Three years after the Central Bank of Nigeria (CBN) initiated a policy on diaspora remittances payouts in dollar and other foreign currencies, the move has generated a huge debate. Attempts by the apex financial regulator to reverse payments in naira exclusively has altered the narrative in the handling of payouts. What are the chances of the apex bank reinstating the dollar payout policy? And how viable is the move to cease foreign currency payments by reintroducing naira payouts? asks EKAETE BASSEY
Handling of diaspora remittances has been a lingering issue in Nigeria for years. Reason: There have been directives by financial regulators on the currency for payment of such inflow.
The pendulum has been swinging in the direction of the indigenous currency: Naira and the world’s commonest currency for transactions – the United States Dollar.
This has generated a huge debate in the financial and allied circles for some years.
There behooves answers to these and more questions as Nigerians express their opinions on the issue. Some have praised the measure as a means of protecting the country’s currency, while others have forecast that it won’t last long.
Still, others have criticised the measure, pointing out how weak the country’s legal tender has become in relation to other nations. They expressed their concerns that banks might not be transparent about the prevailing rate when purchasing dollars and other foreign currency from their customers.
A civil servant-cum-entrepreneur, Godwin Archibong registered his dissatisfaction about the reinstatement of the rule requiring payouts in naira. He bemoaned the recent sharp decline in the value of the naira compared to other nations’ currencies.
In light of this, Archibong remarked, quite perplexed, “How can I be sent dollars and you offer to pay me in naira?”
This followed reports that the nation’s Deposit Money Banks (DMBs) and International Money Transfer Operators (IMTOs) had stopped paying their customers in dollars earlier this month.
Customers of certain banks were notified that they would not be able to receive dollars from friends and relatives in diaspora after the Central Bank of Nigeria (CBN) published updated guidelines for International Money Transfer Operators on January 31, 2023.
“The circular issued by the Central Bank of Nigeria dated January 31, 2024, stipulates that all in-bound money transfers to Nigeria (via the above-mentioned IMTOs) will be paid only in naira through a bank account or in cash at the prevailing rate in the Nigerian Foreign Exchange Market.
“Furthermore, transfers exceeding the naira equivalent of $200 must be credited to the recipient’s bank account. Naira cash payment equivalent for amounts below $200 will require an acceptable means of identification. The acceptable means of identification is any of the following: international passport, Driver’s licence, National identity card, and INEC Permanent Voters Card.”
The apex bank said recipients of inward money transfers to Nigeria would be paid in naira, either in cash or through a bank account, and that it would no longer permit IMTOs to make outward transactions under the updated standards.
It further said that money exceeding $200 would be transferred via a bank account.
“Proceeds of IMTO more than the equivalent of $200 shall be paid through an account. Cash payments shall be made upon the provision of a satisfactory/acceptable means of identification. Where the beneficiary does not have an account with the IMTO agent bank, the agent bank shall credit the beneficiary account in another bank.”
Though banks and fintechs were prohibited from providing foreign money transfer services, according to the guidelines; nonetheless, banks could function as agents and the majority already are.
“All banks are prohibited from operating International Money Transfer Services but can act as agents. Also, financial technology companies are not allowed to obtain approval for IMTO,” part of the revised guidelines stated.
Also, depending on the official foreign exchange rate in the market, the apex bank requested quotations from IMTOs for the naira distribution to beneficiaries.
Last Thursday, The Nation discovered that banks were pressuring their clients to sell the foreign exchange in their facilities.
It was discovered that several banks have created platforms to educate clients on the process of converting dollar deposits into naira from their domiciliary accounts.
Several banks informed their clients via SMS that holders of domiciliary accounts could convert US dollars to naira via their online banking platform.
The SMS read: “It is as instant as a regular transfer between accounts. The service is available between 9 am to 4 pm Mondays to Fridays, excluding public holidays.
“Customers are expected to log into their internet banking platform, go to the FX transaction portal and select FX sales.”
The transaction rate was fixed at N1,450 to the dollar, notwithstanding the bank’s assurances that the rate is competitive. The rate was less than the N1, 510/$ exchange rate that was available on the black market the previous day.
The banks also pegged the daily transaction at $50,000.
A staff member of the apex bank, who pleaded anonymity, who confirmed the development said: “Yes, it is true that banks may contact customers who have domiciliary accounts and recommend converting their foreign currency to naira.
“However, it is important to note that this is not a mandatory directive from the Central Bank of Nigeria (CBN). Rather, it is simply a service being offered by the banks.”
An official at one of the commercial banks, who also preferred anonymity, said: “We will not be the one to initiate that move but if we have customers who may have inflows and want to sell, what we will do is to tell the customer to write an instruction that I have so and so amount inflow, please sell at the prevailing rate.”
To enhance the flow of remittances into the country, CBN has issued some guidelines and rules since 2014. However, in November 2020, it declared that remittances would only be paid out in dollars, temporarily halting the regime of naira payouts.
By requiring payouts in dollars, the 2020 policies ensured that remittances were routed through official channels, such as authorised banks. In addition, the policies improved foreign exchange liquidity in the parallel market and forced International Money Transfer Operators (IMTOs) to bring foreign exchange directly into the country. These goals aimed to improve the CBN’s visibility of remittance flows.
Remittance stakeholders reported varying effects from the dollar payout policy, according to a survey at the time by Stears, a market intelligence company for investing in Africa that provides macro insights and analytics to global organisations investing and operating in the continent.
Authorised bank stakeholders reported few changes, but noted they often struggled to find dollars to distribute to remittance recipients. While traditional IMTOs reported little business disruption because they depended on their reputation, extensive agent networks, and bank relationships to guarantee payouts.
