University of Nigeria Research Publications

MBAZIGWE, O. E.

Aut

hor

PG/MBA/93/17746

Title

Cheque Clearing System in Nigeria: Problems and Prospects

Facu

lty

Business Administration

Dep

artm

ent

Banking and Finance

Dat

e

April, 1999

Sign

atur

e

CHEQUE CLEARING SYSTEM I N NIGEHIA:

PROBLEMS AND PROSPECTS.

KBAZIGWE, OEIOKA ENY INNAYA

PG/mq/93/ 77746

BEING A DISSERTATION SUDMI?"i'JD I N PARTIAL FULFILMENT OF

n i E REQUIRE~PLN'I'S FOR THE AWARD OF MASTER OF EUSINESS

ADMINISTRATION DEGREE .IN BANKING & FINANCE

DEPARTMENT OF BANKING AND FINANCE

FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERXA

ENUGU CAMPUS

ii.

CERTIFICATION -

I, OBIOMA ENYINNAYA MBAZIGVX is a Postgraduate

student i n the Department of Banking and F i m c e with

Registration Number FG/~~A/93/17746, has sa t i s fac tor i ly

completed the requirements for course a ~ d research work

for the degree o f Master of Business ~dministration i n

Banking and rinance.

his embodiment of original -- work and has not been submitted in part or i n full for

ariy other diploma o r degree of t h i s University.

This p r o j e c t is dedicated t o wi l ighty God,

.!:.a, i n H i s infinite mercy, granted me H i s grace and

:. . ~ ~ L i e s s .

The cliche t h a t , "NO MAN IS AN I S L A N P is rndisputable i n

the f i e l d of academic. This is because, one ca-i hardly accomplish

a task i n life without aid i n form of moral, o r d , psychological,

physical , mental, physiological o r economic.

This is profound i n t h e field of academic ?ndeavour. In view

of the'above, I re-aff i rm tha t the completion o ' t h i s research

work is mutually i nc lus ive of e t e r n a l help. ~ : a i n s t t h i s lack-

gmtgd, Laa obliged to compliment all that hav - helped i n making

t h i s work s success.

Firat* and foremost, I thank God Almighty f ( r H i s t o t a l ca re

and begond, Secor~dly, I urn g r a t e f u l t o my part nts. I acknowledged

the academic ingenuity o f l ~ m f e s s o r F. 0. O k a f o ~ - my Supervisor

that gave lure the b a s i c idea required f o r t h i s nsearch . I a l s o

wish to express my s i n c e r e appreciat ion t o Miss Onyinye Fkwekww

for h e r suypor t i n the research work,

nt this junctur i t it; per t inec t t o expresi my profound

gratitude I;o the ataff of ~ e s e a r c h Depertment, ~er.tra1 Bank o f

~ i g e r i a , Enugu Zone, The ~ u p p e r i ntenden t of C l r aring - M r . Gbenga Oyelekam, Enugu CBN, Mrs. Elumelu - Cff ice r , Clearing

Department of Union Bank P l c , D u g u Zone, and Mr. Njoko - Head

of Clearing Department, UEA, Enugu Zone, for f u r d s h ~ ng me with

relevant data f o r this research.

A p e r i o d of u n i v e r s i t y educa t i on i n v o l v e s some moment o f

stresses, d e p r e s s i o n , and f i n a n c i a l need. It i s on t h i s period

t h a t my sincere apprec ia t ion goes to my l o v i n g r e l a t i o n s - Nr6. U. Evoh and Mr. ~ l l w e l l Anyanvu whose corn] zni.es saw me

through.

F i n a l l y , "a frierid in need, is a f r iend i ~ d e e d " . Therefore,

I a m grateful t o the in -na tes o f N-Wing of P06. g radua te Hall,

U n i v e r s i t y of Niger ia , Enugu Cmpus. I aa era- e f u l t o you dl!

vi.

The de lay a t t r i b u t e d t o i n e f f i c i e n t ope ra t ions of Niger ian

C l e a r i n g System, poor bank manageom t and t h e i r consequencce

on t h e economy necess i t a t ed and motivated t h e v -itex- of thi.6

project.

The w r i t e r succeeded i n high-1igtlt: ing the roblems of the

Niger ian Clear ing System such a s i n e f f icier . t co7imuni c a t i o n i n

t h e country, t r a n s p o r t a t i o n problem, l a c k o f awtreness on the

use wid need of t h e instrument , t i m e f a c t o r ,ma anomalies i n

o u r banking system t h a t i n h i b i t s e f f e c t i v e c l e a -ing and how these

~ r o b l e m s have hindered. e f f i c i e n t clearing apera ions i n t h e

country.

The g ro j e c t considered the h i s t o r y , es ta l l : shnent =d

ope ra t ions of Vest ~ f r i c a n Clea r ing House. Ope? a t i o n s ,

management and admin i s t r a t i on of the Nigerian Cl eque C l e a r i n g

System were also brought i n t o v i e w t o g ive t h e l e a d e r a clear

understanding for purFose of' app rec i a t ing any rt levant i s s u e

discussed.

~ l s o , certain tati is tical m e tLodulogies w e ; e adop t ed in

the c o l l e c t i o n and analysis of t h e data . Multi-purpose sampling

techniques was used i n t h e d e t e r m i n a t i o n o f t h e sampling s i ze .

I n add i t i on , Chi-square was used i n t he t e s t i n g o f t h e t h r e e

hypo t h e s i s formulated i n Chapte r I.

v i i .

~ f t e r cons idera t ion t o t h e prdblcrns, I w a E able t o recommend

t h a t the clearing system should be automated t o r e d u c e t he

unneceGsary waste of t i m e i n b m k by customers. I n add i t ion ,

government shou ld u n d e r t a k e and i n f a c t speed up development o f

telecommunlcation ~ y s tern in Nigeria s o t h a t t r a ~ s f e r by telephone

would be feasible. ~ l s o , r; t ipula t i o n o f j ~ u n i s h ne:it s h o u l d be

done a s a deterrent t o f r a u d and s h a r p p r a c t i c e 3 .

I n cons idera t ion of Bank Cheque C l e a r i n g ; 5 an a r rangement

whereby banks encharge cheque^ drawn on them a r l t h o s e which are

drawn on another banks. E f f e c t i v e and e f f i c i e r t c l e a r i n g system

s h o u l d s u b ~ i s t and ractors m i l i t a t ~ n g z i p i n s t 1 ic ir perform mce

s h o u l d be co t - r rc ted . C c l c lus ions and

recornmendatmns were given.

v i i i .

TABLE OF CONTENT

T i t l e Page

Dedication

Abstract

CHAVTER ONE

1.0 In t roduc t ion

1 .I Background of Study

1.3 o b j e c t i v e of S t u d j

I . 4 Research Hypo t h e s i s

1.5 Signif icance of Study

1.6 ~ e f i n i t i o n of Related Terms

CHAPTER TkO --

2.0 Literature R e v i e w

2.1 Cheque Clearing in Nigeria

2.2 C I earing of a Cheque D r r r n on noth her Clearing Area

2.3 Special C l e s r i n g

2.4 Common Currency for t h e West African Sub-~eg ion

Page - . . i * . . ii

. . i ii

. . iv

. . vi

ix.

P a r t 11: Towards the Cres t ion of a Single ECCWAS Monetary Zone

The Y e ~ t ~ f r i c a n C lea r ing Hcuse

Flow Chart of Clearing Procedures f o r a l l Payments i n MACH - (Except. i n Respect of L e t t e r s of c r e d i t ) .

Research Me thodology

Research Design atid Hethodology

Source o f I'rirnary an< Secondary Data

Sources o f Secondary Da t a

Target Populat ion arid Sample Detemina

Determination of Sample Size of the Fopulat ion

I nstrumerit of Research

0 .

. 0

. . 0 .

0 .

. . 0 .

i on

. .

. . Method of Data C o l l e c t i o n and A n a l y s i s . . Kethod of Data ~ n d y s i s

~ u e s t i o m a i r e Administrat ion . . T a l l y Sheet: P re sen ta t ion of the Respondexts ..

CHAM'rn FOUR

4.0 ~nalysis of R e c u l t~

4.2 E q l a n a t i o n of t h ~ : Cansolidated Ear.ker' i Clear ing Housc Ac-tivi t i e s bctween l9?9/ 15

4.3 malysis of operational Results i n MACH Between 1977/85 ..

4.4 Testing o f Hypothesis . .

Summary, Recommendations and Conclusic n . . Findings on Nigerian clearing System

Recommendation on Nigerian Clearing Syetem

Conclusion on Nigerian Clearing System

Swunary o f Findings on WACI!

Recommendations on WAC@

Conclusion on W A G ;

Bibliography

Appendice

Quest ion

CHAPTER ONE

BACKGROUND OF STUDY

Agpendix I of the Banking ~ c t , 1969 aer amenr ed by the

following:

( a ) The Banking (Amendment) ~ c t 1970,

(b) The Banking (Amendment) ~ c t 1972,

( c ) The Banking (mendment) ~ c t 1975, and -

( d) The Banking ( Amendment) Act 19'79, are conseq lent i a l l y

replaced. Finally, Banks and other Financia L I n s t i t u t i o n

Decree (BOFZD) No. 25 of 1991.

Appendix H;! (INTERPRETATION), Section 61 def ines Banking

Business as "the buainess of receiving deposits o n current account,

savings account o r other similar account, paying 3f, col lec t ing

cheques, drawn by or paid i n by customers; p r o v i ~ i o n of finance

o r such other business a s the Governor may, by older published

id $he ~ a & t t s , designate ss banking businese'tl.

While describing VANRt i n its broadest seme may be applied

t o any organisation engaged i n any o r a l l of the various functions *

of "Bankin@, - receiving, col lecfing, transferi?lg, paying, lending,

investing, dealing, exchanging, and servicing ( s t f e deposit,

custodianship, agency, trusteeship) money and c l l i m e t o money,

both domestically and internationally. I n its m)re spec i f ic sense,

however, the term IIBankll r e f e r s to i n s t i t u t i on providing deposit

f a c i l i t i e s f o r the general public. Such i n s t i t u t i o n s i n turn

m a y be c lass i f ied i n t o two broad groups - (1) commercial banks and t h e i r cen t ra l banks; and

(2) non-commercia$ bank ins t i tu t ions .

Commercial banks are unique i n not.only b r i n g banks of

deposit but a l so providing the most important peane of payment,

Ifcheque book moneylt o r demand deposits subject to cheque, which

may be expanded o r contracted by commercial barks by t h e i r

2 lending and investing .

Since 1893, the inception of Banking Busir ess i n Nigeria,

there have been lapses in the banking operatio*=. One of the

lapses t h a t has generated public cr i t ic ism is qheque c lear ing

sys tw. This could he ascertained through the cornparim and

pnaly'sie of effectiveness and e f f ic ienc ies of my advance.

country chequing system at its hundred years o ' banking business

with Nigerian case a t 100 yeara.

In Nigeria, cases of long queue i n the be lking h a l l f o r

lodgement and cmhing of cheques. ~ u i t e o f t ea , cheques drawn A

by customers usually bounce on no other reasors than delay i n

the clear ing period. I n view of the innovati.cn of t h e banking

system, up-country cheque c l ea r on a maximum c f 15 working days

a@ agai.net former 2'1-working days. Local checues c l ea r i n a

maximumi of 5 working days against 4-working d t y s as s t ipu la ted

by the CBN i n the banking TARIFF. 3

I n some cases, customers a r e not allowed t o cash o r c l e a r

t h e i r open d r a f t s over the counter because the d r a f t cover has

no t arrived. And i n most cases, i t does not arr :ve over one month

a f t e r the presentat ion f o r payment.

Commenting on t h e inadequate banking servicc , Dr., P ius Okigbo,

a banking consultant says, IrBmking se rv ice can ke adequate only

if the customer does not have to go great pains t o ob ta in the

service, They can be adequate only i f the custocer does not have

to t r ave l great d is tance t o f ind a banking f ac i l : t y , They cannot

be adequate i f the customer h a s t o suffer humilir t i on of long and

- open w a i t i n long queues to deposi t o r withdraw 1 is money! .. I n consonance with the above, S. I. Onwuald i n h i s a r t i c l e ,

I(Zffect8 of the Currency Exchange on Banking' sa: s ((In New Pork - U.S.A. , f o r instance, c lea r ing house members mee- th ree times in

every banking day. On the o ther hand i n Lagos, 1 ige r ia , members

4~ meet once i n a day The implication of t h i s pr o r s e rv i ce by

the banks, i a that Nigeria is turned to a cash er.onomy.

NOW, creation of money through investment, 1 ,api ta l formation,

and r i s e i n employment oppor tuni t ies cannot be a !equately

f a c i l i t a t ed . Thia reduces the operation of dema9rd depos i t s and

put t he nation more on a cash economy which was ;he f i r s t cappss '

of our under development i n c a p i t a l and money ma-kets as s t a t e d

by G. B. Fisher and Loyneis i n t he i r recommendat ion fo r the

establishment of Central 13ank of Nigeria betweel 1953 and 1957.

I n final analysis, tlrie down-turn s t a t e of a f f a i r s and t h e i r ! f inancial implications got me absorbed i n carry ing out the research

into the tIProblerns and Prospects of Cheque Clearing System i n

The banking industry i n Nigeria has over t ~e years been a

focus for public criticism. One major aspects ~f the Nigerian

Banking System that has received wide public c r i t i c i sm is the

cheque clearing system.

