1.1 The Nigerian Fintech space received significant attention from regulators in the second half of 2020 and into 2021. This ranges from the Securities and Exchange Commission's ("SEC's") stated intention to issue regulations on cryptocurrency, to the actions that it has taken to restrict the activities of certain investment platforms in a bid to directly regulate all those operating in the industry. The CBN has also been busy with its own regulations, streamlining its licences and issuing regulations on the use of QR Codes and its Sandbox regime. Amid this flurry of new regulations, particular attention has been given to International Money Transfer Operators ("IMTOs") and diaspora remittances in general.
1.2 The following are some of the circulars recently issued by the CBN in relation to diaspora remittances:
(a) Circular1 to all authorised dealers and the general public, issued on 30th November 2020 re: Amendment to the Procedures for the Receipt of Diaspora Remittances (the "1st Circular");
(b) Circular2 to all authorised dealers and the general public, issued on 2nd December 2020 re: Further Amendment to the Procedures for the Receipt of Diaspora Remittances (the "2nd Circular");
(c) Circular3 to all IMTOs and Payment Service Providers ("PSPs"), issued on 16th December 2020 re: Additional Guidelines on the Receipt of Diaspora Remittances (the "3rd Circular");
(d) Circular4 to all Deposit Money Banks ("DMBs") and IMTOs, issued on 17th December 2020 re: Further Amendment to the Procedures for the Receipt of Diaspora Remittances (the "4th Circular");
(e) Circular5 to all DMBs, PSPs and IMTOs, issued on 18th December 2020 re: Additional Guidelines on the Receipt of Diaspora Remittances 2 (the "5th Circular"); and
(f) Circular6 to all authorised dealers and IMTOs, issued on 22nd January 2021 re: Modalities for Payout of Diaspora Remittances (the "6th Circular").
together referred to as the "Circulars".
- THE CIRCULARS
2.1 The CBN dismantled the currency restrictions on international remittances using the Circulars. Prior to this, international remittances could only be paid to recipients in Naira and were converted to Naira at an exchange rate prescribed by the CBN. This rate did not reflect the market rate and was considered disadvantageous to recipients. With these Circulars, funds sent from outside the country will no longer be received as Naira, as recipients must now be given the funds as cash in foreign currency or in their foreign currency domiciliary accounts. This has led to the cessation of all Naira pay-outs (cash or bank deposit)7 and the closure of all IMTO Naira accounts by DMBs8.
2.2 The 1st Circular was received with mixed feelings from stakeholders and the public in general. The CBN, to clarify its position on the subject, issued the 2nd Circular which provided that: (a) IMTOs must ensure that all funds in favour of beneficiaries /recipients are deposited into the Agent Banks' (DMBs) correspondent account; (b) the DMBs in Nigeria will be responsible for the final payment to beneficiaries/recipients either in USD cash or by transfer; and (c) the beneficiaries have the sole discretion to decide the mode of payment to be adopted.
2.3 In furtherance of this, the CBN issued a directive on 2nd December 2020, insisting that all DMBs must close all Naira general ledgers through which the Naira remittances were previously being carried out. To this end, the CBN Governor, Mr. Godwin Emefiele, at a press conference in Abuja on 3rd December 2020 highlighted some of the reasons for the adoption of this new policy as follows:
(a) The significant drop in inflows to the country: One of the factors that contributed to the significant drop in inflows to the country is that IMTOs have now resorted to engaging in arbitrage arrangements on the Naira-dollar exchange rate, rather than competing on improving transaction volumes and creating more efficient ways for Nigerians in the diaspora to remit funds.
(b) The closure of the Naira general ledgers was necessary because they had encouraged the use of unsafe unofficial channels, which supported the diversion of remittance flows meant for Nigeria, thereby undermining the foreign exchange management framework.
