Early this week, the Central Bank of Nigeria (CBN) reviewed the guidelines and requirements for the operations of the Bureau De Change companies operating in Nigeria. Highlights of the review are the upping of both the minimum capital requirement and the mandatory cautionary deposit to N35 million each. The cautionary deposit shall be with CBN under a non-interest yielding account. The apex bank also indirectly sacked the Association of Bureau De Change Operators of Nigeria (ABCON) with the directive that henceforth, anybody can engage in FOREX business without being member of the ABCON. Operators and other Nigerians have since been reacting to the move by the new helmsman at the apex bank, with a suspicion that the new policies may adversely affect a section of the country more, given the prevailing orientations. CHIBISI OHAKAH writes
CBN mandate/observations
While releasing the new requirements, the Central Bank of Nigeria (CBN) touched on the necessary mandates it exercises in this regard. It said the review is in line with the powers vested on it by the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 17 of 1995 and the BOFI Act of 1991, the CBN licenses and regulates Bureaux de Change (BDC) operations in Nigeria to achieve the following objectives: Provide access to foreign exchange to small-scale end-users; and serve as tools for the management of exchange rate.
Other objectives are to assist in the fight against illegal financial activities; Facilitate economic activities; and Provide economic data for policy decisions.
Adducing reasons for the new reviews, CBN said it “observed with grave concern the deficiencies in the operational effectiveness of BDCs, which runs counter to the aforementioned objectives.” In particular, the Bank said it has observed the avalanche of rent-seeking operators only interested in widening margins and profits from the foreign exchange market, regardless of prevailing official and interbank rates; weak and ineffective operational structure, resulting in the subsector completely abandoning the objectives for its establishment, and depletion of the country’s foreign reserves, in view of the unusually large number of BDCs.
CBN also said it observed among the BDCs the potential financing of unauthorized transactions with foreign exchange procured from the CBN Window; gradual dollarization of the Nigerian economy with attendant adverse consequences on the conduct of monetary policy and subtle subversion of cashless policy initiative; and inadequate level of minimum paid-up capital.
Other observations
The CBN further observed that the required minimum paid-up capital of BDCs is set at N10 million. While the capital requirements of all other CBN-regulated entities have been reviewed upwards over the years, the one for BDCs has remained the same.
It notes also the prevailing ownership of several BDCs by the same promoters in order to buy foreign exchange multiple times from the CBN Window, which is clearly related to the low level of capital requirements for licensing BDCs.
Expected roles/failures of BDCs
The apex bank said it decided to intervene in the bureau de change sector in a bid to correct observed deficiencies in the operation of Bureaux de Change (BDCs) in Nigeria which have led to gross inefficiencies and sharp practices in the foreign exchange market.
It has therefore “taken steps to check the growing incidence of rent-seeking, depletion of external reserves, financing of unauthorized transactions and dollarization, among others.”
The CBN said its expectation is to have BDCs that are properly structured, effectively regulated, and well-capitalized to meet the objectives for which operators are licensed. In particular, the CBN envisages the following: the emergence of well-capitalised and structured entities that can effectively perform the roles of Bureau De Change in the economy
It says it also expects partnership between BDCs and renowned companies engaged in inward and outward money transfers in Nigeria. It is in expectation of this collaboration that the CBN said that as at 18 June 2014, it approved the “Guidelines for International Money Transfer Services in Nigeria”. Under the Guidelines, Western Union, Monegram and RIA Financial Services were authorised to carry out inward and outward money transfer services in Nigeria.
The Central Bank of Nigeria said the BDCs have failed to create robust and sustainable business franchises that are not dependent on rent-seeking activities but are properly situated to compete in the foreign exchange market, and deliver superior values and returns.
New requirements:
In view of the background and vision provided above, and in order to ensure that only genuine companies operate as BDCs in Nigeria, the CBN reeled out the following modifications to the Bureaux De Change Guidelines: the minimum capital requirement for the operation of BDCs in Nigeria is reviewed to N35 million.
Also the mandatory cautionary deposit has been reviewed to N35 million and shall be deposited in a non-interest yielding account in the CBN upon the grant of Approval-in-Principle.
Furthermore, the following fees shall apply to the licensing of BDCs: Application Fee—N100, 000.00; Licensing Fee—N1 million; and Annual Renewal Fee—N250, 000.00. Henceforth, business owners formerly in the habit of ownership of multiple BDCs may no longer be able to do so under the new requirements, as they would be prosecuted by the apex bank.
In the new guidelines, all BDCs currently in business and those currently operating with a Final Approval Letter would henceforth be required to comply with the requirement on mandatory cautionary deposit by 15 July 2014 while all current applications are expected to comply with these new requirements.