On an internat ional standard as i n New Yor c, U.S. A. , c\earing

s t a f f m e e t three times i n any Banking day. Whereas i n Nigeria,

c lear ing s t a f f meet once i n any banking day acc3ruling'to S, I.

onwualah, "Effect O f The Currency Exchange On P d i n p , Business

Times, Monday, September 24, 1984, p. 22.

'It is against t h i s background that I have been motivated

to identify the problems inherent i n the Nigeri an Cheque Clearing

system. -

- - F i r s t and f o m s t , the time lag involved i n the period of

processing loca l cheques, Up-country cheques, House Cheques

and ContrMheques, has been a major f o c u ~ of the public

cri t icism.

- In. addition, the delay i n the period o f proc sssing cheques

i n Nigeria is associated with the inadequacy of c lear ing

instruments i n Nigeria.

- The above factors a r e crowned with the poor communication

network t h a t is astmciated with the clearine: system i n Nigeria. J

- Final ly , t he poor o r ien ta t ion o f Nigerians jn acceptance of

cheque as a means l o f exchange r e s u l t t o a rroblem i n clearing

instrument used i n Nigeria.

Againet these s e t backs, I w a n t t o iden t i fy the clearing

instruments i n Nigeria vie-a-vis the developed n ;~ t ions o f the world.

Iden t i fy the causes of their ineffect iveness i n Iligeria, f ind ou t

how ef fec t ive pas t measures taken haven gone i n siolving the problems

and t h e i r e f f e c t s on t he users, the banks, and the economy at large.

OBJDCTIVE OF THE STUDY

b

The ob jec t ives of t he study a r e summarised s follows:

- To find out i n p rac t i ce t he time i n t e r v a l i t takes ta c l e a r

cheques i n Nigeria.

- To a r t i c u l a t e the procedure i n Nigerian Clear ing System.

- The reasons f o r delay i n Nigerian Clearing System.

- W y s e the most relevant col lec ted da t a crncerning the

object ives outl ined above and make recommer.dation6 on des i rab le

improvements and draw the necessary c o n c l ~ i i o n .

7 r 4 HYPOTHESIS

For the purpose of t h i s research study on Ckeque Clearing

Syetem, the,following aa smpt iom are made. The ~ y p o t h e s i s w i l l

be tes ted fo r result l a t e r i n the study and a f i n a l decision

taken, aa to whether they w i l l be rejected o r accdzpted.

- Time as an important fac tor i n the process O F cheque c lear ing

in Nigeria,

- Under-development i n communication and t r ansmr t a t i on pose

a ba r r i e r t o e f fec t ive c lear ing system i n Niiyeria,

- Awareness i n the use of cheque as an instrummt of exchange

is a problem i n the Nigeria Clearing System.

. 1 *5 SIGNIFICANCE OF lXE STUDY

Nigeria unquestionably, operate a cash economy. Cheque is

not readily acceptable t o t ransact business or make purchases i n s

view of peoples mis t rust i n use of cheques. In ad i i t ion , there

is undesirable delays by banks i n t h e i r cheque c l ewing system.

Again, YJ!HE DISHONOURED CHEQUB ( OFFENCES) ACT 1977'. This

Act w a s promulgated to protect businessmen and ind:.viduals against

the fraudulent use of cheques. However, i t makes : . t an offence

punishable by two yems imprisonment fo r individuaq.s o r N5,000.00

f o r corporation o r company i f t he i r cheques are dit:honoured for

insufficiency of fund.

S

However, this i n operational when the cheqm is presented

5 within three (3) month8 of the date of icleue . I n view of the

enabling Act , the a b m i n t he use of cheque ham not been

adeqr~rtely aolred.

Draft. w r e not hamured until weeks when the covers

arrived. Standing Orders are honoured effectivaly when the

knaficimry and the giver maintains aceouut i n the m u m b d .

Revover, the rmveree becomem the case when the heneficieq and

the 6i rer operates accounta i n different banks md diffemmt

loc.tionrr, In view of that, them is delay i n t h e time

iaterrala before the amunt is reeeivd.

Conmmqneneem of the above ia t he refueal i n the acceptance

of cheqwa. People prefer t o car- large a m of camh. Thin

project will therefore i d e n t i e the causes of tbeae inadequate

clearia# aystem in Nigeria. Recommend m o l u t i o ~ for t he i r

improvement, prospects and effective utilizatione I n addition,

mare the user f r o m the agony of CAGH EONOM.

pirrl ly , it will of course, e e n e am an academic work

muhf t ted i n p u t i a l fulfilment of MBA Degree a n d i n

~.aking and Fiarnce, University of Nigsria, Ilsubka,

DWINITION OF RELATED TERMS

1, CliCQUEt A s defined by the Unifon Csmmercl.al Code (Sec.

3 - A*) and by the Britimh Bill of Exchaqe Aet 1882, a

cheque iu: fla b i l l of exchange drawn on s bank,.pa~rable

2. DRAFTS otherwima known an Banker Draft, "it i m an order - by one bank to mother t o p y a certdn sum of mney ta

3. mLmBIWIC TRANs?ER: Popularly known ae 'To T., it i u an

im t ruc t ion from one bank to another o r frm one branch of

a bank t o another, nsquiring the bank o r b,ranch t o pay a

mpecifitd sum of ronmy t o a n u a d benefici.u;l. It is called

a tel rgrrphic transfer becaum the payment advice i m nent

to the b.nlr o r branch by telegraphic messalp or throw a

cablegram.

4. ~ E Q O E MTE: The basic r a t e in foreign exchange, t ramact ioru

from which 31 other ratas are computed.

5. CBEQUE EOUNT: A bank account againat whi~:h cheque m y be

8 drawn again& c r t d i t balance .

- 6. C- CONTRACTS~ In the operation of c?.earing contract.

traded in on oonmodity exchang.8, the procqfs8 of mubetitutfng

pr incipals t o tramsactiom, t h u f a c i l i t i e ~ ,

7. CLEARIHG B O ~ E : A voluntary aesociation of banlu located in

the same c i t j joined together t o f a c i l i t a t e the da i ly

mxchmge of cheque., d r a f b , and note6 mong i t6 members,

inmtead of eeparate exchanges made i n d i r i d u d I y by each

b m k with the others, o f nlocal itsat.

of a clearing hotme maociation showing the seount of chequu,

atc., which it hold6 agaiaat each other bank of the amsociation,

and which w i l l be preee.nted f o r collmetion m t the next

clearing. The total of thL8 aheet, i.e. the nggregate of

clr- againut other member^, repr tssnta the b&ga c red i t

balance at the clearing hotme.

9. CASH ECbNOHYt I n the context of t h i a study, a c m h economy

H& a nation where up t o 3% of the tr-actian and paymenta

i n r o l v d are made by c a d . Other c red i t in6t:rumentd are mot

genar.11~ accepted. 8

c l e u i n g h o u e am detemined by the clear ing house manager,

am a result sf the exchmngen o f items by meaberr and

clearing nor^-members. Thim proof b o w s t h a t the amount

brorght t o and received fmm the c l c a r i ~ howe by each

exchanging ins t i tu t ion , and the c r e d i t o r d t k t balance of

Bmkm and other ~innnce I ~ t i t u t i o u Peeme (BWXD),

NO. 25 8.c. 610

Banker# Tariff,

So I. Onnulrh, Vffsct of the Currency change on

Blmkiwl , Burnine88 Thee, Uond my, Peptelber 24,

7984, P. 22.

Dichomumd Cheque (Offences) Act, t977,

Faifom Comercial code (Bection 3 - 1d7), and

Britinh B i l l of ~xch.ngs ~ t t , 7882.

LITERATURE REVIW

CBEQUE CLEAR1 RG IN NIGERIA

The Clearing House is where banks exchmpe cheques.

Commercial bank within a par t icu la r c lear ing a$one eend

rmpremntd i re to the Cleming Houm to d d i v e r cheque8 dram

on other banks and t o receive the chequts d r a m on it, Thie

mituation operatee where the drawer and payee of a cheque belong

ta di f fe ren t banks. Where the drawer and the payee belong to

the mame b k , e i t he r d i f fe ren t branchem o r the ~ a m e branch,

the Clearing Bourn opera tion is not applicabl 9.

A t clsoing of banking business i n a day, al l cheques pai&

i n by c u ~ t o a e r e which are drawn on other banks are assembled

and aorted bank by bPnk by the clearing clerk at Remittance

Department. A machine list of the chequee are producsd.

Where there are two o r more brmches of a bark i n a pa r t i cu l a r

c lear ing area, then, the c le rks of the c l e a r ~ n g department of

each branch sent the cheques t o the Bead Off-i ce o r Area Office

for conwlidation. Then, at the area where -.t is consolidated, . the c lear ing o f f i ce r w i l l re-machine t h e machine list submitted

by the clearing saffers . Then, the grad to :a l of a l l t he banks

is agreud w i t 2 1 the g r a d t o t a l of ill cheque 3 received,

b

Thr t o tdm are then entercrd bank by baak on the c r e d i t eidm of

t he Central Bank Presentation PO-. The Presentation Forn and

the chsquom are taken t o the Clearing Houw a t *he C e n t r d Bank

of Nigeria the following morning where they a re presented to

thm reprementatire of the reepect i re banks.

Clearing Honere eemair~zu a t u t at 10.00 a.m. da i ly and take

a b u t an how. A t the e w e time, cheques drawn on Yamks within

a par t icu la r c lear ing a r e a - a r e presented and exchange t o t h e i r

reprementatire by the other b a n k These a m l a t e r entered on

the deb i t ( l e f t ) s ide of the Presentation Forn hank by bank.

When premntations are completed each repreeantative work6

out the net posit ion of h i s bank oil h i s Prtsentmtion t o m which

i8 normally completed i n dujblicate. Tho o r ig ina l copy ie

muhit tad t o the Clearing Rouse Superintendent, who i a a menior

official of the Central Bmk. Be presides as t h e chairman of -

the dai ly clearing house sessions.

Upon receipt of the completed Presentation 'Form fma all

b d m , the Clearing Houee mperintendent balancer the d @ e . ,

mrk by entering the net balance8 of the banks an a c lear ing

Sottlsment ram. The settlement Form ie l a t e r t d e n c e d and

wed ur the authority by Central Bank of Iligeris t o debit o r

c r e d i t individual bank6 i n t h e i r books, depending on whether a

bank h.s a c red i t o r d e b i t balance.

&t t h e end of the clearing session, each bank's

r e p r e s e n t a t i v e b r i n g s back d l cheques drawn on h i s a r e a branch

which were presented on him by o t h e r banks. I n add i t i on , t h e s e

cheques a r e picked up by a c c r e d i t e d r e p r e s e n t a t i v e s of t h e s e

branches f o r f u r t h e r yroceseing and pos t ing to cr~s tomers accounts.

Dishonoured cheques must be re turned immediately a6 cheques n o t

re turned wi th in f i v e workice days are regarded t., have been paid.

There is a c l e a r i n g area i n all t h e s t a t e s capi t111 where t h e CBN

has a branch.

Suppose. Miss Onyinye, l i v i n g i n Umuahia buy:; ioods from

Tunde i n Ondo. Miss Onyinye is known t o be cred, . tworthy. To

avoid r i s k o f robbery she p r e f e r s cheques, She ' ;herefore pays

for t h e goods by i s s u i n g an o r d e r cheque t o Tunde. The cheque is

drawn on Progress Bank, Umuahia Branch, Miss inn !-[ill; while Tunde

bank8 with Wema bank, Ibudan.

Tunde depos i t s t h e cheques i n his account a': Wema Bank,

Ibadan. U n t i l the cheque is c leared , Tunde cannot draw on it.

Wema Bank s e n d s the cheque t o - t h e Umuahia Branch of the bank da

co l l ec t ion .

On r e c e i p t o f the cheque at Wema B a n k , Umuahia, i t is recorded

i n t h e Inwards Co l l ec t ion R e g i s t e r and batched w..th cheques to be

presented f o r c l e a r i n g on t h e following day, I f the cheque is

not returned a f t e r f i v e working days, i t is deered t o have been -

paid i n accordance with new Clearing House Regulations. On the

morning of the f i f t h day, the Inwards Co l l ec t i ans Regis ter at

Wma Bank, Umuahia is ma~ked o f f and a s e t t l e m f n t l e t t e r prepared

c r e d i t i n g Yema Bank, Ibadan with t h e ~ r o c e e d e 1-lf the cheque. Had

the cheque been returned unpaid, Ibadan branch would have been

debited with the value of the cheque. I f i t wxs s e n t on

c o l l e c t i o n basis, then no e n t r i e s will be r a i ~ o d when cheques are

dishonoured. ..