(c) Based on the data culled by the CBN, the size of remittance computed by the International Monetary Fund ("IMF") shows that the IMF takes into consideration money that comes in directly as flows and the earnings of Nigerians in diaspora in different parts of the world in computing remittances. Thus, the new policy will allow for proper accounting of the foreign exchange (forex) inflow in Nigeria.
2.4 Furthermore, the CBN being of the view that some IMTOs continue to pay remittances in local currency contrary to the regulatory directive, issued the 3rd Circular. The resulting effect of this is that IMTOs are prohibited from sending money to Mobile Money Operators ("MMOs") and MMOs are to disable their e-wallets from receiving funds from IMTOs. Also, while the 3rd Circular prohibits Switches and Processors from getting involved in foreign remittances through IMTOs, PSPs are prohibited from integrating their systems with IMTOs.
2.5 Flowing from this, it is now clear that the CBN has by the 3rd Circular, prohibited PSPs, MMOs, Switches and Processors from receiving diaspora remittances. This position was clarified by the CBN in the 6th Circular where it stated that only licensed IMTOs are permitted to carry on the business of facilitating diaspora remittances into Nigeria. There has been mixed reaction from stakeholders to the fact that these Circulars place some sort of difficulty on the operations of PSPs, MMOs, Switches and Processors as their integration to IMTOs (which is now prohibited by the 3rd and 6th Circulars) was a major source of revenue for them.
- IMPACT OF THE NEW CBN POLICY
3.1 All forms of integration and collaboration between MMOs, Switches, PSPs, and IMTOs with regards to diaspora remittances are no longer possible. These stakeholders are now banned by the CBN from receiving diaspora remittances. It appears that only DMBs can pay beneficiaries of diaspora remittances.
3.2 The new CBN policy on diaspora remittances is targeted at increasing the inflow of foreign currency into Nigeria. This policy is said to have the effect of stabilising the exchange rate of Dollar to Naira as there would invariably be an increase in the supply of dollars within the country, amongst other things.
3.3 Funds sent from outside the country will no longer be received in Naira as recipients must now be given the funds as cash in foreign currency or in their foreign currency domiciliary accounts. They can, however, no longer receive it in an online Wallet as they used to.
3.4 IMTOs (whether licensed or unlicensed) are prohibited from acting as aggregators with respect to receipt of IMTO funds, and only Foreign IMTOs (i.e. licensed IMTOs that have agency relationship with Nigerian banks) can offer USD cash and USD bank deposit9.
3.5 IMTOs are required to immediately disclose to beneficiaries that they exercise discretion to receive transfers in foreign currency cash or directly into their domiciliary accounts. This can be done by way of a notification or notice to the said beneficiaries.
4.1 The exchange rate has been affected by several factors, including but not limited to the declining economy, (the pandemic being one of its responsible factors) and the decline in the price of oil. By these regulations, the CBN hopes to increase the amount of foreign currency in circulation which should temper the rising exchange rate.
4.2 While this is generally a very welcome development as it addresses the exchange rate mismatch that previously existed, it does raise some difficulties. With no time given for the implementation of these changes, these difficulties could not be resolved. For one, no arrangements have been put in place to address the limited availability of foreign currency cash required to make these payments in foreign exchange, particularly in rural areas. Also, many in the rural areas do not have foreign currency domiciliary accounts and may have difficulty in converting their cash into Naira. The regulations do not appear to allow for the recipient to choose to receive Naira. Also, the exclusion of MMOs is expected to be an additional impediment to those living outside commercial centres.
1. Ref No. TED/FEM/FPC/GEN/01/011
2. Ref No: TED/FEM/FPC/GEN/01/012
3. Ref No: PSM/DIR/CON/CWO/16/119
4. Ref No: TED/PFO/BNK/CON/02/013
5. Ref No: PSM/DIR/CON/CWO/16/126
6. Ref No: TED/FEM/FPC/PUB/001/001
7. See the 4th Circular
8. See the 5th Circular
9. See the 4th Circular
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