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THE IMPACT OF CASHLESS POLICY ON PROFITABILITY AND PERFORMANCE IN ISLAMIC BANK (A CASE STUDY OF JAIZ BANK PLC)

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Product Category: Projects

Product Code: 00009686

No of Pages: 51

No of Chapters: 5

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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 CBNs 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 Nigerias 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 CBNs cashless policy and its effect on Islamic banking sector.

1.7. Scope of the study

The study is restricted to the impact of the CBNs 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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