New CBN Reform on Remittance: Opportunities for Health Financing in Nigeria


Dr. Olumide Okunola

The Central Bank of Nigeria (CBN) on November 30, 2020 released a circular aimed at liberalising and simplifying the administration of remittances by the diaspora into Nigeria. In brief the circular allowed for beneficiaries to receive remittances into their ordinary domiciliary accounts in USD or receive the USD in cash ultimately allowing beneficiaries to receive “market reflective” exchange rates for their inflows. The Governor of the CBN emphasized the need for the policy reform as one of the ways to boost remittance inflows and foster an environment that would facilitate a faster and more convenient flow of remittances to Nigeria. The policy is an acknowledgement of the importance of remittances on the Nigerian economy. The reforms by the CBN addresses access issues for remittances but this article proposes the enhancement of the use of remittances for accelerated human capital development. It specifically outlines opportunities to reduce the high out of pocket expenditures by Nigerians when they require healthcare services by leveraging on this innovative reform by the CBN.

In the last decade remittances to Nigeria have gradually grown larger than both Foreign Direct Investment (FDI) and Official Development Assistance (ODA) to Nigeria. For a better appreciation of how large remittances have grown in Nigeria a comparison to oil revenues is important. In 2018 the oil sector accounted for about 8.7 percent of our GDP and contributed about 50 per cent of government revenues and 80 per cent of exports. In the same period remittance inflows was equivalent to 6 percent of our GDP and 40% of our exports.

The Nigeria diaspora population is significant with an estimated 15-17 million Nigerans dispersed across the globe; It is also not obvious to many that there is an equally large population of Nigerian diasporans on the continent itself. A survey in 2006 identified Nigeria as the biggest identified country recipient of respondent remittances (17%) from the UK; the survey further noted that Nigerians remit relatively higher levels of remittance (£1,022) higher than the Africa average remittance value (£875). Overall, Nigerians in diaspora remitted a whopping 24 Billion USD back to Nigeria in 2018.

It is widely acknowledged that remittances are the most tangible and least controversial link between migration and development. Unlike oil prices that are volatile in an economic downturn remittances’ are relatively stable and are countercyclical. On the last point during a recession people tend to send more money to relatives and beneficiaries back home. A rational response by governments in a recession is a pro cyclical approach where cuts are implemented in reaction to an economic downturn. The remittances are associated with poverty reduction, helping households at home diversify their sources of income and more significantly increases household’s investment in their human capital accumulation efforts including education and health. Though remittances to Nigeria are expected to plunge by over 25 percent in 2020, because of the protracted interruption of economic activity in the main destinations of Nigerian emigrants, the US and UK. In a post COVID era migrants will continue to send money home for healthcare services.

One out of two Nigerians live in a household that receive remittances. It is shown that households invest remittances productively in physical and human capital with an average of 12 per cent utilized for healthcare. There is a linkage between remittances and increase in access and utilization of healthcare services but also that an increase in remittances will also lead to an increase in healthcare utilization. The remittances for healthcare are mainly used by the poor, low income wage earners, those living in rural areas, it helps in increasing information about better healthcare practices and for accessing much needed primary healthcare services. Households headed by women spend more on healthcare than those headed by men. Furthermore, in an environment where people seek care from informal providers the use of remittances for healthcare is associated with modern and better-quality healthcare. Undoubtedly the huge inflows of remittances can complement Nigeria’s universal health coverage (UHC) aspirations considering that it will facilitate the inclusion of the very people currently not enjoying any service or at best limited service.

So how can remittances help this situation and more importantly how can the reforms by the CBN support such efforts? This article identifies two areas for action on the use of remittances for healthcare.

Firstly – Defiscalization of migrant savings linked to payments for healthcare in source country. We have a lot to learn from the example of the French government who introduced individualization and “bancarization” codevelopment aid. In this regard French Banks offered individual migrants tax breaks through a special “codevelopment savings account” or “bank passbook” who invests his or her savings profitably in his or her source country. This example can be adopted to serve the health sector in Nigeria. Doing so will entail a partnership between Nigeria and one of the destination countries as a proof of concept. The pact between the French and Senegal governments is a case in point. Design features will include ensuring that the beneficiary opens a health wallet wherein the payments are tagged to healthcare. The wallet will be equivalent to the payment of a subscription to a risk pool. We might argue about the voluntary arrangement inherent in this kind of initiative, but it explicitly complements the mandatory health insurance arrangements back at home in Nigeria. To enhance the redistributive capacity of such contributions the payments are linked to existing compulsory prepaid pools thus increasing the diversity of the health risks covered in these pools and reducing fragmentation in the overall structure of pooling.

Secondly – the costs of transfer of remittances can be waived or significantly reduced if it is specifically tagged for healthcare. The holy grail of remittances is how to lower the transfer costs of remittances. The SDGs target a reduction in the cost of transfer from an average of 7% to less than 3% by 2030. Countries in Sub Saharan Africa like Nigeria continued to have the highest average cost, at 9.3 percent far above the global average. These mark up costs (premiums) can be translated into demand side subsidies by the host nation of the person sending the remittance if the purpose is tagged for healthcare. The same arrangements described above under defiscalization will hold.

Overall, remittances can be a more sustainable way of development assistance for health and can be another way of diversifying revenues for Social health insurance schemes at home. At 10 per cent of current level of remittance spent on health care this translates to 2.4B USD or just about a Trillion Naira per annum! Whilst not replacing public financing it will be a much-needed complement. The reform by the CBN is a first step in the right direction and will be a critical enabler for the use of remittances for healthcare as highlighted in this article. Policy implications are that opportunities exist to incentivize migrants to remit specifically for healthcare in Nigeria as it encourages the pooling of the current fragmented remittances for much larger impact; deepens a fragile health market and ultimately boost our human capital development efforts. The injection of such funding to the health sector will go a long way in contributing to stemming the billions of Naira lost to medical tourism and save hard earned foreign exchange. Lastly, it will also support efforts to keep our rather limited number of human resources for health back at home.

…. Okunola, a Senior Health Specialist with World Bank, Nigeria wrote in via