As CBN battles non-conformist diaspora remittance market

Godwin Emefiele of CBN. Photo: NAIRAMETRICS

By Geoff Iyatse, Asst. Business Editor

 Despite efforts by the Central Bank of Nigeria (CBN) to stimulate activities in the formal channels of

diaspora remittances, the window has continued to battle with its historical challenges, including rising competition with informal windows, poor regulatory compliance by the international money transfer operators (IMTOs), high charges and underhand dealing of agent banks.

Following the growing pressure on the naira last year, the apex bank retooled the regulatory framework with a focus on “improving remittance inflows into Nigeria”.

In a meeting with IMTOs and money deposit banks (MDBs), the CBN Governor, Godwin Emefiele, stressed: “Diaspora remittances through International Money Transfer Operators (IMTOs) shall henceforth receive such inflows in foreign currency through the designated bank of their choice.

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“Such recipients of remittances may have the option of receiving these funds in foreign currency cash (U.S. dollars) or into their ordinary domiciliary accounts. These changes are necessary to deepen the foreign exchange market, provide more liquidity and create more transparency in the administration of Diaspora Remittances into Nigeria.”

Emefiele expressed the regulator’s frustration with IMTOs who he accused of profiteering from the arbitrage at the expense of encouraging the growth of the market. Their activities, he said, were driving more people to the informal channels.

Before the market would begin to assess the impact of the policy, the Central Bank at the weekend issued another circular, threatening of sanctioning IMTOs “who have continued to pay beneficiaries in naira”.

“Further to our circular titled ‘Receipt of Diaspora Remittances: Additional Operational Guidelines’, it has come to our notice that some IMTOs and unlicensed companies continue to facilitate diaspora remittances into the country in Naira, in clear contravention of the CBN directive that all remittances be paid to beneficiaries in dollars.

“For the avoidance of doubt, the CBN further clarifies as follows: Only licensed IMTOs are permitted to carry on the business of facilitating diaspora remittances into Nigeria; all diaspora remittances must be received by beneficiaries in foreign currency only (cash and /or transfers to domiciliary accounts or recipients); IMTOs are not permitted, under any circumstances, to disburse diaspora remittances in naira (either in cash or by electronic transfers), be it through remittance settlement accounts (which had been earlier directed to be closed), third party accounts or via any other payment platforms within and/or around the Nigerian financial system,’’ the Bank said in a circular issued on Friday.

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Beyond dealing with uncooperative operators, the regulator is also faced with the irritation of getting others to admit that they need to register with the relevant local authorities to operate in Nigeria. Some months ago, for instance, it warned the public to stay off Azimo and Transfer Wise, overseas IMTOs, as they were not registered to participate in the Nigerian money transfer business.

It explained in a statement: “The attention of the CBN has been drawn to the activities of Messrs. Azimo and Messrs. Transfer Wise, both of which are purportedly transacting business, albeit unauthorised, as IMTOs. The bank wishes to notify the general public that neither Messrs. Azimo nor Messrs. Transfer Wise is licensed by the CBN to operate as an IMTO.”

Months after the CBN’s disclaimer, which also prompted some Nigerian banks to act in like manner, Azimo still lists Nigeria as one of its money transfer destinations, offering remitters fee-free service for the first two transfers. “Central Bank of Nigeria rules mean that payments can only arrive with recipients in USD. As soon as the situation changes, we’ll let you know by email. In the meantime, Azimo remains one of the safest and most reliable ways to send money to Nigeria,” information gleaned from the company’s website at the weekend said.

While the CBN goes after IMTOs, Prof. Ken Ife, an international finance expert, said the commercials banks, through which the recalcitrant international organisations operate, are as culpable as their partners. He noted that the IMTOs could not have flouted the rules without the active connivance of the local banks.

“The CBN has asked the commercial banks to close their (IMTOs’) naira accounts so that they can transfer dollars directly into their domiciliary accounts for payment to beneficiaries. If they continue to violate the regulations, then the commercial banks they work with are open to compliance actions. The CBN can fine the banks (sufficiently to deter them) or withdraw their licences,” he said.

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The banks have been consistently accused of feasting on the remittance businesses at the expense of the beneficiaries and market growth. And while the CBN battles the IMTOs over non-compliance, some of the intermediary banks have not stopped their old tricks. Many beneficiaries still cash in naira as the banks often claim that they do not have dollar to pay, giving the customers the tough options of waiting till when foreign currencies are available which could be indefinite or simply take the naira equivalent, that is calculated in an official exchange rate.

As both IMTOs and their agents (banks) continue to shortchange customers, more transfers go through the informal channels just as unofficial currency needs matching hold sway. These challenges, market operators have warned, would continue to reduce the volume of foreign currencies that come into the country through the official channels. That is bad for an economy that is losing in foreign earnings on all fronts.

Already, the World Bank has estimated that global diaspora remittances would plunge by an average of 14 per cent this year. Sub-Saharan Africa, a fast-growing destination of the inflows, is projected to shed six per cent. That the global economy is already grappling with low foreign investments and overseas development assistance makes the forecast more scary not only for families that rely on the sources for livelihoods but also for governments that have taken the inflows as veritable means of external financing.

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According to the World Bank, remittances, which constitute an important source of external financing, will be axed by huge return migration fuelled by the Coronavirus 2019 (COVID-19) pandemic, declining jobs in immigrant destinations and health risks facing immigrants.

“Migrants are suffering greater health risks and unemployment during this crisis. The underlying fundamentals driving remittances are weak and this is not the time to take our eyes off the downside risks to the remittance lifelines,” said Dilip Ratha, immigration and remittance working for the World Bank expert.

As to whether the new remittance policy itself is worth its trouble, David Adonri, a financial expert said, is a matter of months. He noted that remittances are generally low in January while the demand for foreign exchange is also high. This, he said, makes it difficult to assess the stabilization role of the new policy Nigerians, he said, would be able to objectively review it in March.

But President of the Association of Bureaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, told The Guardian that the first obvious reaction to the rule was when the market eased late last year, retreating from about N500/$ to N470/$.