Nigeria: Can Money Transfers Tame Pressure in Forex Market?

By Obinna Chima

Obinna Chima highlights the need for the out-bound money transfer service that was introduced last year in order to prevent the perennial demand for dollars at the forex markets

The naira came under severe pressure last year, even as the currency depreciated by about 13 per cent during the year.

In fact, the nation's currency earned an unenviable position as the third worst performer in Africa in 2014, against a basket of fairly liquid currencies. It followed Ghana's cedi and Zambia's kwacha in that order.

Although the Central Bank of Nigeria (CBN) last year devalued the currency, tightened trading rules to try to curb speculation against the currency, and also initiated other rules to calm the demand for the greenback, the pressure in the market has remained unabated.

While the performance of the naira has been largely attributed to the falling crude oil prices, with predictions that the trend might continue if oil prices remain weak, experts have stressed the need to promote the outbound remittance service, which was launched by the Central Bank of Nigeria (CBN) last year.

The outbound money transfer platform allows Nigerians to send funds in minutes to people in anywhere in the world and is expected to strengthen the growth of the payment system.

Outbound money transfer is person to person international money transfer from Nigeria to countries around the world.

The CBN recently increased the maximum value for outbound international money transfer services to $5,000 per transaction.

The CBN Governor, Mr. Godwin Emefiele had said the initiative was targeted at remittances by individuals to dependants, including children, living abroad and for other person-to-person needs.

According to him, since the commencement of the inward money transfer service in 1995, the payment landscape in Nigeria has significantly transformed.

He stated that the outbound money service was launched to provide an alternative channel of foreign exchange transfer to serve the needs of small foreign exchange end users.

He added: "If you have the need to make payment to your children, brothers and sisters living abroad that need small financial support, all you need to do is to take your cash to any of the 5,000 Western Union outlets in Nigeria."

He disclosed that the central bank was working on the modality to involve Bureau de Change (BDC) operators in the system.

According to Emefiele, the initiative will go a long way in reducing pressure on the foreign exchange since it has simplified the use of foreign exchange for international transactions.

He said: "Simultaneously, it reduces the foreign exchange sourced from official foreign exchange window in Nigeria and to a large extent, helps to conserve our foreign exchange."

He explained that under the initiative, a prospective customer, who wishes to use the service, would only pay naira equivalent to the money transfer operators for the foreign currency that would be paid to the specified beneficiary abroad.

According to him, this will end the idea of going to the BDCs or banks to buy foreign currency before transferring money abroad.

He stated that bank accounts were not required to transfer funds and that transactions point would be within the reach of customers.

The initiative is expected to complement the effort of the central bank in its foreign exchange management policy.

The Guidelines

The recent review of the guidelines, according to the bank, was carried out in order to accommodate outbound money transfer services.

The 19-page document titled: 'Guidelines on International Money Transfer Services in Nigeria,' stated that all inbound money transfer to Nigeria would be disbursed to beneficiaries who operate a bank account, mobile money wallets with the agent or through ATM.

"No person or institution shall operate international money transfer services unless such person/institution has been duly licenced by the CBN.

"A financial product involving international money transfer that is not duly registered with the CBN is illegal.

"An indigenous money transfer services operator (MTSO) who provides regional and/or global money transfer service and who wishes to engage a foreign technical partner shall obtain the prior approval of the CBN," it added.

Furthermore, the banking sector regulator pointed out that a technical partner must be a registered entity, licenced in its home country to carry on international money transfer services, have a minimum net worth of $10 million, as contained in its current audited financial statement, or as may be determined by the CBN from time to time; should be well established in money transfer services with a verifiable track record or operations among others.

"Deposit Money Banks (DMBs) are prohibited from operating as international money transfer service operators, but can act as agents except with express approval of the CBN.

"The provision of Bank and Other Financial Institutions Act (BOFIA) on the prohibition of employment of certain persons in banks shall also apply to international money transfer services operators.

"In line with the BOFIA, all the conditions stipulating the exclusion of certain individuals from the management of banks shall apply to the management of international money transfer services providers," CBN added.

Agents' Preparedness

The Group Managing Director/Chief Executive Officer, Fidelity Bank Plc, Mr. Nnamdi Okonkwo noted that the outbound transfer would help reduce the pressure in the forex market.

"We all have relatives abroad who from time to time, send money home, but we also know that a lot of us here need to send money to people abroad.

"In the past, each time you needed to send money you have to fill a Form 'M' or Form 'A' and all of that. Alternatively, a lot of people simply go to the black market to buy dollars. But what the central bank has done was to make it easier to send money outside Nigeria and this has made things easier for a lot of customers," he said.

He noted that the service would also boost financial inclusion.

On his part, the Group Managing Director/Chief Executive Officer of the United Bank for Africa Plc, Mr. Phillip Oduoza pointed out that the service would also help improve intra-Africa relationships as many Nigerians no longer have to move around with cash as they can easily transfer money to their loved ones and dependants in other African countries or in China, Europe and America to support them.

For Skye Bank Plc, which also launched outbound money transfer with MoneyGram, recently, the platform is a very important part of economic growth and financial inclusion in Nigeria and across Africa.

"As Nigeria continues to position itself as an exciting market for growth, the provision of sound, safe and relevant financial services is imperative to ensure the country continues its rapid development," the bank added.

To the Regional Vice President for Africa, Western Union, Aida Diarra, the outbound money transfer service would move a significant number of people from the informal to the formal sector of the economy.

She said: "We anticipate that the outbound enabled service offering in Nigeria, Africa's largest economy, will be instrumental in making positive economic impact in the country by supporting business growth, social development and financial inclusion.

"We believe this service will respond to our new consumer segment needs. This is further demonstration of efforts to support the Central Bank of Nigeria's objectives for financial inclusion."

On her part, the Regional Manager, Anglophone West Africa, MoneyGram, Mrs. Kemi Okusanya noted that as Africa's largest economy, with over 10 million migrants, Nigerians would be glad to have the opportunity to send money abroad to their loved ones and for business transactions.