Nigerian Central Bank and International Money Remittance

Some recent decisions and pronouncements of the Central Bank of Nigeria (‘CBN’) affecting international money remittances to Nigeria and the operators of related businesses have raised eyebrows within and beyond Nigeria. In particular, they have been a source of concern for foreign (non-Nigerian) providers of international remittance services to Nigeria, causing some of them to suspend their remittance operations to Nigeria. .

In a recent press release  (of 2nd August 2016) which has been widely reported in the press the CBN stated that all “financial service providers” are required to be duly licensed in order to protect customers and the financial system; that international money transfer operators are required to remit foreign currency to their agent banks in Nigeria for disbursement in Naira to beneficiaries; and, that foreign currency proceeds are to be sold to bureau de change operators.

Following the expressions of concern which followed naturally, the CBN has since clarified in another press release that “it has not foreclosed the licensing of interested players in the IMTO space in Nigeria.” The CBN says that interested applicants should forward their request for licensing under the CBN Guidelines on International Money Transfer Services in Nigeria (2014)(“Approved” version).

At the least the recent CBN statements have caused confusion and disruption, having led to the suspension of operations to Nigeria by some foreign international money remittance service providers. In a very well written piece published on Quartz Africa, Feyi Fawehinmi discusses and provides a critique of the recent moves of the CBN and their effect on international money remittances to Nigeria and the operators of such business.

As Fawehinmi’s piece demonstrates, the approach adopted by the CBN is of questionable soundness from a number of perspectives. The following are some of the potential consequences:

1. it is counterproductive in that it is very unlikely to reduce the serious shortage of foreign currency affecting the Nigerian economy and is in fact more likely to exacerbate it;
2. it is a “forceful narrowing” of choice for Nigerians in diaspora who remit money back to Nigeria;
3. it has the potential to increase the costs of such money remittances for Nigerians in diaspora
4. it has the potential to make the process of money remittances difficult for Nigerians in diaspora as well as for Nigerian resident beneficiary of remittances

It is not surprising that some international money transfer operators have already bemoaned the approach of the CBN. It is of course easy to dismiss such protests as turkeys protesting against Christmas or rams protesting against Sallah. In truth, considering the present Nigerian economic climate with chronic shortage of foreign currency and demand far outstripping supply, it is surprising that the CBN approach does not evince greater imagination, creativity and clarity.

From a technical perspective, while the recent CBN statements have added to confusion, the root of the problem lies in the provisions of the CBN Guidelines on International Money Transfer Services in Nigeria (2014). The 2014 Guidelines is certainly well intended with its aim inter alia to “provide minimum standards and requirements for International money transfer services operations in Nigeria.” On the other hand some aspects of the Guidelines could have been drafted with greater clarity, provided further detail and technical precision.

Licensing

Article 2 of the 2014 Guidelines requires an ‘international money transfer services’ provider to be duly licensed by the CBN and sets out the necessary requirements, including capital requirements. It also implies that the entity must be incorporated in Nigeria. Curiously, the entity seeking licensing is required to show ‘Presence in at least seven (7) different countries’. It should be self-evident that this would be discriminatory and discouraging especially to Nigerian start-ups seeking to enter into the money transfer services sector. It also seems to assume, questionably, that foreign money transfer services operators already operating in a number of countries and who are already licensed in another jurisdiction would find it desirable to seek licensing in Nigeria necessarily.

As reflected in denied accusations directed against the CBN in light of recent developments, the CBN’s approach seems to be aimed at attracting some particular global players. If so, this is shortsighted as It is not reflective of the practices of diaspora Nigerians remitting money to family and associates or that of Nigerian beneficiaries of remittances. It also does not reflect an adequate grasp of the operation methodologies of some of the foreign money transfer services operators, especially at the lower value scale level, where they may not themselves have a direct presence in Nigeria and simply remit credit in local currency for disbursement to beneficiaries through a Nigerian based correspondent or ‘partner’. Some of them operate from a particular country (e.g. the UK) and specialise in remittances either to Nigeria alone or to a small number of African countries with historic connections to their base of operation; these are likely to find it difficult to meet the requirement of presence in at least seven countries.

Money Transfer Operations

The 2014 Guidelines permits a duly licensed operator to carry out both inbound and outbound money transfer transactions. The CBN press release of 2nd August 2016 appears to suggest that inward bound remittances are to be made to Nigeria by money transfer operators in foreign currency when it says that they ” .. are required to remit foreign currency to their agent banks in Nigeria ….” It may be that the statement in the press released needed to be worded better but on the face of it, there seems to be apparent disparity and contradiction with the provisions of the Guidelines. The Guidelines does not contain a clear provision that inward remittances are to reach the Nigerian end in foreign currency. It is of course true that in the case of a remittance from overseas, the operator would invariably be paid in foreign currency but this does not necessarily mean that in practice actual foreign currency, rather than credit in Naira, would be remitted to a Nigerian ‘partner’.

When it comes to payment to the Nigerian beneficiary/recipient, the 2014 Guidelines is clear  that payment is to be made to customers only in Nigerian currency. While this may be informed in part by the shortage of foreign currency in Nigeria, it is doubtful that this is sufficient justification for the restriction of choice for a remitter and/or a beneficiary who prefers the completion of the transaction in a foreign currency. In any event, foreign currency in the hands of individuals is more likely to lead to a reduction in the demand for foreign currency on regular licensed foreign currency dealers and bureaux de change. This is one of the areas where the Central Bank might have been expected to show some greater imagination and better market awareness.

