BDCs jump 75-fold on exchange rates attraction
The number of the Bureau de Change (BDC) operators in Nigeria has risen by more than 75-fold in 16 years, from 74 in 2005 to 5,689 in 2021, data from the Central Bank of Nigeria (CBN) indicated.
Compared with the 2015 figure, under the current administration, the number of the BDCs has risen by over 100 percent from 2,839 six years ago.
BusinessDay’s finding shows that the astronomical increase in the number of BDCs was a result of attractive exchange rate premiums.
The exchange rate premium between the official and BDC rates is N188 or 44.02 percent as at July 12, 2022. The official exchange rate, which is the Investors and Exporters forex window rate, stood at N427.75 per dollar as at July 8, 2022, while the BDC rate closed at N615 on July 12.
“Why there are so many of them is because of the level of premium between the official and parallel market rates. The higher the premium, the more attractive it is to be in that business. The higher the premium, the more they see it as patronage,” said Muda Yusuf, chief executive officer of Centre for the Promotion of Private Enterprise.
According to him, the more the disparity in rate, the more people register, even as some people are having more than one licence.
Those who are involved in round tripping are almost overshadowing those who are doing the business as originally construed, he said.
“The growth for me is a reflection of distortion in the market and this has led to a proliferation of the BDCs, as many are there for round-tripping,” he said.
A BDC, according to the CBN, is any company that is licensed to carry on small-scale foreign exchange business in Nigeria and whose sole object is the carrying on of such business on a stand-alone basis.
The BDC sector has for decades remained a critical component of the Nigerian financial market, playing a pivotal role in exchange rate stability and job creation. The BDCs have supported Nigeria’s growth agenda and the CBN’s commitment to exchange rate stability and regulation for the industry.
A number of erring BDC operators have been sanctioned by the CBN and the Association of Bureaux De Change Operators of Nigeria in line with the industry’s zero tolerance for regulatory abuse.
In 2019, a CBN director explained how BDCs can be used to perpetrate money laundering. He said the operators could be used to transfer or remit funds, use fronts or third parties to buy or sell forex, purchase forex multiple times contrary to regulatory limits, bulk purchase or sale of forex, and third-party funding of BDCs’ weekly forex purchase through the apex bank window.
The director said there could also be a huge unexplained transfer of funds into naira or domiciliary accounts of BDCs, multiple ownership of the BDCs to mop up forex, huge forex purchase using naira cash and purchase of forex in exchange for jewellery or real estate, among others.
In January 2016, the banking sector regulator stopped dollar sales to the BDCs, saying they had become a conduit for illicit trade and financial flows.
Godwin Emefiele, governor of CBN, said: “We have noted with grave concern that Bureau de Change operators have abandoned the original objective of their establishment, which was to serve retail end users who need $5,000 or less. Instead, they have become wholesale dealers in foreign exchange to the tune of millions of dollars per transaction.
Thereafter, they use fake documentation like passport numbers, BVNs, boarding passes, and flight tickets to render weekly returns to the CBN.
“Whereas the bank has continued to sell US dollars at about N197 per dollar to these operators, they have in turn become greedy in their sales to ordinary Nigerians, with selling rates of as high as N250 per dollar. Given this rent-seeking behaviour, it is not surprising that since the CBN began to sell foreign exchange to BDCs, the number of operators has risen from a mere 74 in 2005 to 2,786 BDCs today. In addition, the CBN receives close to 150 new applications for BDC licenses every month.”
More disturbing, Emefiele said, was the financial burden being placed on the central bank and its limited foreign exchange.
“In order to curtail this reserve depletion, we have reduced the amount of weekly sales to $10,000 per BDC, which translates into $28.4 million depletion of the foreign reserve per week and $1.476 billion per annum. This is a huge haemorrhage on our scarce foreign exchange reserves, and cannot continue especially because we are also concerned that BDCs have become a conduit for illicit trade and financial flows,” he said at the time.
The apex bank resumed sales of forex to the BDCs in 2017, but, last year, it stopped providing forex to them.