On r e c e i p t of the c r e d i t advice, Ibadan l r anch o f Vema Bank

removes the uncleared e f fec t , 8 t a g on the accc unt of Tunde and

allows him t o draw t h e proceeds of the cheque,

SPECIAL CLEARING

I f a customer is i n urgent need of fund& and wants, the

proceeds of a cheque t o be credi ted t o his account on t h e same

day or wants t o know the f a t e o f a cheque o n the aaae day, he ?

can ask h i s bank t o send the cheque f o r s p e c - a 1 c l e a r i n g or to

arrange s p e c i a l presentat ion. I n t h i s case, the branch sends

t h e cheque d i r e c t t o t h e drawee bankls b r a n c ~ t h k u g h a meesengel

o r c l e r k for payment, If t h e cheque is in crder and paid, the

drawee bank will debi t its customer's accourt immediately and

send a banker's payment t o the presenting bank. Upon r e c e i p t

of the banker's payment, the account of the payee :is c red i t ed with

t h e proceeds of t h e cheque the same day. A f ee of between 1 t o 2jd

of the face value o f the cheque is paid f o r the s e w i c e .

MANAGEHENT AND ADM NISTRATION OF, NIGERIA CLE: .RI NQ - HOUSE -

The Bouae operate under "Rules and Regulat ion~s*, drawn up

under t h e aeg i s o f the Bankers' Committee and a g r e 4 upon by all

the founding members of the Lagos Clear in6 Housc.

A r ep resen ta t ive o f the Cen t ra l Bank of Niger'-a is the chairman

of the Clear ing House Committee, f i v e o t h e r member~; are drawn f r o m

among member banks and they serve as a con t ro l l ing au thor i ty , making

amendments t o the Clearing House rulee. These amendments i n the

Clear ing House a r e sub jec t t o the subsequent agreerent by t h e

banker' e committee. They a l s o introduced changes :. n the r egu la t ions

a f f e c t i n g the day t o day running of the Clearing Hcuse and approving

app l i ca t ions f o r memberehip i n the scheme. However, a l l t h e expenses

involved i n providing c l e a r i n g f a c i l i t i e s t o the brake are borne

by the Centra l Bank of Nigeria. The Centra l Bank c ~ f Niger ia shoulder

r e e p o n s i b i l i t i e s f o r the premises, much of the data processing

involved 'and associated expenses of running the c l e a r i n g house as

one of the ways i t is helping t o promote the development of an

e f f i c i e n t banking system.

2.4 COMMON CURRENCY FOR THE VEST AFRICAN S JB-REGION

I N T R O D ~ T I O N - A p r i n c i p a l ob jec t ive o f the ~ c o l o m i c communie

O f West African S t a t e s (ECWAS) h a s been t h e achi?vement o f g r e a t e r

monetary co-operation through t h e hanuonization a i d co-ordination

o f monetary and fiscal p o l i c i e s of its member s t a t e s . I n ~ r t i c l e

2(h) o f the Treaty e s t a b l i s h i n g i t , t h e community pledged to ensure

,*the harmonization, required f o r the proper functioning of the

community, of the monetary p o l i c i e s of member sta:esl,. ~160, ~ r t i c l e

36 l ( b ) provides t h a t the t r ade , Customs, Immigra:ion, Monetary and

Payments Commission among o t h e r th ings should *'as soon &

prac t i cab le m a k e recommendations f o r the harmonizrition of the

economic and f i s c a l p o l i c i e s of t h e member s ta tes" .

I n furtherance o f t h i s ob jec t ive , the Executive S e c r e t a r i a t e

.- of =OWAS i n col labora t ion with t he Committee o f riovernors o f -

Cent ra l Banks i n EEOWAS has, i n a number of Btudi1?8 undertaken

with t echn ica l a s s i s t ance from various I n t e r n a t i o n a l I n s t i t u t i o n s ;

examined t he broad p r i n c i p l e s and guidel ine t h a t could be adopted

i n achieving g rea te r r eg iona l monetary co-operation. For easy

axpoeition, t h i e sec t ion is divided i n t o two part!; and they are

as follows - P a r t I - Concept and a l t e r n a t i v e ar!-angements f o r

monetary co-operation.

MONETARY ZONE - -

A monetary zone (Union) is defined as an arlaa with a s ing le

currency o r an area tha t htls achieved monetary i l~tegrat imn with

complete exchange r a t e unification. I n view of .hat, two o r more

countries a r e sa id t o have formed a monetary zon- i f they have

agreed t o introduce a common currency to replace t h e i r ex i s t ing

currencies, o r i n the a l te rna t ive agree t o a perr~anent monetary

co-operation arrangement which ensure6 tha t thei-. currencies are

f u l l y convertible a t exchange r a t e which bear a permanent fixed

re la t ionship to each o t t e r and vary i n union aga:, n s t no-uniou

currencies. Whatever form a mom tary union may t ake, t he following

basic requirements must be ~ a t i s f i e d ;

( a) A common monetary policy;

(b) A common pool of foreign exchange reserves and common

exchange r a t e policy;

( c ) Harmonization of domestic c red i t through the imposition of

maximum cred i t cei l ing;

( d ) A common centra l ba!!;

( e) A common currency.

2.4.1 ALTERNATIVE ARRANGEMENT FOR MONETARY CC-OPERATION

In increasing order of integration, the options may be l i s t e d

as follows;

2.4.2~ CLEARING HOUSE MEZHANISM

A C l e a r i n g ~ o u s r ! System is defined as an arrlngement among

Centra l Banks whereby infra-regional t ransanctio?s a r e recorded

and payments made on a pre-determined da te when a reconc i l i a t ion

of the accounts is made and set t lement of the ne t outstanding i,

balances is effected. Example of such c lea r ing mchanism i n Africa

a r e the West ~ f r i c a n Clearing House (MACH), C e n t r l l ~ f r i c a n c l e a r i n g

House (CACH), and E a s t African Clearing House)(~~cH') . The main

object ive of such Clearing House system are t o i n x e a s e the use

of national currencies, and economiee on the use ~f hard currencies,

for the infra-regional t r ade , as well as encoura3e a g r e a t e r t r ade

l i b e r a l i s a t i o n within the region o r sub-region. Though, t h i s

mechanism, na t iona l c u r r e n c i e ~ achieved a form of limited

conver t ib i l i ty within t h e region.

EUROPEAN MONETARY SYSTEM (EMS) MODEL

The EMS is an arrangement by the p a r t i c i p a t i ~ g European countrier

to encure c l o ~ e r financial and monetary co-operation and c r e a t e a

zone of monetary s t a b i l i t y in the Eurdpean Community. The system

involves the harmonization of exchange r a t e s t h r o ~ g h co-operative

in tervent ion i n t h e i r fore ign exchange markets t o minimize exchange

risks i n t h e i r t r ade and o t h e r economic r e l a t i o n s . Under t h e EM6

model, pa r t i c ipa t ing countries r e t a i n subs tan t i a l na t iona l autonomy

- i n most major areas of economic and f i n a n c i a l pol icy formulation.

PARAUEL CURRENCY MODEL

T h i s is a system whereby a common union currency is issued

t o c i r c u l a t e s i d e by side with n a t i o n a l cu r r enc iee t o which it

has a def ined and fixed r e l a t i o n s h i p . A major element o f t h e

system is the e s t a b l i ~ h m e n t af a union monetary a u t h o r i t y wi th 8.8

powers t o i s s u e the para l le l , ,wel l as the na t iona l cur renc ies .

2.4.Z THE SINGLE (COMMON) CURRENCY MODEL -

This model involves an arrangement which grcups a number of

independent coun t r i e s i n t o a monetary zone with 8. s i n g l e currency

and a union c e n t r a l bank. The Union Cen t r a l Bank performs t h e

primary func t ion of:

(a) issuance of the common currency;

( b ) holding and management of the e x t e r n a l a s s e t s o f t h e monetary

p o l i c y i n o r d e r t o f a c i l i t a t e monetary s t a t , i l i t y and unl imited

c o n v e r t i b i l i t y of t h e i r common currency ageinst an e x t e r n a l

r e f e rence currency to which i t is immutably peggei. This.mode1

e x i s t s among t he French-speaking c o u n t r i e s of W e ~ t ~ f r i c a (MAMU), I

Cen t r e l ~ f r i c a ' and Eas t Caribbean.

2*5 PART I1 TOWARDS THE CREATION OF A Sf YGLE -.-

ECOWAS MONETARY ZONE

The proposal f o r a common currency f o r t h r West African

eub-region dates back t o ~ s y , 1983 when at its meeting i n

Conakry, the Authority of t h e Heade of S t a t e m d Government o f

took a decis ion t h a t s t u d i e s be commissj.oned on the

p o s s i b i l i t y of crea t ing a s i n g l e monetary zone i n the ECOWAS

sub-region. Following t h a t decis ion , the Commi.ttee o f Governors

of Central Bank of ECOWAS at its meeting i n ~ & a r i n September

1983, se t up a study group under the auspices c:f the EXOWAS

S e c r e t a r i a t . The repor t o f the Study Group waf submitted in

tm phases. The revised phase I1 r e p o r t - the f i n a l r e p o r t - was submitted t o the Committee of Governors a t t h e i r meetings i n

Nonakchott, Mauritania, i n Apri l 1987.

The study group in its r e p o r t s proposed a monetary zone of

the type for ENAS, S t proposed a trans, i . t ional period of

f i ve years ( 1988 - 1992) before the eimple l?€!OF1~S monetary zone

could be created,

The pol icy measures included exchange r a t s ! adjustment;; ceilirq

on government borrowing from the banking s y s t e r ~ ; appropr ia te

d i s t r i b u t i o n of bank c r e d i t between government and p r i v a t e s e c t o r s '

and fiscal harmonization. The monetary union .?nvisaged is based

on the common currency model with the follouirlg c h a r a c t e r i s t i c s ;

The UACtI w r s s e t up under the auspices o f thl? Association

of ~ f r i c a n Centra l Banks ( L~cB). The AACB w a s fo med i n 1966 to

promote cooperation i n monetary, banking, and f i n mcia l mat te r s

among its members. I n part:icular, it took upon i t s e l f t h e

r e s p o n s i b i l i t y of seeking a gradual harmonisatior o f the d i f f e r e n t

monetary zones and payments ~ y s t e m s l a r g e l y i n h e r i t e d from the

co lon ia l pas t , i n order to promote intra-African trade. Thus, a t

their meeting held i n Addis Ababa i n February 1966, t h e MCB

Governors considered possibl-e mechanisms and i n s t i t u t i o n a l

arrangements t h a t could be es tabl i shed t o promotc: regional

monetary cooperation i n ~ f r i c a . They decided t o adopt a sub-regiond

a ~ p r o a c h and charged the sub-regional Committee c f Governors with

t he r e spons ib i l i ty of pursuing the i s s u e s furthe>- a t t h e i r sub-

regional levels . %

Five years l a t e r ( 1971) at its meeting i n Bamako, Mali, the

Vest African Sub-regional Committee of Governors became the pace

s e t t e r i n t h i s endeavour by s e t t i n g up a study group on t r a d e and

monetary r e l a t i o n s t o explore the p o s s i b i l i t y of e s t a b l i s h i n g a

m u l t i l a t e r a l c l ea r ing mechanism for Weat Africa. The Report of

the study group was considered arid adopted by t h e Committee of

Governor6 a t t h e i r meeting i n Dakar, Senegal i n 1972.

The R e p r t suggested t h a t delays encountercd i n rece iv ing

payments war; a major obs tac le to intra-sub-regirmd t r ade ~ n d

recommended the establishment o f a I fc lear ing H o ~ ~ s e l t o f a c i l i t a t e

rr:

. ,

t h e set t lement o f in t ra- regional tr ,msactions and eventual ly

f o s t e r the expansion of inti-a-regional trade. Haqring accepted

t h e Report, the Governors f u r t h e r charged the stu+ly group with

the responsibility f o r drawing up guidel ines f o r t h e implementation

of the recommendations relating t o a clearing arrangement between

member s t a t e e of the sub-region.

The guidel ines which took another three yearr t o drew up,

formaliqe and f inal is t? , culminated i n thc ~ r t i c l er of Agreement

e s t ab l i sh ing the WACH signed i n Laps i n March, 1!n, by

represen ta t ives of seven c e n t r a l b&6 of twelve West African

countr ies , The inaugural meeting took place in Freetown i n

September 1975 and formal opera t ions began on 1st July, 1976.

&t its opera t ional inception, the i n s t i t u t i o n had a membership

of e i g h t c e n t r a l banks r e p r e ~ e c t i n g t h i r t e e n count r i e s . The

Cen t ra l Banks of Guinea Bissau and Mauritania joired WACH

subsequently i n 1978 and 7980 respectively,

2.6.1 FUNCTIONS AND MANAGEXENT OF WACH

As speci f ied i n the A r t i c l e of Agreement, the West ~ f r i c a n

Clearing House is set up t o f u l f i l the follrrwing 03jec t ives .

- Promote the use of t h e currencies of the memb?rs o f t h e

Clearing House f o r sub-regional t r ade a d 0th -r t ransact ions . .

- Bring about economics i n t h e use of the foroign reserves

of the members of the Clearing House;

- Encourage the members of the Clearing House t o l i b e r a l i s e

t rade among t h e i r respect ive countr ies , a n 2

- From t e monetary coopt!ration and consu l t a t j on among t he

- - members of t h e Clear ing House.

