The Central Bank of Nigeria (CBN) has placed a limit on account holders’ deposits to allow the unbanked access to the financial system. COLLINS NWEZE examines what this policy means for small savers and its implications on the financial system.
BY their names the categories may be known. They are three in all; low value accounts (level one); medium value accounts (level two) and high value accounts (level three). The names speak for themselves, so it seems at the face level. The first category should be for the poor; two for the middle class and three for the wealthy. But do this categorisation fit? Only the Central Bank of Nigeria (CBN), which released this account classification policy last month can answer this question. The classification set new deposit limits for each category. CBN also introduced a three-tier Know Your Customer (KYC) requirement for banks. Under this new regime, CBN set maximum single deposit of N20,000 and N50,000 for Low and Medium Value Accounts. It also pegged maximum cumulative balance for Low Value Accounts at N200,000 at any point in time and a maximum cumulative balance of N400,000 on the Medium Value Account. For the High Value Account, no limit was placed on cumulative balance. The CBN explained that the policy became exigent following its recognisation that access to basic banking facilities and other financial services was necessary in achieving the policy on financial inclusion. The CBN advised banks to adopt the new KYC requirement. It added that the proposed deposit limits was meant to reduce the risk of money laundering and financing of terrorism, noting that the Low Value Accounts are subject to close monitoring by the financial institutions and less scrutiny by bank examiners. The CBN said the Low Value account can be opened at branches of banks by a prospective customer or through banking agents and no amount is required for opening. Such accounts prohibit international funds transfer. The Medium Value Accounts can be opened face to face at any branch of a bank by agents for enterprises or by the account holder, but the accounts are strictly savings with no amount required for its opening. Also, where cross-checking of client’s identity cards information is not completed at the point of account opening, withdrawal would be denied. The CBN added that for the High-Value Accounts, banks are required to obtain, verify and maintain copies of all the required documents for account opening. Accounts are to be opened at the bank branches by physical presence of the prospective customer and the accounts can be both savings and current. However, for mobile banking products, the account attracts a maximum transaction limit of N100, 000 and daily limit of N1 million. But, such products are subject to the CBN Regulatory Framework for Mobile Payments Services in Nigeria. “All accounts, no matter how low the transaction or the risks, must be subjected to continuous suspicious transactions monitoring by financial institutions, which will determine when incremental KYC requirements need to be provided by the customers,” the circular said, adding that the banking watchdog would ensure the establishment of appropriate processes and procedures for the purpose of monitoring compliance with the regulatory framework The circular said that non-compliant financial institutions would be sanctioned in line with the provisions of extant laws and regulations. According to the apex bank, 64.1 per cent representing 56.3 million adult Nigerians do not have access to financial services; hence the policy is designed to bridge the gap. Stakeholders’ reactions Stakeholders and bank customers question the rationale behind the policy, saying it is counter-productive considering its cashless initiative. The regulator, they said, is unnecessarily over regulating the financial system. An industrialist, Mr Henry Boyo, described the policy as a contradiction of the e-payment policy of the apex bank. According to him, there is a contradiction between what the CBN is saying about Nigeria’s payment system and what the people want. According to him, the policy will further push the people away from the banks leaving them with the option of keeping their money at home. He said as long as fewer people are allowed to use the banks; the lenders will not have enough money to lend to the real sector. Implications of such action on the labour market he said, will be devastating. “There is no way that the real sector will secure enough loans from banks when depositors are running away from the banks. The CBN needs to have a rethink on this policy,” he said. A civil rights activist, Michael Oduta, said the policy is tantamount to over regulation. He said it will not in any way help financial inclusion as claimed by the banking watchdog. He advised the CBN to provide further guidelines on how the banks will establish the account categories operationally. Oduta wondered how the apex bank will monitor all the individual account holders to determine, which category they belong and decide when they have breached their thresholds. He asked whether the CBN also considered possibilities of financial growth by account holders, which could make them to abandon a particular account category when their income levels exceed the threshold. “If the CBN is advocating for financial inclusion and now places limits on how much one should keep in the bank. Where will the rest of the money be kept or does one have to start saving at home?” he queried. He said setting a deposit limit does not in anyway, check money laundering as claimed by the CBN as there are other more professional means of achieving better results. “We have enough regulation and should monitor the compliance of those regulations rather than initiating new ones,” he said, adding that the policy is an undue intrusion into the freedom of individuals to own and run bank accounts. Principal Associate, MobileMoneyAfrica, Emmanuel Okoegwale, however, said there was need to define clear operational processes, guidelines and procedures for operating and managing an agency network that will improve the spread of financial services along areas of strong compelling needs. He said the regulator was actually trying to set KYC thresholds for agency banking, adding that transaction limits appropriates the risk for these set of people that might seek banking services outside of the existing branch network at third party locations, expected