New Telegraph

Diaspora remittances as CBN joker for naira stabilization

Nigeria accounts for a substantial portion of migrant’s remittance flows to Sub-Saharan Africa. Alternatively, known Diaspora funds remittance, these funds by Nigerians living and working overseas play an important role in development of Nigeria economy.

 

At the level of an individual, the person who receives fund cash in Nigeria could use it to enhance his/her welfare, deploy it to paying school fees, rent service; boost business or debt servicing. Portions of the funds can be put into estate and housing construction.

 

According to analysts, 70 per cent of remittances are used for consumption purposes, while 30 per cent of the remittance funds go into investment related uses.

 

Diaspora remittance is an important transaction that requires regulation by the country’s monetary authority. In Nigeria, the powers rest with the Central Bank of Nigeria (CBN). Over the years, the apex bank issued several policies designed to boost and facilitate unhindered flow of remittances sent home by Nigerians in the Diaspora. Periodically, as need arises, the banking regulator tinkers with Diaspora remittance policies vis-a-vis the policies guiding operations of the International Money Transfer Operators (IMTO).

The CBN policies are geared towards having efficient flow of Diaspora fund remittance. Previous attempt at coordinating remittance inflow: Unofficial reports put Nigerians resident abroad at about 16 million.

 

They are residents in the United Kingdom, Italy, Ghana, Spain, Germany, Ireland, United States of America, Canada, Russia among others. Considering the volume of remittances to Nigeria by Nigerians abroad, CBN cannot stand aloof without policy in place to safeguard the remittance inflows. CBN Governor, Mr. Godwin Emefile gave insight into what was obtained in the past; how remittances from abroad were coordinated at a recent press briefing in Abuja.

 

He said: “In 1996, the first remittance programme by an IMTO was launched in Nigeria. The private arrangement, with limited involvement by the Central Bank of Nigeria, was between an IMTO, Western Union and First Bank of Nigeria, which was then the only Western Union agent. Indeed, I am aware that at that initial stage, Western Union dealt with only First Bank directly, while First Bank of Nigeria, in turn, had other banks as sub-agents.

 

This programme enabled recipients of remittances to receive such funds over the counter in foreign currency, amongst other options. Following the successful launch of this programme, other money transfer organisations launched similar initiatives to provide services to the growing number of Nigerians in the Diaspora who were keen on remitting funds back to Nigeria.

“However, due to issues around dollar cash availability, some of the remittance operators working with the commercial banks decided to remit funds to recipients in our local currency, at an agreed exchange rate between the banks and the IMTOs.”

 

CBN regulation in focus To increase Diaspora remittance flow and improve the number of channels available to Nigerians abroad to wire their transfer, the apex bank in 2016 launched a licensing regime to guide the conduct and operations of IMTOs.

 

The new policy led to licensing of 65 International Money Transfer Operators. Justifying the need to the expand coast of Diaspora fund remittances, which according to the CBN Governor, Mr. Godwin Emefiele was around annual Emefiele estimate of about $24 billion, a princely amount that could help improve Nigeria’s balance of payment position, reduce its dependence on external borrowing and mitigate the impact of COVID-19 on foreign exchange inflows into the country, the bank sought to find ways to support improved remittance inflows into the country through official channels.

 

“Based on this premise, we analyzed data on IMTO inflows into the country over the past year, and through our investigations discovered that some IMTOs, rather than compete on improving transaction volumes and create more efficient ways for Nigerians in the Diaspora to remit funds, resorted to engaging in arbitrage arrangements on the naira-dollar exchange rate, which to a large extent resulted in a significant drop in flows into the country.

 

It also encouraged the use of unsafe unofficial channels, which also supported diversion of remittance flows meant for Nigeria, thereby undermining our foreign exchange management framework.

 

“As a result, in an effort to boost remittance inflows and foster an environment that would enable faster, cheaper, and more convenient flow of remittances back to Nigeria, the Central Bank of Nigeria, on November 30, 2020, announced a new policy initiative, which would help to support these objectives,” he said.

 

CBN’s master-stroke Diaspora remittance policy Recent pronouncement by the Central Bank on December 3, 2020 was the master stroke, game changer in the affair of managing Diaspora remittance in Nigeria. Addressing the media in Abuja on the new Diaspora remittance policy direction, CBN governor Mr. Godwin Emefiele announced new policy guidelines.

 

Contrary to what was obtainable in the past, beneficiaries of Diaspora remittances through IMTOs shall henceforth receive such inflows in foreign currency (US dollars) through the designated bank of their choice. Recipients have options too. Recipients of remittances have the option of receiving these funds in foreign currency cash (US dollars) or into their ordinary domiciliary account.

 

“These changes are necessary to deepen the foreign exchange market, provide more liquidity, and create more transparency in the administration of Diaspora remittances into Nigeria.

 

In addition, these changes would help finance a future stream of investment opportunities for Nigerians in the Diaspora, while also guaranteeing that recipients of remittances would receive a market-reflective exchange rate for their inflows,” said the CBN Governor.

 

He said: “All Authorised Dealers and the general public should note that beneficiaries shall have unfettered access and utilisation to such foreign currency proceeds, either in FX cash and/ or in their Domiciliary Accounts, in line with our circular TED/FEM/FPC/ GEN/01/010.”

 

The governor said that the Central Bank had experienced push back from some interest groups, especially from IMTOs who were bent on undermining the new

policies. “This was the reason the CBN had to insist on Wednesday, December 2, 2020, that all DMBs must close all naira General Ledgers through which the naira remittances were hitherto being carried out.

 

Following the announcement of these new policy measures, the Central Bank, in an effort to enable smooth implementation, engaged with the commercial banks and the IMTOs to ensure that recipients of remittance inflows are able to receive their funds in the designated foreign currency of their choice,” he said.

 

He added that as a result of these engagements, which took place with major IMTOs and the DMBs on Thursday, December 3, 2020, the stakeholders have committed that they would deploy all the necessary tools to ensure that these measures become effective. To this end, he said the policy of recipients receiving their monies from abroad kicked off on December 4, 2020.

 

All the IT systems of these IMTOs (Western Union, Moneygram and Ria services) and the DMBs have been properly configured to begin remittance that date, he stated.

 

In order not to give room for policy circumvention, CBN in another policy dated December 16,2020 addressed to IMTOs and Payment Service Providers (PSPs) gave additional operational guidelines: It directed Switches and Processors to, immediately cease all local currency transfers in respect of foreign remittances through IMTOs, all MMOs required to immediately disable wallets from receipt of funds from IMTOs while payment service providers were directed to cease integrating their systems with IMTOs going forward and must prevent commingling of remittances with other legitimate transactions.

 

In another circular on December 18, 2020, the Central Bank instructed DMBs to close all naira accounts for IMTOs.

 

The decision, it said, was to ensure all Diaspora remittances are received by beneficiaries in foreign currency only (cash / and or transfers to domiciliary accounts of recipients). DMBs were directed to audit IMTOs account to forestall further use of naira accounts for Diaspora remittance purposes.

 

Last line:

 

CBN’s latest policy on Diaspora remittance is a game changer, master stroke to stabilise local currency, the naira against major rival currencies. The policy, in addition, will relieve CBN the pressure of defending the naira with foreign reserves.

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