The CBN’s new policy on Bureau de Change

The Central Bank of Nigeria (CBN) has introduced new measures aimed at tightening the licensing and operation of Bureau de Change (BDC) in the country. It announced a new minimum capital requirement of N35 million, up from the previous N10 million. It also reviewed the mandatory cautionary deposit for BDCs to N35 million, which shall be put in a non-interest yielding account in the CBN upon the grant of approval-in-principle. While the application fee remains N100,000, the licensing fee which was N500,000 will now be N1 million, and the annual renewal fee for the forex traders has also been increased to N250,000 from N10,000.

In its circular, the apex bank said the new requirements became necessary to stem a perennial drain of Nigeria’s foreign exchange reserves. The measures would also hopefully correct the observed deficiencies in the operation of BDCs in Nigeria, which it said had led to “gross inefficiencies and sharp practices in the foreign exchange market”. It further said that the steps would help “check the growing incidence of rent-seeking, depletion of the external reserves, financing of unauthorised transactions and dollarization, among others”. The CBN first gave the BDCs a deadline of 15 July 2014 to comply with the new requirements but later extended it to 31 July 2014.

Specifically, the central bank said it would like to see “the emergence of well-capitalised and structured entities that can effectively perform the roles of BDCs in the economy; and partnership between BDCs and renowned companies engaged in inward and outward money transfer in Nigeria” such as Western Union, Moneygram and RIA Financial Services.

It is necessary to remind ourselves that it is the CBN itself that had licensed these BDCs and had been responsible for regulating them – just as it had been the main source of the foreign exchange they sell – and so must share responsibility for all those sharp practices it is now accusing them of perpetrating. In particular, the apex bank was aware that many directors and top executives of the big deposit-taking banks owned multiple BDCs, and that they are believed to be the largest beneficiaries of its forex allocations – a practice it is commendably banning now.

Some analysts and stakeholders have criticised the new directives as being capable of sending many operators out of business, with a quite few of them seeing it as a ploy to favour big banks and other key players. The House of Representatives had a fortnight ago called for the suspension the policy and summoned the CBN Governor Godwin Emefiele to appear before its committee on banking to explain the policy. On his appearance before the committee, he restated the position outlined in the CBN’s circular.

The Association of Bureau De Change Operators of Nigeria has, however, insisted that the new capital requirement was too high and the deadline too short. And Chairman of the Senate Committee on Finance, Senator Ahmed Makarfi, had equally described the new measures as “unjust, unfair and inequitable”, since tying up such huge amounts without any guarantees with regards to the amount they could expect to be allocated regularly from the CBN would be too risky.

However, it is necessary to look at these issues more thoroughly since the unstated concerns include money laundering and the financing of terrorism. The dollarization problem arises mainly from official corruption, political financing and oil bunkering from which even the big banks may not be exonerated. What the CBN needs to do is to strengthen its financial reporting system and enhance collaboration with law enforcement agencies to check illegalities and terrorism.

Most people now rely on ATMs and credit cards while travelling or buying something abroad. Increasing Personal Travel Allowance and Business Travel Allowance would help take care of most legitimate demands – so would assisting the government to come up with policies that could reduce our excessive demand for imports, medical tourism and educational sojourns abroad.

It is only by introducing a requirement for all those wishing to purchase forex from Bureau de Change to provide some forms of identification, as is the practice in other countries, that proper security surveillance can be put in place.