Nigeria’s Currency Woes Has The CBN Fussing Over Remittances

It is no big reveal that Africa’s largest economy, Nigeria, is the sixth biggest remittance recipient in the world. Last year, USD 17.5 Bn flowed into Nigeria in the form of remittances from the diaspora.

The news, however, is in the latest releases by the Central Bank of Nigeria (CBN) on diaspora remittances. The apex bank recently released two different circulars this week that cover the management of remittances from Nigerians in the diaspora.

Both circulars appear to contain multifaceted instructions. Firstly, it gave a directive to commercial banks in the country to immediately close all naira ledger accounts which were opened specifically to receive proceeds from International Money Transfer Operators (IMTO).

IMTOs are financial institutions (excluding banks) that function in and help facilitate cross border transfer of funds/remittances. Simply put, they act as an intermediary between the sender and the recipient of these funds. Think Transferwise, WorldRemit, Moneygram, Western Union, and the likes.

Also contained in the CBN’s release, is the instruction that directs banks to transfer all diaspora remittances to the domiciliary accounts of the beneficiaries or pay the customers in foreign currency.

Simply put, this means that recipients of these remittances from IMTOs can receive these proceeds in foreign currency or have it deposited in their Nigerian domiciliary bank account.

A part of the circular reads thus; “It is the sole discretion of the recipients to either choose foreign currency cash or have the proceeds deposited into their domiciliary accounts in Nigeria.” 

The apex bank noted that the changes are necessary to deepen the foreign exchange market, provide more liquidity, and create more transparency in the management of diaspora remittances into Nigeria.

What does this really mean?

Firstly, this new policy grants agent banks the responsibility of making final payments to beneficiaries of domiciliary accounts holders in Nigeria either in cash or through their domiciliary accounts.

The circular also instructed the IMTOs to ensure the foreign currency is deposited into their corresponding deposit money bank accounts. This is likely to tone down the role of these money transfer services while also granting only agent banks the authority to make the final remittance payment to the recipient.

As written on the circular; “Agent banks (deposit money banks) in Nigeria will be responsible for all payment to beneficiaries/recipients either in foreign currency cash (USD) or into the beneficiaries’/recipients’ domiciliary account in Nigeria.”

This policy appears to be one that could be of benefit to the recipient of the fund. That is, they have now been afforded the choice of choosing the payment currency.

A summary of the effect of this policy from the statement reads “In addition, these changes would help finance a future stream of investment opportunities for Nigerians in the diaspora, while also guaranteeing that recipients would receive a market reflective exchange rate for the market.”

The crux of this new policy by the CBN for the recipients of diaspora remittances in Nigeria is that they are now allowed to receive their remittances in their original currency.  

This effectively instructs banks to pay foreign remittances in dollars and no longer in naira.

Before now, inflow through IMTO such as Western Union was paid to beneficiaries in Naira. However, the CBN now wants this payment to be made in dollars.

This would Nigerians sell their dollars at the rate that they want and thereby create more liquidity, thus reducing the exchange rate disparity which is of priority to the apex bank.

The main gist around this, put in a sentence is that, henceforth, only banks have the responsibility to make the final payment to the beneficiaries, and also recipients can now get their remittances in a foreign currency unlike before.

A possible implication of this new directive is that it could create friction and sour the broth in some quarters. Banks are not the only agents through which IMTOs reach fund recipients.

Some fintech companies have working partnerships with money transfer services and this posture change is likely to bring some disturbance to the dynamic.

Featured Image Courtesy: Saurya Paudel