To enable the i n s t i t u t i o n f u l f i l t he above objec t ives , o p r a t i o n a l

procedures, rules and regul-ations a s w e l l as the ob l iga t ions of

rne~ber banks were ca re fu l ly worked out, The adr i n i s t r a t i o n o f

the Clearing House is p u t i n charge of the exch: nge and Clear ing

committee and t h e Executive Secretary. The Exckange and Clear ing

Committee com~osed of the Governors of Mmmber C r n t r a l Banks is

responsible f o r the implenentetion of the provi::ions of t h e

Agreement while the Executive Secretary, a s the Chief Executive

of the Clearing House S e c r e t a r i a t , is i n charge o f administer ing

the policy decis ions of the Committee and day-to-day opera t ions

o f t h e i n s t i t u t i o n . The Executive Secre tary is a s s i s t e d by a

Deputy Executive Secretary. There is a l s o an E~change and

Clearing Sub-Committee whose ~ r i n c i p a l function is t o review t h e

opera t ions of the Clearing House a d advise the Governors

accordingly. For this purpose, it is required to meet at l e a s t

twice a year and submit its r e ~ o r t s t o the Cornpittee of Governors.

The Sub-Committee cons i s t s of o f f i c i a l s (no t more than two fmm

each bank), appointed by t h e i r Governors.

2.6.2 OPERATIONAL PROCEDURES AND PRACTICES OF ~ A C H - The principal ope ra t ion o f t h e Clear ing Housc invo lves the

keeping o f d e t a i l e d records o f a l l the intra-sub-~vegional

transactions channelled through t h e c l e a r i n g rnech:mism. Thus,

payments for goods and serv?:ces t raded between me-iber c o u n t r i e s

can be handled through MACH provided the goods are produced i n

the member count r ies . Inter-governmental g r a n t s o r loans and

o t h e r Non-Bop-Current-Account t r a n s a c t i o n s may a l s o by mutual

agreement between the c o n t r a c t i n g p a r t i e s , be routed through the

c l e a r i n g system.

By v i r t u e o f t he fact that the member c o u n t r i e s o f t h e West

Africa Monetary Union use a common currency they a r e not' requi red

to r o u t e payments f o r t r a n s a c t i o n s among themse l~ , e s through t h e

C lea r ing House. However, West African Unit of Account (UAUA) was

introduced as a numeratre f o r t he c l e a r i n g mechanism. A u n i t of

- WAUA is defined t o be equal t o a u n i t o f t h e %pt?c ia l Drawing

Rightd l ( S D R ~ ) of the I n t e r n a t i o n a l Monetary Fund (1~). The

members' cu r r enc ie s a r e converted by t h e C l e a r i n 3 House S e c r e t a r i a t

i n t o WAUA by us ing informat ion received d a i l y f r m t h e IMF on t h e

SDR's equiva len t o f t h e major' conve r t ib l e c u r r e r c i e s which c o n s t i t u t ~

t h e member count r ies ' i n t e r v e n t i o n cu r renc ie s a r d t h e exchange

r a t e s o f t he n a t i o n a l cu r r enc ie s vis-a-vis thosc r e f e rence cu r r enc ie

as communicated by t h e member c e n t r a l banks.

The cmss r a t e of any p a i r of p a r t i c i p a t i n g member,;' cu r r enc ie s

t hen becomes e-i ly determinable from t h e i r WAUA e lu iva l en t s .

The WAUA r a t e s o f t h e members' cu r renc ie s appl ied to the

t r ansac t ions of the Clea r ing House are determined twice a month

with each s e t of rate ope ra t ing f o r two weeks. T h z s e r a t e s are

communicated t o the members c e n t r a l banks which i n t u r n communicate

them t o the designated commercial banks.

Every t r a n s a c t i o n its requi red t o be denominatnd i n the

currency o f t he country i n which the benef ic ia ry r z s i d e s while

conversion t o WAUA is done a t t he l e v e l s of t h e c e 3 t r a l and t h e

commercial banks us ing the r a t e s determined by the C lea r ing House

S e c r e t a r i a t . t

On t h e b a s i s of payment o r d e r s received from aember c e n t r a l

banks, t h e n e t c r e d i t / d e b i t p o s i t i o n s o f each bank. A l l payment4

r e c e i p t s one routed through the c e n t r a l banks of the parties

involved. These banks i n turn keep themselves and the c l e a r i n g

House informed of the payment/receipt involved i n every t r ansac t ion .

he MACH d e b i t s t h e account o f t he payine c e n t r a l banks and c r e d i t s

t h e account of t h e r ece iv ing banks. A t t h e end of every month

the member c e n t r a l banks a r e n o t i f i e d o f their nel: c r ed i t / deb i t '

pos i t ions . The bank with ne t debi.t p o s i t i o n s a r e r equ i r ed t o

pay agreed conve r t ib l e currr-ncies , t h e designated member banks i n

c r e d i t p o s i t i o n s wi th in t h e first two weeks o f the month succeeding

the one t o which the accounts r e f e r s .

There is however, a b u i l t - i n t e r e s t - f r ee c r e d i t f a : i l i t y o f 45

days, r ep re sen t ing t h e 30 dey.6 se t t l emen t per iod du r ing which

t h e system of c o m ~ e n s a t i n g c r e d i t s and debits a r e recorded and

t h e tm weeks per iud of grace allowed t h e d e b t o r 'mnks to e f f e c t

payments t o the c r e d i t o r banlck.

F a i l u r e t o s e t t l e t he n e t indebtedness by an,{ deb to r bank

amounts t o d e f a u l t on the p a r t of t he bank and is s u b j e c t t o a

pena l r a t e of i n t e r e s t which is twice the norma.1 .'ate o f i n t e r e s t .

The normal r a t e o f i n t e r e s t on WACH t r a n s a c t i o n s is t h e a r i t hme t ik

average o f t h e c u r r e n t d i scount r a t e o f t h e part i t : ipat ing c e n t r a l

banks. There are s l c o pre-determined c r e d i t and d e b i t l i m i t s

applicable t o eech member bank. Any bank exceedi ?g such l i m i t s is

requi red by the MACH ~ c c r e t a r i a t t o take immediat? a c t i o n t o off-set

such excesses. During t h e inten-st-free c r e d i t of 45 days, a normal

r a t e o f i n t e r e s t is, however, charged on t h e a m o u ~ t of d e b i t i n

excess o f the d e b i t l i m i t s of t h e deb to r banks. The c l e a r i n g

mechanism confers important advantages on t h e i m p w t e r , t he expor t e r 1

and t h e i r banker^.

F o r i n s t ance , t he expor t e r is a b l e t o pre-determine his

proceeds s i n c e . he h a s t o invoice i t i n his own co mt$s currency

and thereby saved from the rirsk of excharlee r a t e f l uc tua t ion ,

H e d m r ece ive prompt payment why his banker get3 reimbursed without

delay when he n e g o t i a t e s t h e relevant documents with t h e c e n t r a l

bank concerned.

CONSTRINING FACTCIS AND FROELEMS FACIN ; WACH - Many f a c t o r s mainly s t r u c t u r a l and o u t s i d e t'le c o n t r o l of

t h e c l e a r i n g House l i m i t i ts opera t ions . I n a d d i t ion, lack of

s t r i c k observance o f t he r u l e s and r egu la t ions by ;ome member

banks h a s adversely a f f e c t e d MACH t r a i c a c t i o n s i n recent years.

In add i t i on , is extremely law J eve1 of i n t r a - s u b r e g i o n a l

t r ade i n West Africa. Avail ~ b l c evidence i n d i c a t e t h & t recorded

intra-West A f r i c a , t r a d e h a r d l y exceeded 3.5 percent of t h e t o t a l

i n t e r n a t i o n a l t rbde of t h e sub-region. However, n ~ t much p rog res s

has been made i n ~ u r s u i n g inter-country b p e c i a l i s a t i o n i n s e t t i n g

up i n d u s t r i a l e n t e q rises i n I he cut-region. T h u ~ their product ion

p ro f i l e s continued t o lack com~lernentarily.

Subsequently, t h e r e have a k a been growing inlCalances i n

intra-sub-regional t rade. This worseced the low r a t e of c l e a r i n g

which cha rac t e r i s ed the MACH mechanism. As a general r u l e , t h e

sma l l e r tbe imbalances i n any in t r e - r eg iona l commrrc id and

financial t r a n s a c t i o n s , the lower t h e p r o ~ o r t i o n t h a t will be

requi red t o be s e t t l e d i n non-regional cur renc ies . Where l a r g e

and growin8 imbalances kersists, as i n the case o f MACH, t h e

propor t ion of t r a n s a c t i o n s r equ i r ing se t t l emen t w:. 11 remain h igh

and will go on i n c r e z ~ i f i g .

~n0tkAer f a c t o r conktraining the ope ra t ions o: the Clea2-ing

House is the ex i s t ence of s t r i n g e n t exchauge and :rade reguLations

-

in many o f t he c o u n t r i e s of the member banks. A . 1 t r a n s a c t i o n s

muted through the c l e a r i n g mochnisrn must s a t i s f y t h e t r e a d e

and exchange r e g u l a t i o n s sf the c o u n t r i e s concern2d. T h i s is a

c o n f l i c t between national ard sub-regional o b j e c t i v e s which one

f r equen t ly encountera in soclo-economic managemer,t.

The need f o r an e f f i c i e n t t r a n s p o r t a t i o n ruld communication

system t o ensure t h e smooth func t ioning of mult i2atera . l c l e a r i n g

arrangement l i k e WACH cannot be over-emphasized, The p o s i t i o n

today is t h a t it is always easy t o t r a v e l from :lome p a r t s o f

sub-region t o Europe or America than to c a b l c / t ~ ? l e x l i n k s and

pestit s e r v i c e s is similar. m p i r i c a l evidence i n d i c a t e s t h a t

many cable messages take longer than normal d u r a t i o n t o reach

t h e i r des t ina t ions . The delay and f r u s t r a t i o m which such a

si t u a t i d n causes t ne r e m i t t e r of funds, t h e b m k concerned, t h e

Clearing House S e c r e t a r i a t as wel l as the bene ' ic ia ry d e E e s

descr ip t ion .

With r e spec t t o the mere manageable prsbbm, t h e r e appears

ta p e r s i e t a gene ra l l ack e f awareness of t h e r o l e and f u n c t i o n s -

af the West African Clea r ing House. Apart fro-I t he Headquarters

i n Freetown, t he C lea r ing House had no branch o f f i c e s i n o t h e r

member countr ies . I n o r d e r te ame l io ra t e t h i s problem, t h e r e

e x i s t s s i n c e 1981 a West African Bankers* ~ s s c c i a t i o n (WABA)

whose o b j e c t i v e s and programme of a c t i v i t i e s i n d i c a t e its

31.

complementarity t o t he West Afr ican Clear ing House which c u r r e n t l y

prmvides its s e c r e t a r i a t s e rv i ces .

2.6.4 EFFORTS TO IWROVIS THE PERFORMANCE OF

THE CLEARING HOUSE

A number of s t e p s have been and are being takeq at the

l e v e l of t h e Cen t r a l Banks and t h e Executive S e c r e t n r i a t of

WACH with t h e c o l l a b e r a t i o n o f commercial and merchant banks

tm encourage g r e a t e r use of the c l e a r i n g mechanism, These

inc lude the o rgan i sa t ion of t echn ica l workshops by t h e C lea r ing

Heuse for o f f i c e r s who d e a l with WACSl t r a n s a c t i o n s i n t he member

Cen t r a l Banks, I n add l t l on , new instruments and f i c i l i t i e s

aimed at inc reas ing i n t r a - s u b r e g i o n a l commercial ind f i n a n c i a l

i n t e r c o u r s e have been implemented.

Ammg t h e new i n i t i a t i v e s inc lude long-term p~.eposa l t o

e s t a b l i s h a balance of payments suppert fund t o a s r j i s t d e b t o r

banks t o s e t t l e t h e i r ne t d e b i t p o s i t i o n s i n r e s p e c t m f sub-

r eg iona l t r a d e and a West Afr ican Cenfirming House, The short- *

tern preposa l inc lude the i n t r o d u c t i o n e f MACH che ques denominated

i n WAUA and B i l l s e f Exchange i n t o t h e c l e a r i n g mechanism.

FKM CHART OF CLEARING PROCEDURES FOP ALL .-

PAYMENTS IN MACH - (EXCEPT IN RESPECT OF LETTERS OF CREDIT)

VEST AFPICAN CLEARING HOUSE

Experter country I nporter country

of eligible goads m f eligible goads

and cervices. E nd services.

\r

CENTRAL BANK 2ENTRA.L BANK

4

\"

APPROVED BANK I

AF'eROVED BANK

b . Flew m f fund

Sourcei West African C l e a r i n g Rules and ~ e g u l a t Z m n s

1986 Edi t ion P. 15 ~ p p e n d i x I

2.7.1 EXPLANATION OF THE FLOW CHART --

A r e s i d e n t i n an e x p e r t e r ceuntry ( t o be c a l l e d country A)

sends goods mr r ende r s ~ e r v i c e s t o an importi r i n cauntry B o

The imkorter i n country B makes payment f e r "he goods o r

s e r v i c e s t o h i s commercial bank i n country B f o r t rans-

mission t o the exporter.

The same importer i n country B would advice the expor t e r

i n country A t h a t he h a s made payment t o h i s commercial

banks i n country B f o r remit tance which do a c t involve goods

and s e r v i c e s e.g. R e ~ i i t t ~ a n c e o f educa t iona l fee. The

r emi t t ee w i l l advice t h e benef ic ia ry (Payee),

The commercial bmk i n country B sends t r a n s f e r or payment

o r d e r t o t h e central b m k in country B c o n c ~ r n i n g the

deposi t fund col lec ted .

