusion - - - - - - - - - -38
5.4 Recommendations - - - - - - - - - -38
5.5 Suggestions for Further Research - - - - - - - -39
References
CHAPTER ONE
INTRODUCTION
1.1
Background of the study
The
global shift towards cashless transactions has significantly influenced the
financial industry, including Islamic banking. The cashless policy, which
promotes the use of digital payment systems over physical cash, is transforming
the way financial institutions operate, deliver services, and engage with
customers. In particular, Islamic banks, which operate in compliance with
Sharia law, have unique operational frameworks that rely on ethical principles,
risk-sharing, and profit-sharing arrangements.
This
project investigates the “impact of the cashless policy on the profitability and
performance of Islamic banks”. By focusing on how the adoption of digital
payment systems affects financial outcomes such as profitability,
cost-efficiency, and overall performance, the study seeks to understand both
the challenges and opportunities that this policy brings to the sector.
With
the increasing penetration of mobile banking, digital wallets, and other
cashless financial technologies, Islamic banks are faced with new strategic
decisions. These decisions often involve adapting their services to ensure
compliance with Sharia principles while leveraging the benefits of technology for
operational efficiency, improved customer experiences, and enhanced market
competitiveness.
This
research aims to explore how cashless banking impacts key performance
indicators (KPIs) such as return on assets (ROA), return on equity (ROE), and
customer satisfaction within the context of Islamic finance. It will also
examine whether digitalization leads to greater financial inclusion, enhances
customer loyalty, and optimizes the cost structure of Islamic banks.
The saying that the banking system
remains the major means for monetary control still stands and remains
unchanged. Regrettably, it is estimated that about 65 percent of the cash in
circulation in the Nigerian economy is outside of the banking system, therefore
seriously inhibiting the impact of the CBN’s efforts at price and economic
stabilization (CBN 2011). Due to this reason, the amount of money as of
deposits available to banks for the creation of more money is reduced. The
profitability of the banks to a large extent rests on the amount of money at
their disposal for lending, is therefore affected by the large size of this
informal sector.
Electronic banking has been
formally acknowledged to play a vital role in economic development on the
bedrock of its ability to create liquidity in the economy through financial
intermediation between the surplus and deficit sectors of the economy.
E-banking provides a platform where (Islamic) banks’ products and services can be
easily accessed and used with ease, encouraging banking culture and serving as
catalyst which will speed up economic growth.
The banking institutions as major
asset in the process of financial intermediation, and important economic agents
in the payment system, must be extremely equipped with the important and needed
information technology that would stimulate trade, commerce and industry while
fostering globalization by easing global access to fund without any constraint.
The Central Bank of Nigeria (CBN) in collaboration with the Bankers Committee
brought the cashless policy fashioned to provide mobile payment services which
aims to breakdown traditional constraints combating the financial inclusion of
millions of Nigerians, secure and make convenient financial services to urban,
semi-urban and rural areas across the country into play. Howbeit, implementing
the cashless policy requires that Islamic banks make huge and solid investments
on ICT and other technologies that would foster the proper implementation of
the cashless system. For banks that barely survived recapitalization, especially
Islamic banks and several others that were forcefully merged, this policy may
also affect their performances positively or negatively depending on the
solidity of the individual Islamic banks. Therefore, this study seeks to
analyze the impact of this policy on Nigerian Islamic banks in relation to
their profitability.
1.2.
Statement of the general problem
The vast majority of the recent
literature on electronic money and banking suffers from a narrow focus. It
generally ignores internet banking entirely and equates electronic money with
the substitution of currency through electronic gadget such as smart cards and
virtual currency. For example, Freedman, (2000) proposes that internet banking
and electronic money consist of three devices; access devices, stored value
cards, and network money. Internet banking is simply the use of new access
devices and is therefore ignored. Electronic money then is the sum of stored value
(smart) cards and network money (value stored on computer hard drives). What is
most fascinating and revealing about this apparently popular view is that
internet banking and electronic money are no longer functions or processes, but
devices.
Within this rather narrow scope
for internet banking and electronic money, there are nonetheless many research
that address one or more of the challenges facing it. Santomero and Seater
(1996), Prinz (1999), and Shy and Tarkka (2002), and many others present models
that identify conditions under which alternative electronic payments substitute
for currency. Most of these models indicate that there is at least the
possibility for electronic substitutes for currency to emerge and flourish on a
large scale, depending on the characteristic of the various technologies as
well as the characteristics of the potential users.
Berentsen (1998) considers the
impact that the substitution of smart cards for currency will have on monetary
policy, arguing that although electronic substitutes for currency will become
widespread, monetary policy will continue to work as before because this
currency substitution will leave the demand for central Bank reserves largely
intact. Goodhart (2000) discusses how monetary control would work in an economy
in which Central Bank currency has been partially or completely replaced by electronic
substitutes.
1.3.
Aims and objectives of the study
The
primary aim of this project is to assess the “impact of the cashless policy on
the profitability and performances of Islamic banking institutions. This study
seeks to explore how the adoption of digital payment systems and cashless
transaction methods affects the financial health, operational efficiency, and
customer engagement of Islamic banks, while remaining consistent with Sharia
principles.
- To
assess the relationship between customer satisfaction and the adoption of
cashless banking in Islamic banks.
- To
examine the effect of cashless transactions on the profitability of
Islamic banks.
1.4.
Research Questions
- To
what extent does cashless banking influence customer satisfaction and
loyalty in Islamic banks?
- How
does the adoption of cashless policies impact the profitability of Islamic
banks?
1.5.
Research Hypothesis
H1: There is no
significant relationship between customer satisfaction and the adoption of
cashless banking in Islamic banks.
H2: There is no
significant effect of cashless transactions on the profitability of Islamic
banks.
1.6.
Significance of the study
The study will aid Islamic banks
in Nigeria to understand banking in a new dimension. Findings from the study
will highlight the various benefits of central bank of Nigeria’s cashless policy and how these
measures if properly taken can reduce operations cost and increase
profitability of Islamic banks. The study would also be of immense importance
to students, researchers or scholars who are interested in further studies on
the CBN’s cashless policy and its effect
on Islamic banking sector.
1.7.
Scope of the study
The study is restricted to the
impact of the CBN’s cashless policy on the profitability and growth of
Islamic banks Nigeria, using Ja’iz bank plc as a case study.
1.8.
Definition of Terms
Cashless Policy: Monetary policy initiative that encourages
financial transactions through electronic payment systems instead of cash. It
involves the use of digital tools such as mobile banking, point-of-sale (POS)
systems, online transfers, and other cashless methods.
Profitability: The ability of an organization,
such as a bank, to generate income or profit from its operations over a
specific period. It is often measured using financial ratios such as return on
assets (ROA), return on equity (ROE), or net profit margin.
Performance: The overall effectiveness and
efficiency with which an organization achieves its financial, operational, and
customer-oriented goals. It includes metrics such as customer satisfaction,
market share, and operational efficiency.
Islamic Bank: A financial institution that
operates in accordance with Islamic Sharia law, which prohibits interest (riba)
and speculative transactions. Instead, Islamic banks provide profit-sharing,
leasing, and partnership-based financial products.
Electronic Payment Systems: Digital platforms that
facilitate the transfer of funds between parties without using physical cash.
Examples include mobile money, internet banking, and card payment systems.
Digital Banking: The use of online and mobile
platforms to provide banking services such as account management, fund
transfers, and bill payments. It is an integral component of the cashless
policy.
Cashless Economy: An economic system where most
financial transactions are conducted electronically, minimizing the use of cash
and enhancing transparency, convenience, and efficiency in financial
operations.
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