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Revisiting CBN retail foreign exchange policy

Oludare Mayowa

Published 18 March 2022

Many Nigerians who depend on banks to meet their foreign exchange need may very soon face a hard time as some lenders have introduced more restrictions on access to dollar by end-users through their local currency debit cards.

Last year, the Central Bank of Nigeria suspended dollar sales to the Bureau De Change operators in a bid to curb rapid depreciation of the local currency and conserve forex reserves.

The CBN said the ban of sale of foreign exchange to the BDC operators was necessary because most of them have become conduit for illicit forex flows and graft.

“We are concerned that the BDCs have allowed themselves to be used for graft. They have turned themselves away from their objectives,” the CBN Governor, Godwin Emefiele, said at the time.

After the announcement, the apex bank directed commercial banks to immediately set up teller points in designated branches for the sale of forex.

It advised commercial banks to ensure that no customer was turned back or refused forex, provided that documentation and all other requirements were satisfied.

Those who are expected to approach banks for their forex needs are Nigerians who want to pay school fees, medical bills and in need of travel allowances.

However, many lenders have not been able to live up to expectations particularly in their new role of forex retailers as dollar scarcity persists despite the recovery in the country’s forex reserves at some point.

For instance, some banks have continued to frustrate efforts by recipients of Diaspora remittances from accessing hard currency with flimsy excuses, which include ‘no network’ and asking recipients to open a domiciliary account with them before they can access their currency.

Investigation showed that many Nigerians who require basic travel allowance and payment of school fee or medical bill are still not able to access dollar from their banks freely without passing through obstacles as banks ratio dollar due to shortage.

A banker said that the CBN had reduced the volume of dollars allocated to banks for the purpose of retailing and this has impacted the ability of the banks to dispense dollar to end-users in line with the regulatory bank’s directive.

Last week, some banks notified their customers on fresh restriction measures on the use of debit card to make payment on forex exchange purchases.

Three of Nigeria’s major lenders, namely, First Bank, Zenith Bank and United Bank for Africa announced the suspension of the use of debit card to access foreign exchange or restrict the amount they can withdraw, using their debit cards.

The UBA Plc stopped the use of naira card to withdraw dollars from Automated Teller Machines outside the country or make international payments at Point of Sale devices.

Zenith Bank Plc said it had “temporarily suspended” the same transactions on ATM and PoS devices. It cut spending limit on web transactions using naira cards to $20 a month from $100, citing “today’s economic realities” in a note to customers.

First Bank of Nigeria Ltd. set the limits on its naira Mastercard and naira credit card to $50 monthly.

The reason given by the UBA on its stoppage of the use of naira debit cards was based on its efforts to cut down on those transactions that would require it to start looking for foreign-exchange.

The restrictions have further reduced access to foreign exchange by many end-users, who hitherto would have shrug off the decision of the banks and approach the BDC operators to access their forex needs.

However, with the suspension of dollar sales to the dollar-retailing outlets by the regulatory bank, many Nigerians forex end-users have been incapacitated and may have to devise their own means of accessing dollars from whatever sources they can find.

Hitherto, the CBN sales of foreign exchange to the BDC operators were mainly for ease of access to the end-users, to halt the seemingly scarce foreign exchange and to shore up the exchange rate of the local currency.

But according to the CBN figures, this rather led to the astronomical growth in the numbers of the BDCs in the country from a mere 74 in 2005 to over 5,500 BDCs as of July 27, 2021, when the regulator imposed the ban on the BDCs.

Analysts have questioned the huge growth in the number of the BDCs, which represents an increase of about 1,345.45 per cent within 16 years.

Such quantum growth in the numbers of operators is a clear demonstration of regulatory laxity, which failed to put into account the clear objectives of setting up the sub-sector and its possible impact on the economy.

Sources said many people at some point were hawking BDC licences for as much as N10bn considering the lucrative nature of the business as charlatans took over the business without the regulatory bank doing anything about it.

However, despite the flaws in the operations of the BDCs, the CBN should not have thrown away the baby with the bath water. Since the suspension of dollar sales to the sub-sector, the local currency has not stop the haemorrhage, rather the naira has depreciated to around N585 to the dollar on the parallel market as end-users scramble to get foreign exchange to meet their needs.

It appears the measures by the regulatory bank to curb malpractices in the foreign exchange market and management is not sufficient to arrest the unscrupulous practice by operators in the financial sector.

From investigations, some banks may have diverted the dollar allocated to them for onward sales to end-users to black market to make huge profits and this has further worsened naira woes.

In all of these, there is still a place for the BDC subsector to bridge the gap and ensure stability in the forex management.

The CBN could enlist the service of the BDCs to be International Money Transfer agents, so that Nigerians who want to collect their Diaspora remittances can do so through the reformed BDC operators with clear guidelines that will eliminate abuse and manipulation.

What the CBN should do is to find a common ground that will ensure that it prones down drastically the number of those who hold the BDC licence and ensure that sanity is restored to how licences are issued and a tighter regulation of the sub-sector.

Many of the over 5,000 operators of the BDC licence are middle men who have no offices but would rather wait to collect the CBN forex allocation and then pass it on to the black market.

This, the CBN should discourage by restructuring the system and ensuring that only qualified, fit and proper operators are left to operate in the market.

This will ensure that small holders and users of foreign exchange have access to foreign exchange as of when they need it with minimum hardship as against what is happening today.

The CBN should also not hesitate to wield the big stick against violators of its regulation concerning foreign exchange no matter the status of such operators. This will bring back efficiency in the transaction in the foreign exchange management and ensure that Nigeria has a hold on its foreign exchange inflow and outflow.

The current system seems not to be working and the CBN should look holistically at the process to ensure efficiency and proper regulation of the market.

At the end of the day, the regulatory bank should set a transition period when operators, both banks and the BDCs would be allowed to develop the mechanism to source foreign exchange independent of the CBN in transparent manner that will ensure orderliness in the market.

Mayowa is an international financial journalist based in Lagos

KATSINA CITY NEWShttps://www.katsinacitynews.com
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