From an unprecedented high of N412 per dollar in the first week of August, the parallel market exchange rate dropped to N393 per dollar last week. The N19 appreciation for the local currency, which had depreciated by about 36 per cent this year, was prompted by increased dollar supply occasioned by the directive of the Central Bank of Nigeria (CBN) that banks should sell proceeds of international money transfer (IMT) to bureau de changes (BDCs).
Remittance business in Nigeria
Remittances from 20 million Nigerians living abroad form the bulk of the proceeds of international money transfers. These are money sent to families for expenses including children education, establishment of family businesses and housing projects.
According to data from Global Knowledge Partnership on Migration and Development, remittances into Nigeria totalled $20.8 billion in 2015. This is expected to rise to N35 billion by the end of this year. Thus, in addition to the primary purpose of providing funding for families, remittances are a major source of foreign exchange inflow into the domestic economy. This becomes imperative for an economy like Nigeria that is experiencing dwindling foreign exchange inflow from crude oil import, which represents over 90 per cent of its forex earnings.
While the directive that banks should sell proceeds of IMT to BDCs was given on July 22nd, 2016, it however did not translate into the expected dollar inflow into the BDC segment. This, coupled with the increased dollar demand for summer vacation, school fees payment, triggered further depreciation of naira in the parallel market to N412 per dollar in the first week of August.
Challenge of Unlicensed IMTOs
This was due to the opaque nature of the remittances business in Nigeria. While there are three registered International Money Transfer Operators (IMTO) in the country, namely Western Union, Moneygram and Ria, the industry is replete with operators who are not registered or licensed by the apex bank and who also do not have any presence in the country.
According to Aminu Gwadabe, President Association of Bureaux De Change Operators of Nigeria (ABCON), these unregistered operators control a sizeable amount of the $35 billion remittance business in the country. Forex operators also confirmed to Vanguard that these unlicensed IMTOs deny the country access to the dollars remitted by Nigerians in Diaspora.
They open naira accounts with local banks from which they pay beneficiaries of the remittances in naira, while they keep the dollars outside the country, rather than selling them to local banks as mandated by the CBN.
This prompted the CBN to issue a circular to warn banks from doing business with IMTO not licensed to do such business in Nigeria. The circular signed by the Acting Director, Corporate Communication, CBN, Mr. Isaac Okoroafo stated, “The Central Bank of Nigeria (CBN) wishes to advise Nigerians at home and in the Diaspora to beware of the unwholesome activities of some unlicensed International Money Transfer Operators (IMTOs) in Nigeria.
“This warning has become necessary because of the activities of some unregistered IMTOs, whose modes of operation are detrimental to the Nigerian economy. “All financial service providers in Nigeria, just as in other jurisdictions, are required to be duly licensed in order to protect both customers and the financial system as well as to ensure the credibility of financial transactions.
“For the avoidance of doubt, all licensed International Money Transfer Operators, in line with the CBN Circular on the sale of foreign currency proceeds of July 22, 2016, are required to remit foreign currency to their respective agent banks in Nigeria for disbursement in Naira to the beneficiaries while the foreign currency proceeds are to be sold to Bureaux De Change operators, for onward retail to end users.”
The decision of the CBN was however criticised and described as ‘Draconian’ by WorldRemit, a United Kingdom based online money transfer service. The company alleged that the decision of the CBN is tantamount to stopping other IMTOs from operating in Nigeria besides the three registered IMTOs.
WorldRemit founder and CEO, Ismail Ahmed said: “This move is arbitrary, inexplicable and hugely detrimental to the Nigerian diaspora who rely on hundreds of money transfer companies and banks, providing them with choice, convenience and competitive pricing.
“Even now, as we suspend our service, there is no clarity on why this sudden change has happened. If it is on the basis of new rules, there was no warning. If it is a re-interpretation of old rules, local correspondent networks and banks should have been forewarned.”
Okoroafor however dismissed the allegation, saying that the decision of the apex bank was based on the need to sanitise international money transfer services and ensure that the country derives maximum benefit from the over $30 billion remitted by Nigerians in Diapsora.
He said, “The CBN wishes to state, unequivocally, that it has not foreclosed the licensing of interested players in the IMTO space in Nigeria.
“Therefore, interested applicants are required to forward their requests for licensing to the Director, Trade and Exchange Department of the CBN, in line with the CBN Guidelines on International Money Transfer Services in Nigeria (2014), which among other things, specifies the minimum technical and business requirements for various participants in the international money transfer services industry in Nigeria.
“The aforementioned guidelines can be downloaded from the website of the Central Bank of Nigeria (CBN) www.cbn.gov.ng. The Central Bank of Nigeria remains committed to providing an enabling environment for international money transfer services in Nigeria.