Fintech and digital IMTOs that were surveyed fared worse. Some incurred increased costs as a result of the 2020 policy since they had to change their business models and collaborate with banks to guarantee dollar payouts to their consumers. Others, notably mobile money providers, were shut out of the market by the directive since their wallets were unable to process dollar payments.
It was established that customers experienced increased difficulty receiving their remittances following the policy’s reintroduction. Customers favoured unofficial techniques due to their lower risk and higher exchange rates.
The Tinubu-led administration acknowledged these difficulties earlier in July, last year and gave customers the freedom to choose whether to receive remittance payouts in dollars or naira.
The implications of reintroducing naira payouts, according to analysts in Stears, include
Significantly, this policy comes against the backdrop of the CBN’s move to unify the parallel and official exchange rates. This lowers the incentives and profitability of IMTOs who were alleged to have benefited from arbitrage opportunities.
The unification of the exchange rates should motivate more consumers to avoid the fraud risks associated with informal remittance channels in favour of formal routes. This should increase the volumes flowing through IMTOs and banks.
How IMTOs can work better
The inclusion of licenced IMTOs in the Investor & Exporter (I&E) window should improve FX liquidity and transparency for the CBN. This should motivate the apex bank to ease restrictive policies on the IMTOs over which it now has better oversight.
The return to naira payouts should reduce costs for IMTOs who may no longer need to partner with multiple banks.
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Mobile money operators and other fintechs who previously exited the sector are expected to return. This will depend on their ability to obtain an IMTO licence or partner with licensed IMTOs. We expect that foreign players who left will watch the market closely for the next few months before making a decision.
Altogether, the policy is a positive step for both businesses and consumers. A combination of higher competition, more favourable exchange rates, and naira payout should lower the cost for consumers and increase the prospects of higher remittances to Nigeria in the medium term.
An expert reacts
Speaking on the policy, a business/policy analyst, Tosin Arthur, welcomed the idea in the interim but expressed some reservations about it.
He said: “It’s a welcome development but the banks should also make it possible for customers to buy dollars through their online banking channels.
“I have also observed that some banks are not being sincere with the prevailing rate to buy the dollar from customers. There is one I know that has been offering N1,100 for weeks while others continue to adjust to reflect the prevailing rate. If they want customers to patronise them, they have to be honest and transparent.’’
Remittances to Nigeria may be impacted, according to Arthur, who added that the CBN may have taken this action only to hold onto dollars.
He maintains that this is a provisional action because the CBN and DMBs want to keep them out of the public eye for various reasons, including health issues, exports, and overseas education. However, he said the apex bank needs to strike a balance so that purchasing dollars is easy for the common Nigerian.
“The logic behind this is not quite clear. Although this is not the first time the CBN has adopted this measure which I believe is tentative, I think it will most likely affect remittances to Nigeria except the banks are offering the prevailing rate.
“It also seems that the CBN and banks just want to hold on to the dollars and not make any available to the public who need it for different reasons from medicine to export to studying abroad.
“It’s a lot of process, documentation, and time for an average person to access the dollar at an official rate through the banks now while it is seamless for them to get the dollar from you and give you naira. The CBN has to find a balance. Make buying dollars seamless for the average Nigerian just the way it is to get the dollar from them. As I said earlier, it will most likely be a short-lived policy. It’s not a new one, just reintroduced.”
Another, Media and Communications Officer, Jeremiah Otu, was among those who expressed optimism on the policy, pointing out that it’s a positive move.
“The policy seems to be based on global best practices. In Britain, for instance, if you receive dollars from abroad in your bank account, the bank will almost automatically convert it to and pay you the pound equivalent, because the dollar is not legal tender in the United Kingdom.
“There are exceptions, of course, but that is the standard practice in the UK and most of the Western world. Everyone does what they can to protect their currency. We should too. Yes, the policy will cause some problems, so there should be exceptions,” he said.
Otu recommended that services rendered in Nigeria that are paid for using US dollars should be outlawed by the government.
“For instance, we must stop private schools or services in Nigeria from collecting fees in dollars. Foreign NGOs and firms must pay their workers in naira. Our economy has become too dollarised.
“That said, our biggest problem is not even the policy, rather it is the government.The policy will affect the rich, including politically exposed persons, bankers, and other high net-worth individuals in government or who have friends in the government more than it will affect the poor, so they will do all they can to frustrate it. Does the government have the willpower to see the reforms through? I think not,” he added.
A lawyer, Chibuzor Paul, explained that he owned a domiciliary account and could withdraw from it. Likewise, he suggested, he might transfer funds to another Nigerian domiciliary account.
He is unable to determine, however, if he would be able to move funds outside of Nigeria or receive payment in dollars in the event that he receives money from elsewhere.
“There was a programme that CBN had, if someone sends me up to $1000 from abroad, I get N5,000 incentive on top of the money. But I don’t know whether that programme is still available in light of all these confusing messages from CBN almost every day.
“I’ve not been sent money from abroad recently. But I’m sure the initiative by CBN is a bad idea because CBN and banks will never pay you the correct market value of the Naira equivalent of the FX.”
Further justifying his stance, the lawyer added: “Most times when I ask banks how much they’ll change dollars for me, they give me a very ridiculously low rate. But an aboki man sitting in the bank and watching me collect the dollars, will corner me at the door of the same bank and offer me a mouth-watering rate. If you were me, which would you go for?
“The CBN should retain that policy of N5,000 incentive for every $1,000 received from abroad. I’m, however, convinced that CBN/banks will NEVER pay you the actual market value of the Dollars equivalent”, he added.
