Clamping down on Unregistered Int’l Money Transfer Operators

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MARKET INDICATOR

By Obinna Chima

Millions  of  migrants  worldwide  send  billions  of  dollars  in  remittances  each year to their families or communities of origin. In Nigeria and many other developing nations, remittances are  an  important  source  of  family  and nati-onal income and also are the largest source of external financing.

According to the World Bank, Remittances are  better  targeted  at  the  needs  of  the poor  than  foreign  aid  or  foreign  direct  investment  (FDI),  as  recipients  often depend  on  remittances  to   cover daily living expenses, to provide a cushion against emergencies, or to  make  small  investments  in  business  or  education.

The World Bank estimated the value of Nigeria’s Diaspora remittance at $21 billion. It is the largest in Africa. The multilateral agency had also projected that Africa’s foreign remittance market would hit $41 billion this year.

Therefore, remittance services should be safe, efficient, and reliable. This can be achieved by increasing competition, enhancing access to payment system infrastructure, improving transparency, and ensuring a sound and predictable legal and regulatory framework.

In Nigeria, there are only three registered international money transfer operators namely Western Union, MoneyGram and Ria.

That is why a recent accusation by WorldRemit , an online remittance provider, which wasn’t registered in the country, that the regulators in Nigeria stopped its money transfer services to Nigeria was greeted with surprise.

WorldRemit had alleged that hundreds of global remittance companies had been forced to cease transfers to Nigeria and called “for the urgent restoration of money transfers to Nigeria as draconian new rules leave virtually all money transfer operators (MTOs) unable to provide services to the West African country.”

According to the firm, it was instructed by its local correspondents that transfers to Nigeria will no longer be processed and is, accordingly, suspending services immediately.

WorldRemit founder and CEO, Ismail Ahmed said: “This move is arbitrary, inexplicable and hugely detrimental to the Nigerian diaspora who rely on hundreds of money transfer companies and banks, providing them with choice, convenience and competitive pricing.

“Even now, as we suspend our service, there is no clarity on why this sudden change has happened. If it is on the basis of new rules, there was no warning. If it is a re-interpretation of old rules, local correspondent networks and banks should have been forewarned.

“This reverses the progress made by the country when the Nigeria Central Bank banned Western Union’s exclusivity agreements that had created a near-monopolistic position in the international money transfer market. Western Union controlled 78 per cent of the market share when CBN outlawed exclusivity agreements with local banks.”

But in reaction, the CBN advised Nigerians at home and in the diaspora to beware of the unwholesome activities of some unlicensed International Money Transfer Operators (IMTOs) in Nigeria.

The warning it stated became necessary because of the activities of some unregistered IMTOs, whose modes of operation are detrimental to the Nigerian economy.

“All financial service providers in Nigeria, just as in other jurisdictions, are required to be duly licensed in order to protect both customers and the financial system as well as to ensure the credibility of financial transactions.

“For the avoidance of doubt, all licensed International Money Transfer Operators, in line with the CBN Circular on the sale of foreign currency proceeds of July 22, 2016, are required to remit foreign currency to their respective agent banks in Nigeria for disbursement in naira to the beneficiaries while the foreign currency proceeds are to be sold to Bureaux De Change operators, for onward retail to end users,” it stated.

To this end, it stressed that the central bank will not condone any attempt aimed at undermining the country’s foreign exchange regime.

Accordingly, members of the public were advised to beware of the activities of such unregistered IMTOs for the greater economic good of Nigeria.

Furthermore, the acting Director, Corporate Communications, CBN, Mr. Isaac Okorafor, pointed out that in Nigeria, providers of financial services are licenced just like in other jurisdictions. He described the allegation by WorldRemit as false.

“Here, we licenced providers of financial services, not only to protect the customers, but also to protect the financial system itself and to be able to vow for the credibility of those institutions.For us, only three of them are licenced – Western Union, MoneyGram and Ria. So, we didn’t stop the operations of any of these three companies,” he added.

But a banking industry source alleged that unlicensed money transfer firms that had been diverting dollar remittances into the country are no longer comfortable with the recent CBN directive on funding of BDCs from remittances.

