BDC-bank rates’ merger and search for end to multiple exchanges

It is a long-drawn battle and it has not been easy, even till now. That is not only the a good description of the many challenges that beset the foreign exchange market, but also the participants, particularly the licenced Bureaux De Change (BDCs). Of course, the Central Bank of Nigeria (CBN) recently made another move closer to realising the major issue of discord- multiple exchange rates and harmonisation. But it actually did, particularly with BDCs and their “competitor”- the Deposit Money Banks.

The CBN had earlier in the month, approved an upward review of the trading margin available to BDCs, which allowed them to buy dollar from the apex bank at N357/$1 and sell at N360, enabling them to earn a positive margin of N3 per dollar sold. Banks had long enjoyed the “unfair” trading position at N358/$ to sell at N360/$, while BDCs sell at N362/$, after buying at N360/$.

BDCs had earlier lamented that it is not only depriving them of customers, since they sell higher, but that the margin cannot offset their operational costs, making them to sack their workers and predisposing many of them to difficulties in obeying the rules and taking advantage of what comes around.It is certain that the latest development initiated by CBN has brought stability to the foreign exchange market and showed its proactive approach to ending multiple exchange rates tipped to permanently send currency speculators out of the market. The Association of Bureaux De Change Operators of Nigeria (ABCON) said it is commendable on the part of CBN’s policy direction and believes the rate unification will promotes efficiency, transparency, price discovery and will help phase-out the remaining part of multiple exchange rates regime. It was an idea, which time had come and a masterstroke needed to eliminate multiple exchange rates in the industry.

Over two weeks after the policy implementation, market response has been positive, with the local currency making massive gains against the greenback. The policy has equally put an end to frivolous dollar demand, exchange rate spikes, speculations, hoarding and rent seeking in the foreign exchange (forex) market. Many financial pundits believe the rate unification also captured CBN’s commitment and readiness to end the multiple exchange rates that have remained a plague to the industry, and in its place, entrench single exchange rate regime that serves the interest of all stakeholders.

Speaking on the development, ABCON President, Alhaji Aminu Gwadabe, said the speed at which the naira recovered against the dollar after the CBN’s announcement, buttressed the BDCs’ massive influence in the market and economy. He said the BDCs have so far stamped their role as key players in the forex market, where they remain major economic drivers creating employment and wealth for the people, adding that these contributions require that the operations of BDCs be supported to sustain ongoing market rally and stability. “We commend the CBN’s bold move in unifying the BDCs’, banks’ rates. We can safely say that the threat of distortions of market rate by election anxiety have been mitigated by the policy. And the BDCs are committed to supporting the CBN’s policy direction and actions to sustain ongoing market stability.”

According to the ABCON boss, the impact of the rate unification is massive, including raising foreign investors’ confidence in the domestic economy, boosting the foreign exchange reserves position and creating opportunity for a better foreign reserve management by the apex bank. He assured that the BDCs will continue to meet the critical forex needs of the retail end-users and stick to allowable transactions limits as approved by the regulator.

CBN Acting Director, Corporate Communications Department, Isaac Okorafor, said the decision was aimed at giving BDCs a level playing field to enable them compete favourably with other authorised forex dealers, but urged them to play by the rules and not exploit eager customers by selling above the N360 band.He warned that erring BDCs would be sanctioned in any case of infraction established against them. Before the review, the BDCs were buying dollars at N360 to a dollar, while selling same to customers at no more than N361.5/$1 while banks were buying at N357/$1 and selling at N360/$1.

New demands
The Association of Bureaux De Change Operators of Nigeria (ABCON), has urged the Central Bank of Nigeria (CBN) to diversify its foreign exchange (forex) disbursements in the thrice-weekly intervention to them, which includes the just brokered $2.5 billion currency swap agreement between the Central Bank of Nigeria (CBN) and the People’s Bank of China (PBoC).

The call came on the heels of the group’s success in negotiating a downward review of their buy/sale rates at the official window from N360/N362 per dollar to N357/N360 per dollar, an indication of a strong bargaining strength at the nation’s forex market.Gwadabe, who made the call said the diversification of the forex disbursement would also help to meet the critical needs of their numerous clients travelling to China for personal and business purposes, explaining that if implemented, such move will further deepen the interest in purchasing Yuan and reduce dollar demand, which appear to have monopolised the activities at the market.

Gwadabe noted that the currency swap deal was part of the CBN’s plan to keep the naira stable and protect the foreign reserves domiciled in dollars and the deal will provide adequate local currency liquidity for Nigerian and Chinese industrialists and reduce difficulties they face in searching for the greenback before transactions can be consummated.““BDCs will equally benefit from the swap deal, given that a stable and strong naira is good for the economy and operators, while increased use of Yuan in trade deals will also open a new business opportunity for BDC operators,” he said.

