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Regulatory changes to Nigerian remittances

Updated on August 5, 2016

Imagine all the central banks of other 196 countries countries requiring financial institutions from Nigeria to register with them before they can send money to those countries or to buy products from them?

This is exactly what the Central Bank of Nigeria did a few days ago by blocking remittance inflows to Nigeria indiscriminately and in blatant disregard for the needs of the populace. Remittance inflows to Nigeria have been more consistent and reliable than oil revenue to Nigeria, and remittance inflows serve as a social security for the citizens who have family members abroad. There is no other social security for Nigerian citizens.

It has been quoted that $20 billion ($20b) flows into Nigeria from outside the federation, but only about $10b pass through the well-known IMTOs like Western Union and MoneyGram. The rest is informal or with the new age IMTOs solving this problem by bringing transparency and cost savings to remittances, which the CBN should applaud. The issue is that CBN does not account for parallel market transactions in its foreign exchange reserves -- and it wants to. CBN wants this $20b to be available for targeted imports.

Everyone wants a good price and in the past year everyone in the industry has been in the parallel market. Regulators who think they can dictate how people send or spend their money may be missing the emergence of digital alternatives that pose longer-term challenges.

Earlier this week CBN acted, choked off remittances as a way of gaining control, and has handed the bill directly to the common person. Hundreds of thousands of Nigerian citizens who rely on remittance inflows to survive now face untold new hardships.

We sympathize with Gov. Emefiele but CBN is part of the same government that owes its hard-working employees, many men and women, up to 6 months salary. Many of these unpaid workers now rely on assistance from their relatives living abroad to buy medicine, food and send children to school.

As an institution CBN is both officious and unresponsive and this is just not necessary. There are many applications for IMTO licenses languishing within CBN since last year.

We herein suggest changes and improvements to some of the controls CBN has just set in place regarding remittances into Nigeria.

First focus on the goal which is for remitted funds to hit a CBN settlement account in hard currency. This seems a reasonable mandate for a government trying to manage the unmanageable, yet eliminates the parallel market’s role in getting maximum value for Nigerians.

What CBN should now do is to mandate that any IMTO that wants to remit money to Nigeria should simply provide verifiable evidence that they are compliant in their home countries. Moreover, they should partner with and connect with platforms of local mobile payment operators or bank in Nigeria. The banks are custodians of every kobo so regardless of who leads, the banks house the settled funds.

This would replace CBN’s newly-announced requirement of licenses from every IMTO for inbound remittances. We very strongly argue this should be entirely dropped as it ignores international banking conventions and requires that each IMTO obtain a Nigerian license despite being licensed in their home countries to send money to Nigeria. Retaliatory steps by other countries might reduce transaction activity.

These licenses actually date back to last year, and while only Western Union, RIA and MoneyGram are currently licensed, there are applications to CBN from other IMTOs unprocessed since last year.

As announced these licenses seemed mostly pertinent to outbound remittances from Nigeria. Their creation also coincided with a major reorganization at CBN that saw the oversight and supervision of international remittances moved from the Banking and Payment supervision Department to the Trade and Exchange Department. During the handover CBN lacked consistent direction and leadership and now seems to have lost sight of the purpose of the license (aimed at outbound not inbound remittances) in the first place.

Again no license should be required at all for inbound hard currency remittances, just home-country compliance and a local partner. In addition to eliminating the license requirement for inbound remittances, we believe CBN should revert to its previous practice, which was that any mobile payments operator or any bank that wishes to serve as an agent of an IMTO should request for a no objection letter including the profile and proof that the IMTO is licensed in their jurisdiction.

Should CBN wish to refresh its internal listing of IMTO’s sending remittances into Nigeria, it could ask its licensed partners to send fresh letters for each of the IMTOs for which they transact. Again these would be simple notifications, duly acknowledged. Alternatively CBN can request that foreign IMTOs forward a copy of the license. Once and however satisfied, CBN should issue a no objection letter on a prescribed timetable. There is no need for the CBN to deny reputable and licensed IMTOs access to Nigeria, or to delay them. The hard currency they send to Nigeria helps the citizens, banks and the economy. It’s needed!

The future is for all to be compliant with CBN. These are extraordinary times for the country and for the Naira, and we support an energetic dynamic regulator. CBN wants the dollars and Euros, and the money transfer industry can deliver but the flow must continue unabated for the sake of the recipients. CBN would do well to value more market-centric views and to maintain consistency with international banking norms.

All efforts should aim at increasing remitted funds, not choking them off as a larger pie is more inclusive.

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