Lastly, the CBN said the compulsory membership of the Association of Bureau De Change Operators of Nigeria (ABCON) is no longer a requirement for the licensing of BDCs. This means that individual business persons can engage in the sale and purchase of foreign exchange in Nigeria without being member of the association or be regulated by the provisions of the association.
Operators react
Some Bureau De Change (BDC) operators have called on the Central Bank of Nigeria (CBN) to extend the deadline for the new capital requirement released for the industry.
The BDCs operators complain that the deadline for compliance to the requirement is too close and appears in bad taste. The managing director of Cowry Trust ltd, a Wuse based bureau de change, Mr. Mohammed Idrisu, said the new requirement is bound to send a lot of the operators out of business.
“How can anyone ask operators to cough out N70 million under three weeks? They moved both the minimum capital requirement and the mandatory cautionary deposit to N35 million each, amounting to N70 million. Now they would hold back N35 million in an interest free account; that is excruciating. It will stifle most operators out of business,” said Idrisu.
He also said the failure to meet deadline would result to closing shop, and by implication hamper economic growth, and lead to loss of jobs. He therefore called on the CBN to have a rethink over the deadline. He however agreed that the observations of the CBN on the activities of BDCs are correct.
“I don’t see much wrong with the increment of the capitalisation and even the cautionary fee, even without interest in an account with the CBN. There is a lot going on currently in financial sector. The safeguards by the apex are necessary. I have no problems with the increments,” he said.
The ethnic suspicion
Another respondent, the managing director of Doma Securities Nigeria Limited, Alhaji Yinusa Gulloma, said the move by the CBN to review the guidelines is targeted at a certain section of the country, and therefore not aimed at strengthening the financial sector.
“Everybody knows the section of the country from where we have many dealers in foreign exchange. The new CBN governor has not hidden his agenda to reduce the presence of the people from that region in the business. He is simply playing the script by his masters. We have heard the rumor that the immediate past CBN governor made it possible for many people from his catchment area to become FOREX dealers, but Nigerians are witness to the fact the northerners had become experts in FOREX long before Mallam Sanusi Lamido Sanusi left the secondary school. We shall see how it plays out. But all I can say to you now is that it will not work,” Gulloma told Blueprint yesterday
But another dealer, Mr. Ifeanyi Kodi said while his concern is with the time for compliance, his other worry is the impact on the pricing of the dollar and other foreign currencies in both the long and short runs. “First, I foresee the shooting up of the price of foreign currencies. Already many people have refused to sell, preferring to watch what will happen. The result will be a rise in the cost of currencies in a few days. That is not good.
Secondly, I don’t see any point in their claims against the BDCs. Check the records, the BDCs securing FOREX under the weekly bidding at the CBN, consume only about 13%. The banks are the ones taking the largest chunk. Now, going after the BDCs when the banks are the real culprits is tantamount to poor results. What will happen now that banks will leave their core areas, that is, funding the real sector – manufacturing and agriculture – to begin to pursue FOREX. It has happened before in the history of banking in Nigeria.
“Once again, the banks will start posting jumbo profits made more from sales of FOREX while the Nigerian economy will the groaning in critical areas. Round tripping is boosted by banks. The banks would still offload what they get from the CBN at the bureau de change, who would in turn resell to the public. What it means is that the number of intermediaries in the chain will increase. It may affect the eventual cost of the foreign currency,” he said
He queried the criteria used by the new Governor of CBN at arriving to the time frame, arguing that during the last N25 billion recapitalization process for banks, they were given ample time to look for funds, “Why should it be different with the bureau de change operators. It spells suspicion; I don’t blame those reading meaning into the intensions of the new governor of CBN, Me Godwin Emefiele,” Ifeanyi said
On the issue of raising required capitalisation within record time, the operator said the BDCs sector is incapacitated given that they are dominated by private businessmen who are not playing in the stock market where fresh funds are possible. According to him, no proprietor of BDC can get a buyer for a property within 30 days, if that is an option.
Another operator told the News Agency of Nigeria that the new capital requirement would not solve the problem of the industry. He said that “BDC does not require huge capital because they don’t give loans to people.
“They only buy currencies in accordance to CBN approval.” The operator, who blamed CBN for the rot in the industry, said that the government bank failed to adhere to its licencing procedure.
The operator said that the apex bank approved licences to every “dick and harry” unlike when only professionals were given operational licence.
He alleged that many managing directors of BDCs could not read or write, noting that in the past promoters of BDCs must have a minimum of 10 years financial experience.
The operator said that profiteering in the industry would be solved through proper scrutiny and adherence to licencing rules and procedure.
