Nigerian Central Bank and International Money Remittance

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). Accordingly, more 11 international money transfer operators got licenced by the CBN bringing the total number to 14.

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.

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. .