The Cen t r a l Eank i n country B w i l l advice t h e C e n t r a l Eank

i n country A of t he amount i n WAUA - (West Afr ican Unit

o f Account) t o be aid t o the named b e n e f i c i a r y i n country

A, through h i s commercial bank.

The C e n t r a l Bank i n country B w i l l a t the same time inform

t h e WAC! of the m u u n t t o be paid t o t h e c e n t r a l bank i n

country A i n Vest Afr ican Unit o f A C C G U ~ ~ (YPUA).

The MACH w i l l d e b i t the account of t he c e n t r ~ l bank i n

country B and c r e d i t the amount of the Cent r rk Bank i n

Country A adv i s ing i t accordingly.

8. The Cehtral Bank i n Ccluntry A will pay the tommercial

bank of the beneficiary i n country A the amrunt it had

been advised by the Central Bank in Country B as having

received for t h e beneficiary i n Country Am

9. The commercial bank i n Country A, exporting country

w i l l credi t t h e account of the exporter with the

monetary value of the goods eq:orted.

CHAFTER !t'HRE;E

RESEARCH HETHODOLOGY

b a r RESEARCH DESTGN ANT) METRODOLOGY

Research p r o j e c t s are mostly b u i l t from previolis knowledge

which may e x i s t i n published forms as well as i n per~ples* unrecorded

experiences. Thus, t h i s research work involves bot). quan t i th t ive

and q u a l i t a t i v e a n a l y s i s of d a t a and o the r informat:on which were

obtained from primary and secondary sources i n the form of p a s t

data, and of face t o face interviews. Such d a t a inc ludes

Conwlidated Bankers@ Clearing House A c t i v i t i e s betvden 1979/93.

opera t iona l r e s u l t o f West African Clearing House between 1977

and 1986. Data from standard t e x t books, magamines, p ro fess iona l

jouanals, bullions a s wel l as papers presented a t serltinars and

conferences.

~uantitative a n a l y s i s w i l l be based on the resplnses f r o m

the close-ended quest ionnaires, i tems i n Consolidatec Bankers'

Clear ing House A c t i v i t i e s and ~ c t i v i t i e s of Vest Afr:.can

Clearing House.

In addit ion, q u a l i t a t i v e analysis w i l l be based on the

materials f r o m unstructured quest ionnaires, informatima f r o m

magazines and bull ions, ques t ionnai res w i l l be w r i t t e a i n both

s t ruc tu red and unstructured foras. Multi-stage sampling method

is used.

* This ie a p m b a b i l i t y method. The comaercial 'bankern are used

i n thia research as the primary sampling u n i t s , while t h e clearing

s t a f f o f each commercial bank form the secondary eam~ ' l ing units.

The advantages of multi-stage sampling is t h a t a frame has t o

be prepared f o r only th ree u n i t s from which eamples e r e t o be

selected. This o f course, means a reduction i n 8urve:r cost.

The hypothesis formulated i n the work a r e t e s t e d with

complex/simple chi-square depending on the need of the context.

3.2 SOURCES OF PRIMARY AND SECONDARY DATA

The eourcss o f p r i m a r ~ d a t a cons i s t mainly o f m e ~ t i n g s ~ h e l d

with s p e c i a l i s t i n the f i e l d o f commercial banking and the staff

of Clearing Department o f Centra l Benk of Nigeria. Tkis w a a

poss ib le through discuss ions and interviews scheduled aa in ly

with some o f f i c i a l s of the banking industry. -

~ l m , the quest ionnaire method w a s used t o obtain the viers

of the Clearing Bank s t a f f . This p a r t provided major 3art of the

q u a l i t a t i v e work t h a t form the bases o f analyeis. Rowever,

opinion survey was ca r r i ed out on the sub jec t matter too.

Personal observation was made during the v i s i t s I made a t the

Cen t ra l Bank Clearing period - 10.00a.m - 11.00a.m. I n addit ion, q u a l i t a t i v e da ta was col lec ted fmm the

unstructured quest ions s e n t and received from the respc ndents.

Even, telephone interview has been granted t o the s;lperintendent

of the cheque clearing i n Enugu t o a s s i s t get the f irst hand

information tha t form the bulk of the qua l i t a t ive primary qa te r ia l .

3-3 SOURCES OF SECONDARY DATA

There were ex t rac t s collected from the Enugu Central Bank

of Nigeria Library - Bullions and Annual Reports. H wever,

ex t r ac t s were collected from magazines and journals m West

African Clearing House and Common Currency Area. Ev m, i n

school L i b r a . , books and journale were collected and used for

the purpose of t h i s work. Hater ia ls on common curreylcy a rea was

collected f r o m Bri t ish Council.

3*4 TARGET POPULATION AND SAMPLE DETERMINATION

Target Populationt

The study w a s carried o u t i n order t o contributr great17

i n e o l v i w the problems of a large number of people, i n s t i t u t i o n s

and organisatione. Th i s largo number therefore c o m t i t u t e the

universe of the study o r the population. Therefore, the target

population is made up of the large number of people which t h i s

study sort t o ~ o l v e t h e i r problem with par t icu la r reference t o

those t h a t have one benefit or the other i n t h e use cf cheques,

DCPERHINATION OF SAMPLE SIZE OF THE WP1:LATION

The population o f the study was made up o f s e f f e r s of

banking industry. This was made up o f large s i z e tha t the

researcher found cumbersome t o administer the quesAonnaire

on the whole elements. Sample s i z e was determined for the *

multi-stage sampling method. The determination of s i z e . o f t h e

sample was done with the a i d of a s t a t i s t i c a l l y accepted

fomular . The formular was considered adequate, r e l i a b l e

and t hus r e v helpful i n determining a very rep resen ta t ive

sample of t h e population far study. The s t a t i s t i c a ' . l y

employed formular is called Y A R ~ formular

n; sample size of the populat ion

N: t h e population s i z e

er level of s ign i f i cance

Since what opera tes i n Wugu Clearing nouse opera tes i n o t h e r

Clearing Houses i n Nigeria, then, I used the c l e a r i n g

populat ion of ~nugu as 52.

The level of significance is acbosen t o be 5% s ince the

ques t ionnai re is going to be administered by hand. So, high

percentage of accuracy will be returned.

N So, determination of n 3 -.-*,

1 + Ne

n = 46 approximately.

3.6 INSTRUMENTS OF RESEARCH

A study of t h i s na ture required a more r e l i a b l e and valid

instrument because of the var ious o r i e n t a t i o n s of the respondents,

i t became imperative for the researcher t o w e the instrument

t h a t could both f a c i l i t a t e the research i t s e l f and e t the same

time enable adequate data co l l ec t ion , analysis, i n t e r p r e t a t i o n ,

and presentat ion.

However, the quest ionnaire method was adopted. The use

of this instrument involved t h e use of s t ruc tu red q w s t i o n e

c a r e f u l 1 J designed and typed out.

These q u e ~ t i o n n a i r e e were personally d i s t r i b u t e d by the

researcher using multi-sampling method t o g e t the r ep resen ta t ive

mample of the t a r g e t population.

In addit ion, the re w m o r a l interviews with the Clearing

o f f i c i d e of the Cen t ra l Bank wid t h a t of the th ree major

bank. i n Nigeria - WA, Union and F i m t Bank. The i r views

were properly co l l ec ted through the use of unstructured

questione t h a t allowed them a i r t h e i r views i n t h e r e l a t i v e

queations. Personal observation played a r o l e in the c o l l e c t i o n

of data.

F inal ly , i n t h e Multi-sampling method used, t l e r e were

th ree s tages , Banking Industry, Commercial Banks,C:Learing Staff

of t h e commercial bankers. Among the c l e a r i n g s t a f f of

commercial banks, every s t a f f was given equal chances through

t h e use of simple random sampling method w a s adopted.

3.7 HETNOD OF DATA COLLECTION AND ANALYSIS

DATA COLLECTZON:

I n order t o minimize e r r o r s and d i f f i c u l t i e s Lhat could

a r i m , ques t ionnai res were given o u t by hand t o thrs respondents.

~ h u u , no mailing of quest ionnaire was done. Then, t o have high

percentage of ques t ionnai re re turn , I made apprec i rb le e f f o r t s

t o c o l l e c t them from t h e respondents through thr? Chief

C lea r ing supe r in t enden t t h a t headed t h e Enugu Clearing Zone

where t h e ques t ionna i r e was administered.

These respondents were encouraged t o r e t u r n t h e

ques t ionna i r e through the time frame given t o t h m by the

Chief Super in tendent of Enugu Clear ing Zone.

Finally, simple random sampling method was l s e d f o r

ques t ionnai rd adminis t ra t ion . The d a t a f r o m t h e re turned

ques t ionnai re c o n s t i t u t e d t h e primary d a t a upon u ~ i c h t h e

majori ty o f t h e f i n d i n g s and recommendations were based.

6.8 - METHOD OF DATA ANALYSIS

The analysis of t h e d a t a co l l ec t ed was made using ~ i m p l e

statistical techniques inc luding t abu la t ion , perce- tages, and

charts . Under t hese methods, t h e number o f responres to

each option of the a v a i l a b l e ques t ion was empressed as a

percentage o f the t o t a l number of respondents.

The procedure o f re jec t ion /acceptance o f any i lea being

sought f o r depended l a r g e l y on the percentage r a n k i ~ g of all

t h e options. Where the t a b u l a r i l l u s t r a t i o n a lone c i d no t

explain t h e desired p r e s e n t a t i o n of t h e d a t a , o t h e r methods

l i k e t h e use of pie cha r t s , bar c h a r t s and a p p l i c a b l ? graph

were employed.

In order to provide for very understandable and

appreciable me, all data were carefully depictei , analysed,

and interpreted i n a more nssimilating manner, ,.mbiguity i n

interpretation and presentation was carefully avr ided,

3.9 QUXSTIONNAIPE ADMINISTRATION

A to ta l of 46 questionnaires w e n administer?d among

the clearing staff of the commercial banke i n Enuqu that a1 .

attended Clearing on ?Oth July, 1995. However, s.mple random

sampling techniques was adopted.

BINTI EnUgu clearing House conducts Clearing for mugu State

and Anambra State.

QUESTIONNAIRE ADMINISTRATION -

Bank

Clearing

S t a f f

ERROR ALLQUE3l

- e=5X

5%

-

-------

QUESTTONNAIF E SEKT OUT

QUESTIOKNAIRE RECEIVED

The above shows tabular prei5er:tation of quest io m a i r e

administration mod~,les.

I administered a total of 44 ques t ionnaires . In s p i t e o f

the e f f o r t and techniques adopted, i t was not 1 m s i b l e t o

c o l l e c t all the questionnaires s e n t out. Out t f 44 questionnaires

d is tr ibuted to the commercial Bank Clearing St; f f a t the Enugu $

Clearing House, on 41 was received. Though, t'.e t o t a l r e c e i v e d

rnade.93.1&% o f the t o t a l s en t out. on aggrega ;e, the responses

were highly commend~ble, hence t f . ~ ! actual 11urnk.r for data

a n a l y s i s 41, d i d not vary 6 i . g n i f i c m t l y from the s t a t i s t i c a l l y

determined sam1 le s i z e 46.

i YEEi NO r INDIWWlNT I TOTAL

I

Normal Clea r ing

M44w

* 1.43.1 4444 111

Y E S ' NO INDIFFERE NT

444444444444 4 4 4

YES - - J - N o _ - A INDIFF"F'EYT - I I w w w I l l , 1111 1 4

U % W - 1 I 11 r 41 --------- --- -=-I--- No 4 INDIFFERE uT ---------- ---- --- - 4

LIMITATION OF !HE STUDY

I encountered some l indtat ions i n course o l t h e work.

However, some of them are as follows;

TIME: - mou@ time. was required f o r collection of la ta and other

relevant facte. But for ti.& l i m i t given by the school authority

the r e ~ e a r c h project wae limited within the fram of time

allowed by t h e university and f i na l ly was constrrined by time.

thorough research work imposes a huge f ineqcial burden

which cannot be borne eas i ly by a student. For tlis reasons

the research had t o be res t r ic ted t o commercial blnks clear ing

- s t a f f e re that attend clearing i n Enugu c lear ing Zcne.

There were d i f f i c u l t i e s i n finding the reepordente on

t h e i r seats i n most cases. Even when they were or the seat,

the researcher wait a long time before being attenled. A t

tires, a f t e r waiting f o r long houre of time, the r ?searcher

would not receive audience f r o m the intended respoldents and

fur ther date(s) vere fixed for interview.

SECRECY:

In s p i t e o f th .e f a c t th at I explained th o ~ l u g h l y to the

reapondents that m ~ r work was purely academic and. that sthere i~ '

no l i a b i l i t y on the ir part on any information g: ven. Yet, the

respondents vere reluctant to release some piecrs of information

a.e they fear that such information i f given out might be used

to criticiee them.

QUESTIONNAIRE C O W U T I ON

Finally, the respondents delwed i n completing the

queetionnrire and that necessitated repeated vir i ts .

is **Before Licencinp . So, from t h e question, it h m been

deduced tha t t o become a mwnber of t he c lear ing house according

to the score of t h e respolrdents would be "After ~icencinept,

So, on popular opinion, no bank can attend the clerrirq sect ion

without being licenced.