to commence before year end. He said banks’ branches might be able to circumvent the process, but it remains useful at agent locations. The low value account he said, will enable people with limited documentation to open account on-thego. He advised Nigerians to embrace the guidelines. A civil servant based in Lagos, Monday Okon, also embraced the policy. He said it is clear to all that it is only the money bags “politicians/high level business tycon” that have money to launder. Therefore, if the policy does not put a limit on people that can afford above 200,000, it means that CBN is trying to further widen the gap between the rich and the poor instead of making policies that will improve the standard of living of all Nigerians. A member of Council, Chartered Institute of Taxation of Nigeria (CITN), Chukwuemeka Eze, insisted that the categorisation of accounts does not run contrary to the financial inclusion policy of the CBN. He explained that the CBN wants to sift the grains from the chaffs for ease of monitoring. “It is practically impossible for the CBN to monitor all accounts in the financial institutions for the purpose of identifying money laundering- prone accounts. By the categorisation, the CBN will beam its searchlight on the High-Value Accounts,” he said. He noted that other strategies had been implemented to curbing money laundering but proved abortive. He said initially, the National Advisory Council against Money Laundering by Designated Non-Financial Institutions and the Nigerian Financial Intelligence Unit applied persuasion, but such approach failed. He said the CBN is just a medium by which the Money Laundering (Prohibition) Act, 2011 is being implemented since the option of going through professional bodies and business associations have also failed. He said the banking watchdog is by no means, contradicting itself by placing limit on deposit. “The CBN will not be contradicting itself because the relationship between a bank and its customer is contractual in nature. CBN’s interference is just statutory – to identify a target group whose activities it will monitor with regard to cash transactions and suspicious transactions pursuant to the Anti-Money Laundering/ Combating of Financing of Terrorism regime as provided by the Money Laundering (Prohibition) Act of 2011,” he said. He said the policy is by no way, tailored towards entrenching agency banking as such banking model affects only the Low Value Account, which is not a significant phenomenon.”The policy is in tandem with the target objectives of the anti-money laundering laws and rules in order to meet international minimum standards as prescribed by the Financial Action Task Force (FATF), an offshoot of the Organisation for Co-operation and Development in Europe, standards that have attained global acceptance,” he said. CBN’s reaction Commenting on these developments, CBN’s Director of Communication, Ugochukwu Okoroafor, said the apex bank has only lowered the KYC requirement to allow the unbaked access to the financial system. According to him, the regulator is interested in bringing small savers into the financial sector in line with its financial inclusion policy. He said the CBN is not over regulating the financial sector as claimed by some stakeholders. A top CBN official further explained that the decision to relax the account opening requirements through categorisation was because one of the obstacles encountered by the low income people was the tedious documentation used for account opening. Financial inclusion target The CBN said it intends to reduce the country’s unbanked population by 20 per cent before year 2020. The plan is part of the regulator’s financial inclusion strategy aimed at ensuring greater participation in the nation’s financial sector. CBN Director, Banking and Payments System Department, ‘Dipo Fatokun said the apex bank will work to ensure success of the strategy. According to him, a survey carried out in 2008 by an international agency, Enhancing Financial Innovation and Access (EFInA), on access to financial services in the Nigeria revealed that banking penetration was relatively low with only 21 per cent of adult population in the country having access to banking services, while 74 per cent had never been banked. The remaining five per cent, previously banked, in other words, had left the banking system, Fatokun added. Reasons adduced for lack of bank accounts by many are- proximity to financial service outlets, product complexity and cost of service. He said: “The concerns for financial inclusion are valid as no nation can progress and develop if majority of its population is under banked or has no access to financial services. A good example is Kenya where it has been proved that a half percentage increase in their national Gross Domestic Product (GDP) growth is attributable to mobile money transactions. Indian policy makers too, have embraced the importance of mobile money as the best solution for financial inclusion and economic growth.” Money laundering On money laundering, Managing Director, DataPro, Abimbola Adeseyoju, called for the implementation of the asset seizure, confiscation and forfeiture policy of Economic and Financial Crimes Commission (EFCC) to check money laundering in the country. He said the anti-money laundering /combating the financial terrorism (AML/CFT) initiative was instituted by the CBN to ensure that financial crime perpetrators are punished, and they do not benefit from their crimes. He advised that an acceptable framework that tallies with ‘Recommendations Four of the Financial Action Task Force 2012 Principles’, which is on asset seizure, confiscation and forfeiture should be implemented to check money laundering and terrorists financing. He said that the government should ensure that competent authorities have powers to freeze or seize laundered property or proceeds including instrumentalities used or intended to be used for money laundering or terrorism financing. He said there was also need to allow such proceeds to be confiscated without requiring criminal prosecution otherwise called a non-conviction based confiscation approach. According to him, it is no longer required for an offender to demonstrate the lawful origin of the property before it is confiscated. He said once the offender’s known source of income cannot provide the basis for such property, it should be enough room for confiscation and conviction.