He said the tough regulatory policies and environment, including the N70 million licencing fee for BDCs being championed by CBN are also concerns to ABCON, as it is not only outrageous, but has reduced the funds available to BDCs to successfully run their operations.The BDC sector is also facing other challenges such as abnormal bank charges, Value Added Tax (VAT) and Commission on Turnover (COT), parallel market operators and illegal International Money Transfer Operators (IMTOs), porous international boarders, complex documentation requirements and poor capacity/ skills of operators.

Too many regulations
The increasing difficulties arising from over regulation and complex documentation requirements that licensed BDCs are facing in carrying out their daily legitimate operation is disturbing. These hitches have negative impact on BDCs’ ability to comply with statutory and regulatory requirements and have to be tackled by the apex bank.
For instance, six units within the CBN are involved with BDC regulations, supervision, licensing, monitoring. For instance, a BDC operator is expected to render daily, monthly, quarterly, half yearly and annual returns to these various departments of the same corporate body, which could be very cumbersome, repetitive and time consuming for both the operator and the regulator.

The operators are also under obligation to render same returns to the Economic and Financial Crimes Commission (EFCC) /Nigeria Financial Intelligence Unit (NFIU), while at the same time reporting to other statutory government establishments, including the Federal Inland Revenue Service and Corporate Affairs Commission among others.“These constitute multiple regulation of a unit of the financial sub-sector that is only involved as a small market player. Unfortunately, some operators have had to pay high penalties to different departments where instant regulations are violated. The result of this is heavy burden on the BDCs which have continued to challenge their operations. We urge the CBN to take critical look at these challenges and tackle them in the interest of the financial sector and economy,” he said.

ABCON’s digitisation
According to Gwadabe, ABCON coordination journey of automation and digitilization of BDCs’ processes started in 2016 with the launch of our automation platform named www.abconng.org.ng. The project came with three layers and stages. First layer is on online real time registration of our members with a success rate of over 4,100 BDCs registered nationwide. This layer is to enable our members conduct their membership registration from any of their location without coming physically to ABCON Secretariat.

The second layer bothers on automation of ABCON’s operational process, book-keeping, issuance of receipt, preparation of accounts, balance sheets, ledgers and sales/purchase registers. The most important of this layer is the online real time rendition of returns to regulatory agencies. “I am happy to inform this forum that this game changer is revolutionalising the BDCs sub sector in Nigeria and we will start a pilot test on June 20, 2018 with 21 BDCs selected across all the zones in Nigeria,” he said.Another important feature of this layer is the BDCs on boarding and integration of the Bank Verification Number (BVN) platform on the Nigerian Interbank Settlement Systems (NIBSS) portal for verifications and validation of clients’ BVNs, which is a most vital requirement forex sale.

Enhancing Capacity
ABCON has for years been an active group in the financial services sector, concentrating more on the BDC segment of the market and ensuring that global best practices are followed in BDCs operations.The association has on its own, organized trainings for its members, and also partnered with NFIU and the EFCC to build capacity for operators. BDC operators have been trained on how they can help in tackling money laundering, terrorist financing and the benefits of keeping records of their transactions.

“The anti-money laundering training that ABCON organised last month with NFIU in Lagos was meant to familiarize BDCs with the process of money laundering — the criminal business used to disguise the true origin and ownership of illegal cash — and the laws that make it a crime”.“The NFIU/ABCON goal is to ensure that BDCs are not used to launder funds by Politically Exposed Persons (PEPs) especially at this period of electioneering. Their target was also to upscale BDCs’ compliance with the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) for Banks and Other Financial Institutions in Nigeria, Regulations 2013,” Gwadabe stated.

Creating jobs
According to Gwadabe, the BDCs have over the years, remained a potent monetary policy tool for exchange rate stability and have helped in creating over 30,000 jobs for Nigerians, thereby reducing the unemployment rate in the country. The BDCs have continued and will continue to make forex available to the critical retail end users, thereby deepening forex access in the country. The BDCs have also been enhancing price discovery and transparency in the foreign exchange market. The operations of BDCs have equally raised the level of investors’ confidence and Diaspora remittances in the country.

The World Bank data showed that Nigerians living abroad (Diaspora) sent home $22 billion in 2017, the highest in the Sub-Saharan region, and the fifth highest in the world. This represents 10 percent increase when compared to the $19.64 billion sent home in 2016.But Gwadabe said the Diaspora remittance figures could double in few years if the CBN gives the BDCs all the necessary support as being requested.