CBN and regulation of Money Transfer Operators in tough times

As Nigeria strategises on how to attract foreign exchange inflows to shore up its presently $26billion reserves and meet increasing demands, it has become critical, more than ever, to ensure that all loopholes that encourage arbitrage and forestall inflows into the country are appropriately blocked.
The Central Bank of Nigeria (CBN) recently burst a foreign exchange racket by an ‘International Money Transfer Operator’ who had been operating in the country without due registration, raising concerns on how people take advantage of any slightest loophole in the Nigerian system to deprive the country of possible benefits and particularly cause the economy harm.
On Tuesday, WorldRemit, a leading online remittance provider called for the urgent restoration of money transfers to Nigeria, accusing the CBN of some ‘draconian new rules’, which it claims have left virtually all money transfer operators (MTOs) unable to provide services to the West African country.
Under the new regime three companies – Western Union, MoneyGram and Ria who are duly registered to provide such money transfer services will now be able to continue operations.
Until now, money transfer operators such as WorldRemit operated through partnerships with licensed local correspondents in Nigeria, enabling transfer of funds to local bank accounts. So the IMTOs would advise their local correspondents to pay the recipient of the remittance the naira equivalent of the transfer but would keep back the dollar component that ought to flow into the economy and help the struggling FX market.
But the CBN, in a circular it issued – without even prior knowledge of such racket, as BDSUNDAY learnt – had on July 22 directed all authorized FX dealers and Bureau De Change (BDC:) operators who are agents to approved IMTOs to sell foreign currency accruing from inward money remittances to licensed BDC operators henceforth.
The CBN said the directive was to bring in liquidity into the system, ensure exchange rate stability and to encourage participation of all stakeholders in the FX market.

To deepen the market and check the widely-spreading dollarisation of the economy at the time, the CBN last two years mandated banks to pay customers the naira equivalent of funds remitted by the folks abroad.
But in the latest rule, the CBN said the foreign currency proceeds of such transfers now to be sold to the BDCs would be retailed to end users in compliance with the provisions of anti-money laundering laws, the Know Your Customers Principles as well as the use of BVNs.
In the circular signed by W. Gotring, its Acting Director, Trade and Exchange Department, the CBN also said it expects the authorised dealers and BDC operators to render returns on daily and monthly basis, warning that failure would attract appropriate sanctions, including the withdrawal of dealership license.
The new policy has attracted some outrage by some IMTOs. The understanding is that the CBN has attracted their wrath by breaking a long-existing racket which was costing Nigeria billions of dollar Diaspora remittances from flowing into the economy as it ought to.

According to reports, Nigeria records up to $21 billion Diaspora remittances annually.
Most remittance-receiving countries, including India, the world’s largest remittance recipient, and Egypt deploy these funds to boost their economy.
India retained its top spot in 2015, attracting about $69 billion in remittances, down from $70 billion in 2014. Other large recipients in 2015 were China, with $64 billion, the Philippines ($28 billion), Mexico ($25 billion), and Nigeria ($21 billion), according to World Bank latest numbers.
The World Bank acknowledges remittances as an important and fairly stable source of income for millions of families and of foreign exchange to many developing countries. But this is hardly so for Nigeria because while of course, benefitting citizens enjoy the remittances from their friends and families in the Diaspora, the Foreign currencies do not flow into the economy but taken out by the money transfer operators.
Following the CBN new directive, international MTOs, including WorldRemit was instructed by its local correspondents they will no longer process transfers to Nigeria and are accordingly, suspending services immediately.
But this development, expectedly has not gone down well with WorldRemit founder and CEO, Ismail Ahmed. In a statement, Ahmed has described the move as arbitrary, inexplicable and hugely detrimental to the Nigerian Diaspora who rely on hundreds of money transfer companies and banks, providing them with choice, convenience and competitive pricing.
“Even now, as we suspend our service, there is no clarity on why this sudden change has happened. If it is on the basis of new rules, there was no warning. If it is a re-interpretation of old rules, local correspondent networks and banks should have been forewarned,” he had lamented.
But sources say that the unregistered IMTOs like the WorldRemit had formed a racket which suffocates the $21billion annual Diaspora remittances from flowing into the economy. It was also to forestall this ugly trend that the CBN directed banks to sell dollar remittances to the BDCs going forward so that these unregistered IMTOs do no longer have access to such inflows.
Besides, CBN is now insisting that all financial service providers in Nigeria, just as in other jurisdictions, must be duly licensed in order to protect both customers and the financial system as well as to ensure the credibility of financial transactions.
Isaac Okorafor, Acting Director, Corporate Communications CBN told BDSUNDAY that the apex bank has not closed the operations of any licensed MTO. “What we are trying to do is to ensure that money transfer is legal, transparent and to the benefit of the Nigerian economy.
“We have not stopped the operations of any licensed money transfer operator in the country.
“Those who are licensed are operating smoothly and we cannot stand by and watch people sabotage our economy withhold legitimate foreign exchange that has been remitted by our nationals abroad and deny the economy of the use of that FX.
“But we have noticed that some practices have been going on whereby some foreign transfer operators come to Nigeria, open very large account and this is what they do.
“Over there, the $21 billion that our people remit back home which should rightly act our reserve and help out some liquidity into our foreign exchange market, what these people do is that when they ope naira account, they scoop or will keep back the dollar out there and give instructions for people to be paid in naira here.
“So what it means is that this economy has been deprived of the foreign exchange inflow that should come to boost our reserve and out liquidity into the market.
“So in essence, we have remittances of our people in the Diaspora does not have any positive impact in our economy back home,” Okorafor explained.
Besides the CBN, experts are also of the view that at a time like this, a country like Nigeria what has seen a fair share of dwindling FX inflows and reserves cannot afford to whittle away such earnings as critical as Diaspora remittances.
They say it is more so worrisome that the modes operandi of the involved companies is not known by the Nigerian regulators till recently.
In their opinion, this ugly system must have gone on for a long time, however, they say this is not the time for Nigeria to cry over spilled milk but should rather be proactive and go after any operations tantamount to ripping the economy off.
“What the CBN has done has been to say that all inward transfers must be forex backed, and when this money comes, commercial banks can now sell it to BDCs who can now cater to the needs of those whose needs small amounts like BTA, PTA for travel and so on.
“And because of that circular, the banks who do businesses with them had told them that, look we can no longer go on on this racket. And so they are saying all sorts of things to blackmail the CBN and we think it is a welcome development,” said Jide Awosika, a financial analyst.