T m 4.0.3 CmARING STAFF YHiE ASKED WHETHER IF

THEY DERIVED ADVANTAGE AS A MEHBER OF

TBE CLEARINQ HOOSE.

SOURCE; QUESTION 3 6 I

The respondents were asked W I f they derived advantage as

meabere of the c lear ing houseb*, Then, 5.1s of the

respondents answered YES. While 4.88% of the tc.ttal reepondents

were indifferent i n t he i r responses. 80, from ;he general

opinion, it has been observed tha t banks get advantage as the

member of the Clearing House.

Indifferent TOTAL

2 41

4.88 -

SOURCE: QUESTION 4

RESPONSES

21 Days

15 Day6

14 Days

No Time Limit

I

COUNTRY CHEQllEs

TOTAL 1 41 I When respondents were asked, "the actual time it take

t o c lear UP-COUNTRY Chequescc. Then, 78.05% of the t o t a l

respondents declared t h a t i t took them 14 days t o c l ea r u p

country cheques. 17.0% of the t o t a l respondents declared

tha t it took them 15 days t o c l ea r Up-country cheques. 2.w

of the t o t a l respondents accepted tha t it took them 21 days

and 8 days t o c lear Up-country cheques.

F m m the above table , i t has been observed tha t large

number of the banks has not assimilated contentr; of the mnetary

and cred i t policy guideline of CBN well. However, CBN c i r cu l a r

s t ipulated that i t w i l l take banks 15 days t o clear Up-Country

cheques. Where es l a rge percentage adopted 14 days t h a t

are b l o w the time frame spec i f i ca t ion of the monetmy au thor i ty - CBN

TALBLE 4.0.5 THE ACTUAL TIHE IT TAKE BANKS TO

CLEAR LOCAL OR TOWN CHEQUES

SOURCE; QUESTION 5 I

RESPONDENTS RESPONSES

8: .37

5 days

6 days

Other times

TOTAL 1 41 I 1CM

The respondents were asked the a c t u a l time it taok them t o . c l e a r Local o r Town Cheques. I n t h e i r responses, t5.37% of the

t o t a l respondents declared t h a t it taok them 4 day€ t o c l e a r

Local o r Town chequee. While 14.6% of t h e t o t a l :.espondents

depicted t h a t it took them 5 days t o c lear Local o r Town cheques.

From t h e i r responses, i t has been observed th: t only 14.6%

of the respondents comply with the CBN Monetary ant c r e d i t Policy

Quide l in t a s i t r e l a t e s t o the c lear ing o f town cheques

a t 5 days speci f ica t ion . ~ n d therefore , r e s u l t t o poor

l s s i m i l a t i o n of the contents of the monetary policier;.

TABLE 460.6 WHETHER THEY COWLY UITH CEEQUE CLEffiING

TIME SPECIFICATION STATED ON THE YE) RLY

HONETARY AND CREDIT POLICY GUIDELINE 3F CBN

The respondents were asked whether ((they comp1.r with

RESMNSES

Y as

NO

I n d i f f e r e n t

TOTAL

the cheque c lea r ing time spec i f i ca t ion on the yea r ly monetary

and c r e d i t policy guidel ine of CBW.

RESPONDENTS - I

I n t h e i r responses, 95 .13 of the t o t a l responden-s

i

NO

39

1

1

41

depicted YES. While 2.4% of the t o t a l respondents were,

- I

95 12

2.44

2.44 -

low -

indi f ferent . F ina l ly , 2.44% of the t o t a l respondents c eclared

No*

Theor i t i ca l ly , they observed the r u l e s but p r a c t i c a l l y ,

they do not observe the r u l e s as could be deduced from .;he

responsem i n question6 4 and 5 with respect t o Up-country and

tovn chequeu.

TABIB 4.0.7 15 TIHE ACTUALLY NECBSARI FOR CHE&UE

CLEARING I N NIGERIA

RES WMIENTS RESPoNSEg

NO %

I n d i f f e r e n t . * - TOTAL 1 4 1 I .I 0 9

The respondents were asked whether Vime is a:tually

necessary i n clearing, , I n t h e i r respomes, 97.56g of the t o t a l

respondente answered Ym. While 2.4% of the t o t ~ l l respondente

were negative i n t h e i r responsee*

observation, t h e i r ansuere w a s i n l i n e with 7-esponrsee i n

questions 4 a d 5, In the above two questions, the actual . time specified by the CBN monetary and c r ed i t guideline w a e

b i t t e n i n the actual p rac t ica l operation, AS against 5'daye

for tovn cheques clearing, they c lear i n 4 days while as against

15 dayia, they c l ea r 44 days.

TABLE 4.0.8 THE HETHODS WED BY BANKS IN CLEARING

CHEQUES SO AS TO REDUCE CLEARING TIME LAG.

RESPONSES

Normal Clearing

s p e c i a l C lea r ing . I n d i f f e r e n t

TOTAL

f n the responses by the respondents on methods lsed by

t h e i r banks t o reduce the c l e a r i n g time l ag , 48.78% o f t h e

to ta l respondents dec lared ~ o r m a l Clearing. While 4 5.9w of

t h e t o t a l respondents dec lared S p e c i a l Clear ing. I n t h e

f i n a l ana lys i s , 7.32% of the t o t a l respondents were ind i f f e ren t .

Observations; It is observed t h a t banks u t i l i z e s both

methods i n the process o f c l e a r i n g t h e i r cheques.

TABLE 4.0.9 WHETHER THEEE HAS BEEN AN INCREASE IN

C H E Q ~ CLEARING I!EbS RECENTLY.

SOURCE t QUESTION 1 1 f

The respondents were asked Whether there has been an

NO

Indi f ferent

increase i n cheque c lear ing items r e c e n t l p , hen, i n t h e i r

responses, 80.4% of t l ~ e t o t a l respondents answered YES.

7

1

4 While 17.0% of the t o t a l respondents responded ::egatively.

47.07

2.44

Fina l ly , 2.w o f the respondents were ind i f f erent i n t h e i r

responses. . ,

However, the test ie further confirmed i n t tie cooeolidsl&d

I,' 5 data extracted from the Central Bank o f ~ i g e r i ~ .

---

AWARENESS ON VIE PART OF CUSTOMEIW:

ON THE USE OF CtiEQUES.

SOURCE; QUESTION 12 I

RESPONSES

yes

No

TOTAL 1 41 I I n d i f f e r e n t I 2

F u r t h e r t e s t was conducted on %hether t h e r e is inc rease

RESPONLIEN'XS

4.88

of awareness on the p a r t of bank customers i n the use o f

NO

33

6

chequesll. I n t h e i r responses, a t o t a l o f 80.4% of the t o t a l

X

80.49

14.63

respondents were of the opinion t h a t t he re h a s been an inc rease

of awareness on the uee o f cheque. Where as 14.67% of the

t o t a l respondents responded nega t ive ly on the i n c r e a s e o f

awareness. F i n a l l y , 8.88% of the t o t a l r e spondenx were

i n d i f f e r e n t i n t h e i r respanses.

However, t he e x t r a c t from the consol idated tankers1

c l e a r i n g a c t i v i t i e s exp la ins fu r the r .

TAEILE 4.0.11 WHETHER BANKS USE POSTAL SYS'I'EM 1'7 !l"HE

PROCESS OF TRANSPORTING CHEQUE;S P )R CLEARING.

SOURCE: QUESTION 14

Yes

No

I n d i f f e r e n t

MTAL

RESE

NO

DENTS

The respondents were acked, 1' Whether t hey do nake use

of p o s t a l s e r v i c e s i n the process of c l e a r i n g chequedt . Then, in t h e i r responses, 85.36% of the t o t a l respondents

dec lared t h a t they a c t u a l l y do no t make use of p o s t 1 1 se rv i ce .

- whi l e 12.2m of t he r e s ~ o n d e n t s were p o s i t i v e i n th:! i r

r e s p o n ~ e s . F i n a l l y , 2.44', o f t he t o t a l respondents were

i n d i f f e r e a t i n t h e i r op in ion as t o which camp to p i tch .

POSE A PHOBLEF!

SOURCE: QUESTION 15 - RESPONSES

Yes

Previous ly

I n d i f f e r e n t - TOTAL

TO CHEQUE CLEXRIhG*

RESPOND ' b W l " l ' 1

when t h e respondents were asked i f , "Communication and

Transpor t a t ion P o ~ e a Problem to Cheque Clear iag l . A t o t a l

o f 30 t h a t made up 73.12% of the t o t a l respondents acknowledge

the f a c t t h a t communication and t r a n s p o r t pose problem. Vhile

l7.m of the respondents were nega t ive i n t h e i r responses.

t However, 7.3a o f t he t o t a l respondents ceclared t h a t

i t pose problem previously, F i n a l l y , 12.4% :)f t h e t o t a l

respondents were i n d i f f e r e n t i n t h e i r opinion. s

- SOURCE: QUESTION 16 - RFSPONSES

Y ePs

No

Ind i f f erent

TOTAL

The above table shows that 78.05% o f the respondents

ehowed that fraudulent prac t i ce s among some banks have problems

with clearing. Where as 9.7% of the t o t a l respondents were

negative in their responseo. Finally, 12.19% of the .total

respondentea stood i n d i f ferenk i n t h e i r opinion.

4.2 EXPLANATION OF THE CONSOLIDATED BANKER':'

CLEARING HOUSE A C T I V I T I E S BE'RIEEN 1979/!'3 . -

Clea r ing House s t a t i s t i c s showed the number and value

of cheques c l ea red v i t h i n the commercial banking system, t h i s

r e f l e c t i n g the volume o f t r a n s a c t i o n i n the system. The d a t a

a l s o ind ica t ed t h e l e v e l of banking habit/awareness i n t h e

indus t ry .

From the d a t a below, i t is observed t h a t the banking habi t /

awareness i n Niger ia has been on the inc rease from 1979, where

20,000 number o f cheques were c l ea red d a i l y t o 15'92 where d a i l y

average of 44,000 were cleared. !This means r i s e o f 120%

44,000 - 20,000 ICO within an i n t e r v a l of 14 years. 20, 000 7

I n add i t i on , the volume o f t r a n s a c t i o n c o n d ~ ~ c t e d wi th in

the system has been on the inc rease though with few f l u c t u a t i o n s ,

However, the observed f l u c t u a t i o n i n volume o f t r m s a c t i o n

could be t r aced t o t h e formulated economic p o l i c i e s t h a t came

up i n the pe r iods t h a t a f f e c t e d tne banking indus t ry .

F u r t h e r i l l u s t r a t i o n is done with the use of b a r c h a r t

and graph t o expla in tne f l u c t u a t i o n and growth i n t he banking

h a b i t and awarenees i n t he economy between 1979 ~ n d 1993. From

t h e graph and ba r c h a r t , i t has been observed t h z t government

economic p o l i c i e s and programmes a c t u a l l y a f f e c t x i t he banking

T ~ ~ B L ~ E 4.14 CONSOLIDATED BANKERS' CLEARING

HOUSE ACTIVITIES I/

Year/ Q ~ z Z t e r

-

1979 1980

'1 987

1982

1983 7984

1985 1986

1987 1988

1989

1990

1991

1992

1 993 1st Quarter

2nd part er

3rd Quarter

4th Quarter

Number of

Yorlcing Days

253

25 1

244

249 248 249 '

249

249 248

239 247 248

246

250

60

53

64

47

Number 0 f

Cheques Cleared ( ' ooo) -- 4,972 69x8

6,956 6,%9

5,874 6,723 6,548

5,988 7,763

8,413

9,440

6,504

7,997 11,000

2,231

782

2,672

I, 140

Amount (=N= @ M i l lion)

17,657.0

23,709.0 28,836.0

37,703.0 29,785 .Q

25,35900 24,179.0 '

32,113.0

47,267.0

67,629.0

82,707.8

84,&5.5 125,780.6 229,692.6

109,437.0

121,060.0

118,529.0

55,088.0

/ Operations Started i n 1979.

Dai ly Averagee -.-

N C * of Cheqcies ('OC 3 ) -.-

2 C

25 25

25

24

27 2 6

24

31

35

38 26

33 44

37

52

44

24 .-

i

BAR CHART FIGURE 4.001 -

4.3 A N A L Y S I S OF OPERATIONAL RESULTS OF WEST AFRICAN

CLEARING HOUSE ( 1977185 1

From the a t tached tabl.es, i t is observed t l . a t t h e r e were

some f l u c t u a t i o n s i n the t r a n s a c t i o n s channellec. through t h e . Clea r ing House dur ing t h e t en yea r s o f its oper.xtiona.1

experience, t he o v e r a l l t rend was s t r o n g l y upus-ds. I n six

of t he f i r s t n ine yea r s o f its opera t ions , sign:. f i c a n t i n c r e a s e s

i n t r ansac t ions ranging from 10.5 percent t o 69..5 percent

were recorded while the t h r e e years o f d e c l i n e s recorded

decreases r m g i n g between 12.9 percent and 14.6 percent.