A different approach could, for example, distinguish between transactions where the operator must remit actual foreign currency to its Nigerian ‘partner’ or its own Nigerian end and those very common, especially lower value transactions, where no actual foreign currency is remitted but credit is made availabble to the beneficiary in Naira. The recent CBN press release seems to only assume the former and if that is the area of particular regulatory concern it may be that some form of allowances or relaxations are possible for the latter.

The Role of Agents

The 2014 Guidelines contains provisions recognising the role of agents and it defines an agent as ‘a suitable entity engaged by a money transfer service operator to provide money transfer service on its behalf, using the agent’s premises, staff and technology.’

Somewhat indirectly the recognition of the role of agents highlights the shortcomings of the provisions relating to licensing of money transfer operators. It is an indirect recognition of the possibility that a foreign registered and licensed money transfer operator can provide services to beneficiaries in Nigeria without itself actually maintaining a physical presence in Nigeria. Until the suspension of operations following the recent CBN moves, many foreign money transfer operators remiiting money to Nigeria operated via arrangements with local entities through whom remittances were channelled to recipients. The problem is that the 2014 Guidelines contemplates that “agents” will be acting for money transfer operators who are themselves licensed in Nigeria. On the other hand, a Nigerian entity which acts as an “agent” is not required to be licensed as a money transfer service operator though it is required to “be a financial institution under the regulatory purview of the CBN.” This means that Nigerian licensed and regulated banks for example are able to act as agents for duly licensed money service transfer operators.

The fact that many foreign money transfer operators who operate via arrangements with local entities are not themselves licensed in Nigeria is what has led to the suspension of operations by many of them. This is exacerbated by the fact that such foreign operators may have difficulty satisfying the licensing conditions even if they wish to be licensed in Nigeria.

The benefits of restricting the operation of agents to acting only for money transfer services operators licensed in Nigeria are questionable. In the first place, these foreign operators (at least the bigger players) are typically already licensed in a jurisdiction with an acceptably sound regulatory regime. Interestingly, a comparable example is that the same banks who are able to act as agents also often act as correspondent banks for letters of credit transactions to Nigeria —- without a requirement that the issuing/originating bank be licensed in Nigeria. Second, adequate supervision and effective regulation of the local agent should be sufficient to protect Nigerian customers and to ensure that remittances reach the due recipient.

In a slightly different respect, the 2014 Guidelines only requires approval of the Central Bank where a money transfer operator wishes to engage a foreign technical partner to provide a global or regional payment or money transfer platform. A way forward might be for the Central Bank to similarly consider an approval regime for foreign money transfer operators who do not seek to be licensed in Nigeria but wish to ‘partner’ with, or engage as agents, local entities in Nigeria. As with technical partners, they will also be required to be licensed in their home jurisdictions.

Further Scope for Reform

In a number of respects, the 2014 Guidelines still presents room for reform and clarity likely to faciltate remittances to Nigeria.

• Receiving only operators: it is worth exploring a unique regime for Nigerian based money transfer operators who wish to only operate receiving and disbursement services i.e. those who do not themselves engage in remittances abroad; this may be based on a revision of the provisions currently applicable to ‘agents’.
• Small Scale and Micro Level Operators: there is scope for consideration of a less stringent regime for operators who handle mainly low value remittances and whose total monthly worth of transactions are relatively low (a level to be set by the CBN); it is noteworthy that the 2014 Guidelines says money transfer services shall target individual customers mainly”.
• Capital requirements: the level of paid up share capital required for receiving only operators and small scale and micro level operators could be set at a lower amount than that for bigger operators. Somewhat perplexingly, the 2014 Guidelines currently sets the paid up capital requirements for Nigerian based operators at two billion Naira while that for foreign operators is set at fifty million Naira or equivalent. It may be that this is to afftract foreign operators but this would be at the cost of discouraging Nigerian start-ups and operators. Interestingly, a foreign technical partner is required to have ‘a minimum Net Worth of US$1 million.’* These disparities certainly require a reexamination.
• Disbursement of inbound transfers: the 2014 Guidelines stipulates that disbursements to beneficiaries shall be through bank accounts or mobile wallets. A very limited scope is provided for cash payment, requiring the provision of reference from a bank account holder. Even granted the CBN’s cashless society initiative, this restriction is questionable in a country yet with  a high level of illiteracy, rural communities and still relatively low level of financial inclusion.**
• Send and receive operators within Nigeria only: the 2014 Guidelines is concerned with international money transfer services; it is worth considering developing, encouraging and facilitating domestic money remittance services within Nigeria alone irrespective of general improvement in banking services.

In a situation where Nigeria desperately requires foreign currency inflow and an easing of pressure on such foreign currency available, Central Bank policies and directives should be carefully thought out and made in a manner that is not counter-productive. The current attitude evinced by the Central bank which has led to the suspension of Nigerian activities by some notable money transfer operators is not helpful. At the risk of being perceived as an institution that makes and reverses policies too frequently, particularly in light of another recent example, a  careful reappraisal by the Central Bank is desirable in this particular instance.

Postscript

* In the version of the 2014 Guidelines circulated by the CBN on September 26 2014,  foreign international money transfer operators are required to have a ‘minimum share capital of US$1.0 million in their own country’ while a foreign technical partner is required to have a minimum net worth of US$10.0 million.

** The version of the 2014 Guidelines circulated by the CBN on September 26 2014 contains improved provisions (a) that the allowable cash withdrawal for inbound transfers shall not be more than US$500, and (b) payment may be made to a beneficiary without a bank account or mobile wallet upon provision of acceptable means of identification as enumerated.