Towards Adequate FX Supply to SMEs


Dealing with a barrage of complaints by small and medium businesses, the Central Bank of Nigeria axed majority of the nation’s commercial banks, but the development has brought to the fore compliance issues in the administration of forex. Kunle Aderinokun and Olaseni Durojaiye write

The decision of the Central Bank of Nigeria to wield the big stick on 14 deposit money banks, last Tuesday, for denying many small and medium enterprises (SMEs) access to the  apex bank’s special forex window, has generated interest amongst operators and stakeholders.

As a response to the SMEs’ plight, the banking regulator suspended 14 banks from participating in the weekly SME wholesale spot and forwards interventions,  leaving only eight  that complied with its directive since inception. The eight banks that escaped the wrath of CBN were  Access Bank Plc, Diamond Bank Plc, Fidelity Bank Plc, Heritage Bank, Jaiz Bank, Sterling Bank Plc, Unity Bank Plc and Zenith Bank Plc,

But a day after punishing the erring banks, three of them, namely, Guaranty Trust Bank Plc; FirstBank and United Bank for Africa (UBA) Plc were readmitted into the spot and wholesale forwards segment of the foreign exchange market. Subsequent upon resumption of  the  three banks at the market, Keystone Bank joined them.  The four lenders were called back by the CBN after they furnished it  with evidence of their  FX sale to SMEs.

The CBN didn’t just wake up one day to sanction the affected banks. Before it took its action against them, it had been inundated with complaints by many of the SMEs and had threatened to sanction any bank that run afoul of its directive.

The banking watchdog had said it received complaints from SME operators over their inability to access FX,  who lamented that they were being frustrated by the banks.

As a result, the acting Director, Corporate Communications Department, CBN, Mr. Isaac Okorafor, had while addressing a media briefing on the side-lines of the on-going IMF-World Bank spring meetings, urged SME operators that had been denied access to FX to come up with evidence.

Okorafor had stressed that the central bank would not fail to sanction any bank or even the chief executive officer of the organisation that violates its rule on FX for SMEs.

Many analysts and stakeholders had hailed the introduction of the special FX window upon its introduction last April. Some of them hinged their reactions at the time on the argument that the manufacturing sector was the hardest hit by the FX shortage in the system at the time even with its potential for employment generation and wealth creation adding that about 70 per cent of operators in the sector fall under the SMEs classification.

“It will actually help a lot of our members, a significant number of our members actually fall within the SMEs category and this new policy will impact their business positively. I expect that they will no longer complain about their inability to access FX.” MAN President, Mr. Frank Jacobs told THISDAY after the introduction of the sector targeted intervention.

A few stakeholders, among them Director General of the Lagos Chamber of Commerce and Industry (LCCI) Muda Yusuf, in an earlier interview had expressed optimism that the new intervention would solve the crowding out effect, which he insisted was not limited to SMEs.

Interestingly, the crowding out effect appears to be continuing raising the question of compliance with regulations among operators in the nation’s financial services sector. It is against the backdrop that some analysts and stakeholders welcomed the action of the CBN to sanction some DMBs and  the regulations guiding the special FX window for the SMEs in the country.

The Sanction

In barring the 14 banks,  CBN  had disclosed that it took the decision to bar the erring banks based on field reports, which revealed that only eight banks had sold FX to the SME segment.

Confirming the sanction, Okorafor said the CBN management decided to bar banks that were yet to utilise any portion of the funds allocated by the CBN under the SME window, since its inception last month.

Okorafor warned  that the CBN would not sit back and allow any form of instability in the interbank FX market through the actions of institutions or individuals.

He, however, disclosed that the action will be lifted immediately any of the affected banks show evidence of significant utilisation of the funds allocated to them under the SME. window.

As an incentive, Okorafor said banks that had utilised their SME funds were allocated all of the $100 million sold at Tuesday’s wholesale auction.

Operators Speak

Issues bordering on compliance with regulations are not new to the FX segment of the nation’s financial services sector even as it has continued to generate divergent opinions among operators, economic policy analysts, stakeholders, in the sector.

The recent sanction, however, appeared to have returned the issue to the front burner.

The complaints assumed  claims-and-counter-claims dimension in August 2016 when the CBN mandated all DMBs to reserve 60 per cent FX in the system for exclusive sale to the manufacturing sector.

The initiative was part of efforts by the apex bank to continually tinker with how to manage the situation, but analysts raised query that bordered on compliance.

Some analysts and observers opined at the time that it was morally wrong for the CBN to dictate to the banks how and who to disburse the FX to and at what rate since the DMBs did not source the FX from the CBN, adding that it did not make business sense to sell it at cheaper rate, which was what some of the favoured sector were rooting for.

However, that argument may have ceased to hold water since the CBN commenced its latest wholesale supply of FX to the various tiers of FX market thus the need for the banks to comply with the CBN directive particularly regarding sector or needs specific FX interventions.

In his view, Jacobs lamented that some banks had not been cooperating with members of MAN adding that some banks even attached stringent conditions to ability to access the window.

 “Not many of our members have been benefitting from the FX window for SMEs. There have been complaints that some of the banks have been diverting the FX into other uses. There are complaints too that the banks have been selling the FX to them at N370 to a dollar as against the CBN approved rate. We also get complaints that some banks have been attaching very stringent conditions to the sale, like telling them to make 20 per cent deposits of the value of the invoice before

they could access the FX,” Dr. Jacobs stated.

Continuing, Jacobs, who argued that, “The CBN has an excellent policy but the apex bank is being sabotaged by some of the banks” added that, “We are happy with the action of the CBN to sanction some of the banks. As a matter of fact, we are calling on the CBN to withdraw the licenses of some of the banks that have failed to comply with the directive of the special FX window for SMEs to serve as deterrent to others.”

Also reacting, Director General of the Lagos Chamber of Commerce and Industry (LCCI) Muda Yusuf noted that sanctions are required to guide against misbehaviour and reiterated that though the supply side of the FX market had been witnessing improvements in recent times.

“If there are no consequences for misbehaviour in any system people will misbehave and this could lead to system collapse. It is important that people behave in accordance to rules and regulations and if they fail to do so, it is right to sanction them so if the CBN has proven facts that some of the banks have not been supporting the SMEs even after they collected FX meant for the purpose they deserve to be sanctioned,” he concluded.