Towards unified exchange rates regime between banks, BDCs

By Chima Nwokoji 

RECENTLY, the Central Bank of Nigeria (CBN) recently announced that Bureau De Change (BDC) operators and commercial banks will buy dollar at same rate and sell within same margin.  Market watchers saw it as a masterstroke needed to eliminate multiple exchange rates in the industry.

By this, the apex bank moved closer to realizing its single exchange rate target by unifying dollar buying rates for banks and Bureau de Change operators. The development has brought stability to the foreign exchange market and showed CBN’s proactive approach to ending multiple exchange rates. This move is tipped to permanently send currency speculators out of the market.

The Association of Bureaux De Change Operators of Nigeria (ABCON) commended the CBN’s policy direction and believes the BDCs’/Banks’ rate unification promotes efficiency, transparency, price discovery and will help phase-out multiple exchange rates regime.

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 gradually guide the market towards a single exchange rate regime that serves the interest of all stakeholders.

Speaking on the development, Association of Bureaux De Change Operators of Nigeria (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. These contributions, he said, 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,” he said.

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 forexneeds of the retail end-users and stick to allowable transactions limits as approved by the regulator.

The CBN had earlier in the month, approved an upward review of the trading margin available to BDCs. The approval allowed BDCs 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.

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.

Okorafor urged the BDC operators to abide by the new guidelines 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.

Speaking further on the new BDC rate, Gwadabe described the development as reflection of the apex bank’s commitment in achieving a single exchange rate regime. He said ABCON had earlier expressed concerns about rate disparity and is now pleased with the review which will ensure transparency and stability in the forex market.


New ABCON demands

The ABCON has further put up new requests before the CBN, which are meant to further deepen liquidity in the market.    Following the implementation of the $2.5 billion currency swap agreement between the CBN and the People’s Bank of China (PBoC), ABCON had urged the CBN to approve disbursements of the Renminbi (Yuan) to its members to deepen the China-Nigeria swap deal.

Gwadabe explained that the approval would enable BDCs sell Personal and Business Travel Allowances (PTA/BTA) to its customers in Yuan. According to him, the sale of BTAs and PTAs to China-bound businessmen would make them get used to the authentic features of the Yuan to avoid being issued fake currencies for transactions.

The ABCON chief applauded the CBN for taking proactive measures in prosecuting the deal and the stability of the naira at the nation’s foreign exchange market. He said the currency swap deal was part of the CBN’s plan to keep the naira stable and protect the foreign reserves domiciled in dollars. He said the 15 billion Renminbi (RMB)/Yuan or N720 billion deal would provide adequate local currency liquidity for Nigerian and Chinese industrialists and reduce difficulties they face in searching for the greenback.

The ABCON boss said BDCs would benefit from the swap deal given that a stable and strong naira is good for the economy and operators. For him, the increased use of Yuan in trade deals will also open a new business opportunity for BDC operators.

According to Gwadabe, ABCON will continually support CBN in achieving its exchange rate stability mandate and promoting economic growth through increased global partnerships and collaborations. He said the association is taking strategic steps to ensure that it benchmarks global best practices in currency dealings as seen in the ABCON co-ordination, automation and digitization projects.

The tough regulatory policies and environment, including the N70 million licencing fee for BDCs being championed by CBN are also concerns to ABCON. This fee, Gwadabe said, 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 multiple exchange rate, 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.

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 Co-ordination/Digitization agenda

According to Gwadabe, ABCON coordination journey of automation and digitalization of BDC’s processes started in 2016 with the launch of our automation platform named

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 revolutionalizing 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.

“Of special note is also the integration of our platform to immigration platform for the verifications of international passport. Already, we are in advance engagement with the Irish technology experts for the achievement of this idea. The final layer is the one that excites me a lot and has to do with a trading platform for BDCs in Nigeria. Our technical experts in India, Poland are in advance stage of completion for onward submission to the CBN,” he added.

In addition, ABCON presently co-ordinates dollar disbursement in all the disbursement centres across the country. The association in particular, co-ordinates dollar disbursements in three key locations namely: Kano State, Abuja and Awka in Anambra State.


Capacity Building for BDC Operators

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 organized 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.

At the end of the training, BDCs were taught how to raise and submit both the Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs) to regulators.

Besides, ABCON will in the coming months partner with National Drug Law Enforcement Agency (NDLEA) to train BDC operators on how on record keeping and ways of tackling illicit financial flows into the country through BDCs.


Roles of BDCs

According to Gwadabe, the BDCs have over the years, remained a potent monetary policy tool for exchange rate stability. They have helped the government 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.

For instance, 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.

Gwadabe said the Diaspora remittance figures could double in few years if the CBN gives the BDCs all the necessary support as being requested.

“While we commend the CBN for reviewing the rate at which the dollar is sold to BDCs thereby creating uniform competitive environment between the banks and BDCs, we also like Oliver Twist, ask for a better regulation that gives BDCs more time to concentrate on their core business of making forex available to retail-end users and attracting huge investment inflows into the domestic economy,” he demanded.