“What these unlicensed agents did was they came to open naira accounts. And when our people want to remit money home, they would collect the foreign exchange there and instruct the banks here to pay naira. What that means is that the dollars don’t get to Nigeria. So they deny us that chunk of dollar supply,” the source added.

But a banking industry source alleged that unlicensed money transfer firms that had been diverting dollar remittances into the country are no longer comfortable with the recent CBN directive on funding of BDCs from remittances.

“What these unlicensed agents did was they came to open naira accounts. And when our people want to remit money home, they would collect the foreign exchange there and instruct the banks here to pay naira. What that means is that the dollars don’t get to Nigeria. So they deny us that chunk of dollar supply,” the source added.

Until now, money transfer operators such as WorldRemit operated via partnerships with licenced local correspondents in Nigeria, enabling transfer of funds to local bank accounts – providing a more efficient service than the SWIFT infrastructure.

As part of the overseas partnership requirements, the central bank guidelines on international money transfer services stipulates that a money transfer operator, who wishes  to  engage  a foreign  technical partner that  will  provide  global  or  regional payment  or  money  transfer platform,  shall obtain a  letter  of  no  objection from  the CBN

Some of the conditions to be applied to the technical partner includes that it must be a registered  entity; licenced  in  its  home  country  to  carry on  money   transfer activities, have  a minimum  net  worth of $1 million, as  per  the  latest  audited financial statement, or as may be determined by the CBN from time to time; the   CBN   shall   conduct  appropriate   due   diligence   on   the   promoters,  directors and key officers of the proposed money transfer operator, among others.

CBN Sells N245bn Treasury Bills

The Central Bank of Nigeria (CBN) sold N245.2 billion treasury bills at last week’s primary market auction.

The auctioned instruments were the 91-day, 182-day and 364-day instruments at stop rates of 15.4 per cent, 18.1 per cent and 18.5 per cent.

The treasury bills auctioned were two times oversubscribed. Average T-bills rate for the week settled at 17.4 per cent, up 0.2 per cent week-on-week.

According to analysts at Afrinvest West Africa Limited, activities in the treasury bills market were majorly dictated by financial system liquidity levels which were dragged by the CBN’s activity in the primary market.

On the other hand, in the money market, the week opened with aggregate financial system liquidity at N253.6 billion. Open buy back (OBB) and overnight trended upward throughout the week as open market operations (OMO) and treasury bills primary market auctions took a drag on liquidity levels. On Monday, OBB and overnight lending rates rose 4.3 per cent apiece as system liquidity declined as a result of OMO auctions conducted by the CBN, where N170.3 billion was mopped up from the system.

The auctioned instruments were the 353-days and 185-days bills at marginal rates of 18.5 per cent and 18 per cent. At the start of Tuesday’s trading session, aggregate system liquidity stood at negative N10.1 billion thus reducing OBB and overnight rates to 15.5 per cent and 16.6 per cent respectively. On Wednesday, liquidity remained at low levels as OBB and overnight rates increased to 18.7 per cent and 19.6 per cent, further increasing to 19.8 per cent and 20.8 per cent on Thursday. OBB and overnight rates eventually closed the week at 19.5 per cent and 20.6 per cent, up 16.3 per cent and 15.9 per cent week-on-week respectively.

Nevertheless, the foreign exchange market remained pressured at both the interbank and parallel markets as a result of the lingering FX liquidity crunch.

Contrary to the preceding week when the exchange rate was relatively stable at the parallel market, the naira depreciated all week and hit a low of N400/$1 on Thursday. The illiquidity in the interbank, pressure from 41 items termed inadmissible for FX at the interbank window, increased dollar demand by summer vacationers and students returning to school abroad, has kept the naira pressured on the street.  The interbank market was however less volatile during the week as the naira traded at N318.91/$1 on Friday.

In the futures market, the current total value of subscribed CBN’s naira settled futures contracts for 12 different maturities stood at $1.7billion with the NGUS APR 26 2017 as the most subscribed at a value of $658.6 million.