Af t e r record ing a dec l ine i n the r,econd f u l l yea r of

its o r e r a t i o a s which may be a t t r i k u t e d t o t e e t h i n g problems,

t r a n s a c t i o n s maintained a s t r o n g upward movement f o r t h r e e

consecutive yea r s , r i s i n g fmm WAUA 43.79 m i l l i 3n i n 1977178

t o a pedc o f WAUA 167.65 mil l ion i n 1980/81. I t decl ined by

14.6 percent t o WAUA 143.21 mil l ion i n 1981/82 but reslmed

f i t s upward movemcnt t he fol lowing year and reached a h ighe r

peak o f WAUA 224.40 m i l l i o n i n 1983\84, from w!..ich it 'declined

by 12.9 percent t o WAUA 195.35 mil l ion i n 1984,185.

The d i r e c t i o n of movement o f the settlerne.:it f i g u r e s

correspond very c l o s e l y with t h a t of t o t a l t r a : l s ac t ions ,

f a l l i n g and r i r i n g with them.

The value of se t t le rnonts f e l l by 22.2, 17.4, and .'2.9 p e r c e n t

r e spec t ive ly i n 1978, 1981, and 1984, but rose i n a13 the o t h e r . - - yea r s of the review period by between 25.9 and 98,3 per cent.

(See Table 4.15 Attached).

The d i s t r i b u t i o n of t o t a l t r a n s a c t i o n s by p a r t i c i p a t i n g

banks r evea l r e s i o u s imba1:mces and i n s t a b i l i t y i n t he t r a d e

OWE. Regarding payments ordered, ( imports) a ' road

c l a s s i f i c a t i o n i n t o t h r e e c a t e g o r i e s may be appl:.ed t o the

varying exper iences of t he member banks. Some b m k s showed

f l u c t u a t i n g bu t genera l ly upward t rends . I n t h i s category m a y

be included, t he Cen t r a l Bank of ~ i g e r i a , BCEAO, Bank of Ghana,

Cen t ra l Bank of the Gambia an3 t h e Nat iona l Bank o f Guinea

Bissau. The second group o f banks depic ted f l w t u a t i o n s i n a

genera l ly downward d i r e c t i o n . Such banks inc lude t h e Bank of

Mali and Central Bank o f Manritania. The t h i r d grcrup revea led

xide f l u c t u a t i o n s with no c l e a r l y d i s c e r n i b l e trend. I n t h i s

category may be placed the Cen t ra l Bank of t he Republic of

~ u i n e a and t h e National Bank of L ibe r i a .

(See Table 4. 16 Attached).

Settlement! I y e x i 1 [?tiin 1 Clearing/ Ann... Reglement Con~peqsa tion

I . .

L- ---,- 1 1

SOURCE. WACH ANNUAL REPORT - VAMOUS ISSUES SOURCE: DlVERS RAPPC QTS ANNUEL: DE Covm the first 14 months of operations (July 1976- CCAO August 1977) but the tiscrJ year is Sept. to August Couvre les 14 premicn mc IS dcs operations Ouillet

+' Coven the f i t half (i.8. Sept. 1985 - Feb. -1986) 1976- Acut 1977); I'exerc sc budgetaim va capen- . -- - -- dant de Septembre a Acul . .

- - -- ** Couvre la premiere moitie ,Septem!xe 1985 -

Fevrier 1986).

IS the first 14 months of WACH Operations. * Couvre les 14 premiers mois des operations de la CCAO, R the first half of the,fiscal year. , - ** Couvre,la lere moitie Ce I' exercise.

The r e l a t i ve s ignif icance of the banks i n t o t a i t ransact ions

is guaged by t h e i r percentage shares i n intrc-sub-regional

payments/receipts as i l l u s t r a t e d i n Tables 3 i~nd 5 bellow.

pmm the inception of MACH up t o t h e end of fiscal 1980, two

banks doainated the operations of t h e clearing House viewed

froa the s i de of imports namely; Central Bank. of Nigeria and

Bank of Ghana. Between them, they accounted f o r an annual

average of 80.9 percent. of the t o t a l payrnenta otdered. I n the

l a t t e r pa r t of the review period ( 1980/81 - *985/86) the

dominant banks increased to three, namely, Nj ger ia , ~ h a n a and

Mauritania. The share of these banks i n to tzLl payments

averaged 83.9 percent per annua i n the perioci under review.

I n the en t i r e period, the share of Nigeria i n t o t a l , in t ra -

regional imports ranged betveen 31.8 and 67.8 percent and *

averaged 51.5 percent per annum while t ha t o:T Ghana ranged

between 9.1 and 36.3 percent and averaged 22.3 percent per annum.

Hauritania which became a member i n the f i f t h f u l l year of

operations, quickly assumed a prominent posi-:ion on t h i s s ide

of the t ransact ions accounts.

Its share ranged between 71.8 and 32.8 lercent i n the last

f ive fiscal years of the review period. The member banks i n

an intermediate yositioc. i n t he d i s t r ibu t ion of payments ordered

were the BCMO and the Centra l Bank of the Gambia.

r.9

t ~ h k former) 6 share of such transactions averaged 5.5 per cent I

per annum while the l a t t e r , ti share averaged 4.7 percent. . .

* The dis t r ibut ion of export. receipts from intra-sub-

\

, regional trade also revealed equally' in te res t ing develgpments. '

I . , ,

The main feature here is the overwhelming domitlance of t h e , , ' 3

. ' * ;. .;*. : BCEAO whose Clbaring House transactions f a l l lar&lY &n thll . . ., . ' .' . (*

I .

'I, , . .< -,

credi t side. The share of the BCW i n t o t a l rekeipt from

WACU channelled' trade shows incressed from WAUA 34.86 million

o r 69.0 percent i n 1976/77 t o WAUA 180.90 million o r 92.6

percent i n 1984/85. That of the Central Bank of Nigeria which

w a s the next most important, paled into insignificance when

compared with that of the.BCEAOm Although, i t increased i n

absolute terms from WAUA 4.61 million in 1976/77 .to WAUA 6.76

million in 1984/85, it declined i n re la t ive terms from 11.6

percent to 3.5 percent of the t o t a l i n the same period.

( see Tables 4.17 and 4.18 Attached).

. .

. . f Covers the first 14 months of operatioi~s. ' * ,Couvre les 14 premiers mois des pperations. . . . . .

'

*fCovzlsonly.,-the first sixmonths of the fiscal year.; , * * .Ne co-uvre que les six premiers mois de l'dxercise . . ' . $Negligible' . . . . . .

. .

- I' .

t NECLlClRLE Covers tlie'iirst 14.nionths o f operations. Couvre les 14 pkniers mois des operations. . . . -S N E C L I C E A B L E - . * ~ C O V ~ ~ ~ the first half o f the fiscal year. - -** Couvre la premiore.moitie de I'exercice; . i

. . .. . ,

-. -. . .-- . . .

, - - , -

Xn t h e first nine yea r s of WACH o p e r a t i a m aggregate

s a t t lement more than quadrupled, i nc reas ing from WAUA 38.01

m i l l i o n i n 1976/77 through WAUA 138.29 m i l l i o n i n 1980/81 to

UAUA 179.12 m i l l i o h i n 1984/85. The share of s e t t l e m e n t s i n

t o t a l t r a n s a c t i o n s increased from 75.0 percer t i n 1976/77 ta

82.0 percent i n 1980/81 and 92.0 percent i n *984/85.

Consequently, t h e r a t e of c l e a r i n g main+ a i n a downward

t r e n d con t r a ry t o expectat ion. The c l ea red " r a n s a c t i o n s as t

a propor t ion of t o t a l t r a n s a c t i o n s m s e from 25.0 percent i n

f i s c a l 1976/77 to 32.4 percent i n 1977/78 am! dec l ined s t e a d i l y ,

with one upward displacement (1981/82) ,- t o 8 . 3 i e r c e n t i n

1984/85. In abeolu te terms, the value of cl ?ared t r a n s a c t i o n s

remained low throughout the period, ranging 2etween WAUA 12.70

m i l l i o n and WAUA 29.36 mil l ion. The low and d e c l i n i n g rate of

c l ea red t r a n s a c t i o n s l a r g e l y r e f l e c t e d t h e €rowing imbalances

i n t h e p a t t e r n of intra-sub-regional t rade .

A S expected, t h e n e t deb i t / c r ed i t p o s i t i o n s of t he banks

reflected the d i r e c t i o n a l flow o f imports at d expor t s wi th in

t h e sub-region. Thus, while BCEAO const i tu ' .ed t h e major

c r e d i t o r , ~ i g e r i a , Ghana, ~ a u r i t a n i a were p. : rs is ten t i y the

p r i n c i p a l accumulators o f d e b i t balances. '?he n e t c r e d i t

p o s i t i o n of BCEAO i n t h e f i s c a l years 1976/ 77 t o ?979/80

averaged VAUA 46.90 mil l ion per annum. This sho t up t o an

annual average of WAUA 151.3 mi l l ion i n the perlod 1980/81 J

t o 1984/85. Among the group of banks with n e t dttbit balances,

Nigeria occupied the f i r s t position. The n e t de'rit pos i t ion

of the Cen t ra l Bank of NI-geria i n the comparable periods averages

UAUA 33.5 mil l ion and WAUA 87.8 million. That 0'' ~ h a n a averaged

WAUA 30.9 mil l ion per annum i n the period 1976/7: t o 1979/80

and UAUA 26.0 mi l l ion i n 1980181 t o 1984/85. The d e b i t

balance of Mauritania i n the l a t t e r period avera~ed WAUA 25.8

mi l l ion pe r annum, I ' (See Table 4.19 Attached).

The th ree hypothesis t e s t ed a r e those already pos tu la ted

e a r l i e r i n Chapter One. They a r e a c c e ~ t e d o r r i> jec ted based

on the outcome of the analysed data.

HYPOTHESIS I

Time as an important f a c t o r i n the process cf cheque

c lea r ing i n ~ i g e r i a .

To t e s t the hypothesis, the d a t a presented i~ Table 4.7

is used. It was noted from the table t h a t 97.5s 3f the

respondents were of the view t h a t time is an impor-;ant f a c t o r

i n c l e a r i n g i n Nigeria. While 2,44% disagreed with the

view. F i n a l l y , nobody was i n d i f f e r e n t i n the same issue,

To determine the v a l i d i t y of t h i s hypothesis, 1 chi-

square tesk i s conducted.

Ho:

H i :

1 - Ho:

8 i:

Null hypothesis

Al ternat ive hypothesis

Time is not s i g n i f i c a n t l y important factora t o

cheque c lea r ing i n Nigeria.

Time is s i g n i f i c a n t l y important f a c t o r t o :heque

clearing i n Nigeria.

2 - Level of s ign i f i cance : X: a t 5%.

Where ( K - 1) degree of freedom, where K = ; = 3 - 1 = 2.

2 3 - Test s ta t i s t i c s , - [(oi - Ei) - 0.~13 2 Xo - .-

Ei

Where Oi = Observed value

Ei = Mean of observed value

0.5 = Correc t ion cons tan t in Yate fosrnular .

4 - Decision Rule: 1f X: L X: accept the n u l l hypo t h e s i s ,

2 ' I 1 c) 'e accept the a l t e r n a t i v e

hypo t h e s i s and r e j e c t the null.

NOTE: The reason f o r a l l o t i n g equal number ol expected value

stem from the f a c t t h a t t h e sarn~le sizr was randomly

se l ec t ed .

TABLE 4.20: CALCULATION 2

X* - -

Responses

Yes

N 0

Ind i f fe- r e n t

TOTAL

Where X: on 5X level of s ign i f i cance a t 2d . f

On s t a t i s t i c s table ;=-3 5.991

From decision rule , I r e j e c t n u l l hypatheeis .which says

89 time is not s i g n i f i c a n t l y important t o cheque clt a r i n g i n

Nigeriatg. And I accepted the a l t e r n a t i v e hypothe:>is and

concluded t h a t , "Time is a n important factor t o c!ieque c l e a r i n g

i n Nigeria! as well support the conclusion alreadr postu la ted

in Table 4.7.

Where O i = Observed value 5.

Ei = Mean of expected value

0.5 = correction constant

2 reject t'le null hypothesi. '

' 0 7 "e t

and accept the alternative.

Degree of freedom = K - 1 6, 4 - 1 = 3.

S - CWULATION -

RESPONSES oi Ei oi-xi ~0~-si)-0.5 " 4 --

yes 30 10.25 19.75 370.588

NO 7 10.25 -3.25 14.0625

previously 3 10.25 -7.25 60.0625

Indiffe- rent I 70.25 -9.25 95.0625 - TOTAL 41 41 -

A t 5% l eve l o f significance and 3 d e ~ s e e o f freedom,

. . 2

From the decision rule, 2 '\

Xo - Xe =re

52392 4 7.815.

I therefore, accept the a l t e r n ~ t i v e hypot3esis and

rejec t the n u l l hypothesis. I n view of the akne , I concluded

that under-development i n transportation and c~mrnunication

is a problem to e f fec t ive clearing system i n Nigeria.

TESTING HY POTAESIS 3

AwareneEs i n the use of cheque as an instrument ok

exchange is a problen i n the Niger ia Clearing ;System.

The d a t a presented i n t a b l e 4.10 was used. It was

observed t h a t 80.4% of the total respondents accepted t h a t

the re is increase of awareness on the p a r t o f cus toaer on

- the use o f cheques. 14.63% of the t o t a l respondents were -

p e ~ s i m i s t i c on the issue. Finally, 4.8& of the t o t d.

respondents were ind i f fe ren t .

To determine the v a l i d i t y of this statement, Chi-squae

t e s t is conducted.

Ho:

R i r

1 - Hot

Hi;

N u l l hypothesis

Alternat ive hypo t h e s i s

Awareness i n the use o f cheque as an instrllment of

exchange is not ~ i g n i f i c a n t l y a problem i n the

Nigeria Clearing System.

Awareness i n the use of cheque as an ins t r tment o f

exchange is s i g n i f i c a n t l y a problem i n the Niger ia

c l e a r i n g System.

2 - Level of s igni f icance 5% ='i 2 e

3 - Test s t a t i s t i c s : 2

= (oi-E%)-0.5) ' 2

Xo E i

Where O i a Observed value

E i = Expected value

- - 4 - Decision Rule - If Xe 2 L Xe accept the nu l l

2 * reject the nu l l h y ~ o t h e s i s , hypothesis, Xo 7 Xe

and accept the a1 ternative . 0.5 Correction constant.

CALCULATION

- 2 ' (o i -~ ib0 .5

Ei

25.94

4.82

10.88

41.59

RISPONSFS

YES

NO

INDIFFE- RENT

TOTAL

oi

33

6

2

41

Ei o i - ~ i 2 ' (oi-~i)-0.5

354.57

66.75

148.11

13.67

13.67

13.67

41

19.33

-7.67

-11.67

-

~t 5% l e v e l o f s i p i f i c a n c e and 2 degree of freedom,

I then, accept the a. l ternative hypothesis and r e j e c t the

nu l l hypothesis . I n view o f the above r e s u l t , I cmclude

that awareness i n the use of cheque as a means of r.xchange

is s i g n i f i c a n t l y a problem i n the Nigerian cleariny,.

CHAPTEZI FIVE

5.0 SDlWiRY9 R~WMEXDATIONS AND CONCLUSIOi '

5.1 FINDINGS ON NIGERIAN CLEARING SYSTEM

A s deduced from t a b l e s 4.1, 4.2, and 4.3, ~ b ) bank

t h a t is not l icensed t h a t can a t t end the Clear ing Hcuse. In

addit ion, the banks t h a t at tended the c l e a r i n g house derived

advantages such as d i s c m s i o n of new ideas , pass ing o 7

messages, and is t h e s a f e ~ t and guaranteed means of sc t t l i n g

? cheque d i f fe rences among member banks. However, for a

commercial bank t o answer a member of the c l ea r ing hous?

gives confidence i n the mind of the publ ic ' and influenct E *

their volume of depos i t s and number of customers maintai led

with a p a r t i c u l a r time.

It is per t inen t t o note t h a t on a prac t ica l note,

time is ac tua l ly i n t i d e n t i a l f o r e f f e c t i v e c l e a r i n g opera t ions

i n Nigeria. AS a result, they operated t h e i r cheque

durations below the s t i p u l a t e d time f r a t ? s t a t e d in the

monetary and c r e d i t policy guidel ine of the apex bank. In

prac t i ce , t k y c lear t o m of l o c a l cheqces fo r f o u ~ (4)

working days again. f i v e (5) working days s t i p v l a t e d by

r n n t r m l Rank nf hliKeria and c lea r up-country cheques

- --*G cent ra l Bank of Nigeria. 1- r i , , of the

a h v e t i t is summed that there is poor asgimiletign of the

content of the monetary and credit policy guide1i;:e for the

zeal to be fast and retain customers.

However, 8tatietical values on tables 4.9, 4 . . 0 and 4.14

mvealed an increase, in anartmesa on the use of cheiues as

a medium of exchange. I n addition, consolidated da- a extracted

from central ~ a o k of ~ i g e r i a s t a t i s t i c a l Bulletin, v ~ l u m e 4.

NO. 2, December 1993, revealed posi t ive increase but with

aeeociated fluctuations a t intervals. These fluctuat ions at

i n t e n d s was observed as being as e result o f relatec changea

in the monetary pol ic ies that affected banking habit a l d

awareness.

Finally, the inetructioned questions revealed that there

Rowever, banks bear the cost of the noma1 clearing pro[ edure

cu&omem bear the cost ~f special clearing ImCecwe -

that fa l l between & t o of face value of the checve

speciallg cleared. In

normal clearing p"cer ure

c r e d i t at maturity w i t 1 out

allowed presenting give

5 02 RECOMMENDATION ON NIGERIAN CLEARING SYSTEM

The monetary a u t h o r i t y through its monetary and pol icy

guide l ine should c a t e g o r i c a l l y s t a t e t h a t any bank c m t r a v e n e s

the time frame s t i p u l a t i o n s on the c i r c u l a r should le punished.

The punishment should be through f i n e s , withdrawal c f l i c e n s e

and o t h e r s t r i n g e n t measures as t o i n fuse compliatlcr on the

time s p e c i f i c a t i o n and check sha rp p r a c t i c e s among mnkers

and t h e i r customers.

I n add i t i on , t h e r e is an urgent need f o r t h e Nigerian

Telecornmunicatidn t o d e g i t a l i z e its communication retwork . -

irh all the s t a t e s t h a t have c e n t r a l bank t o enhalcc the

e f f i c i e n c y of c l e a r i n g ope ra t ions wi th in such stat1 s and

address the problem o f under-communication atid tra [ spor ta t ion . t

Consequently, t he r a t e o f c l e a r i n g has maintained upward

t r ends which is i n consonance with expectat ions. 3ut t he

a s soc i a t ed f lue t u a t i o n s t h a t were a t t r i b u t e d t o t k E government

monetary p o l i c i e s tjhould be checked through goverrment

a l lowing the monetary p o l i c i e s to c r y s t a l i z e d and a s s imi l a t ed

before changed.

Nigerian c l e a r i n g house as a young i n s t i t u t i ~ n is usually

been inf luenced by t h e c e n t r a l Bank of Niger ia s j n c e i t

provide the frame work of its operat ions. Howevr r, i ts

abso lu t e management should be allowed i n the ham s o f 'commercial

banks that particiPake i n clearing.

I n addition, c lear ing sect ion should no 1ong . r be

once again as presently practiced but be increase1 i f

possible twice dai ly to a l l ov er create room fo r more

traitsanctions and reduce time specif icat ion for '10th

l o c a l and up-country cheques.

Final ly , c lear ing which ia regulated and ckairman by

) su&intendents of c lea r ing from CBN should be I onducted L

in a l l the major commercial towns i n Nigeria d a ~ l y whether

with o r without cen t ra l bank branches. Thia wf11 ef fec t ive ly

enable kinks d ic t a t e whea CBN has stopped any' :ommercial

bank from attending c lea r ing section. To p rac t ice of

appointment of any commercial bank to coordini t e c lea r ing

a c t i v i t i e s of l o c a l cheques i .e out of place . a case

with First Bank 'of in onitsha. Alternatively, Centra l Bank

of Nigeria should open a t l e a s t cash o f f i c e ; t each s t a t e

cap i ta l , so t h a t c lear ing could be conducted, The c lear ing

system should be automated.

5.3 CONCLUSION ON NIGERIAN CLEARING SYSTEM

On our z e a l t o operate an e f f i c i e n t c l ea r in , : system

in ~ i g e r i a , certain f a c t o r s which militate again :temits

operat ional procedure should be considered. AS 1 r e l a t i v e l y

young i n s t i t u t i o n , i t is still i n the full a t t a i m e n t of

its objectives. There is a l s o a need t o s t r i v e to avoid a

c r i s i s of confidence which could result from faj l u r e by

some member banks t o s e t t l e t h e i r n e t indebtedness.

Th i s research work had d e a l t with comunic, t t ion,

t ranspor ta t ion , awareness, time, and fraudulent p r a c t i c e s

as all the prob lem m i l i t a t i n g against e f f i c i e n : performance

of the system. Based on the decision from the rork, above . a

recommendations a r e given. It is hoped t h a t wken these

recommendations a r e coneidered, the ~ y s t e m will be b e t tor

than it w a s .

- 90.

5.4 SUMMARY O F F I N D I N G S ON WEST A F R I C A CLEARING t

HOUSE - The b r i e f s t a t i s t i c a l ana lys i s undertaken e a r l i e r i n

t h i s research work i n d i c a t e s t h a t the achievement of West ,J

African Clear ing House, i n terms of fore ign exchange saving

has been modest, t h e impressive growth i n t r ansac t ions

represents a s i g n i f i c a n t r o l e in.promoting in t ra - West African

trade. AS a r e l a t i v e l y young i n s t i t u t i o n , i t is still i n

the process o f consol idat ing the foundation f o r the f u l l

attainment of its object ives . However, i t continues t o face

important const ra in ing f a c t o r s which i f no t removed, will

p e r s i s t e n t l y l i m i t its opera t ional r e s u l t s and impact. There t ' is a l s o a need t o s t r i v e t o avoid a c r i s i s of confidence which

could r e s u l t from f a i l u r e by some member banks to s e t t l e t h e i r

growing ne.t indebtedness.

. * The exogenous const ra in ing f a c t o r s which were present

i n the socio/economic environment of the sub-region when the

c l e a r i n g House was es tabl ished have remained unabated and i n

some cases worsened,. They include the l ack of complementarity

i n the exchange r a t e s of most of the currencies of the coun t r i e s

of the member banks, poor communication and t r anspor ta t ion ,

system, the r e s t r i c t i v e trade 'and exchange con t ro l measures

imposed by some member countr ies f o r balance of payments ,

-. go. . 5.4 SUMMARY OF FINDINGS ON WEST AFRICA CLEARING t

HOUSE - The b r i e f s t a t i s t i c a l ana lys i s undertaken e a r l i e r i n

t h i s research work i n d i c a t e s t h a t the achievement of West

African Clear ing House, i n terms of fore ign exchange saving

has been modest, t h e impressive growth i n t r ansac t ions

represents a s i g n i f i c a n t r o l e i n promoting in t ra - Vest African

trade. AS a r e l a t i v e l y young i n s t i t u t i o n , i t is still i n

the process o f consol idat ing the foundation f o r the f u l l

attainment of its object ives . However, it continues t o face

important const ra in ing f a c t o r s which i f not removed, w i l l

p e r s i s t e n t l y l i m i t its opera t ional r e s u l t s and impact. There h ' is a l s o a need t o s t r i v e t o avoid a c r i s i s of confidence which

could r e s u l t from f a i l u r e by some member banks t o s e t t l e t h e i r

growing ne.t indebtedness. s

1.1

The exogenous const ra in ing f a c t o r s which were present

i n tho socio/economic environment of t h e sub-region when the

Clearing House was es tabl ished have remained unabated and i n

some cases worsened,. They include the l ack of complementarity

i n the exchange r a t e s o f most ,of the currencies of the countr ies

of the member banks, poor communication and t r anspor ta t ion

system, the r e s t r i c t i v e t rade 'and exchange control measures

imposed by some member countr ies f o r balance of payments ,

purposes, and the inadequate knowledge of the areas rnd - -

p o s s i b i l i t i e s for intra-sub-regional economic and firlancial

re lat ions . The pers i s t ent low l e v e l o f intra-sub-re$onal

track is a r e f l e c t i ~ n o f a l l these factors.

RECOMMENDATIONS ON WACH

A properly conceived and functioning mul t i - l a t e ra l

c l a a r i n g arrangement can f a c i l i t a t e payments, save its members

fore ign exchange disbursements and promote g r e a t e r t rade &nd

monetary cooperat ion bu t it can do very l i t t l e i n the face o f

s e r i o u s fundamental s t r u c t u r a l problems m i l i t a t i n g aga ins t

production and intra-sub-regional t r ade expansion, Such

problems have t o continue t o be addressed a t h igher l e v e l s such

m the Economic Community of West African S t a t e s (=OWAS) and S

o t h e r inter-governmental organisa t ions within the sub-region,

Backed by t h e necessary p o l i t i c a l w i l l , i t should be

poss ib le a t these l e v e l s t o formulate and implement programmes

f o r inter-country i n d u s t r i a l s p e c i a l i s a t i o n and d iv i s ion of

labour t o ensure g r e a t e r complementarity i n production

r e l a t i o n s , co-ordinated inter-country t r anspor ta t ion and

communication systems, hnrmonised and co-ordinated f i s c a l

and monetary p o l i c i e s and rec ip roca l p r e f e r e n t i a l treatment

i n commercial r e l a t i o n s among member countr ies .

5.6 CONCLUSION ON WEST AFRICAN CLEARING HOUSE

- ~ o n c l u s i v e l y , there is much room for greater -

achievement i n t h e pursui t of the object ives of the

Clearing House by imposing the operat ional fac i l j . t i e s and

procedures of the Clearing House Mechanism.

~k though , it is not generally rea l i sed , it 1,s quicker,

cheaper, and ea s i e r to handle intra-West ~frican payments

through Vest African Clearing House - WACH, then through

their channels. It is our hope t ha t , with impxwed

knowledge of the ro le , functions and advantages :)f the

VACH, the introduction of the nev f a c i l i t i e s and s impl i f ied

procedure, and above a l l , a firm commitment on t3e part of

the contract ing pa r t i e s t o obey the r u l e s of be the game,

the Clearing House should make rapid s t r i d e towards the

attainment of its object ives i n the decade ahead,

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