The Central Bank of Nigeria had recently, evoked powers bestowed on it by the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 17 of 1995 and the Bank and Other Financial Institutions Act of 1991, to license and regulate BDC operations in the country. However, the change directions listed in the document did not elicit controversy, but one- the issue commitment and responsibility to avowed business interest.
The arguments advanced by the Central Bank of Nigeria (CBN) for the recent reforms of the BDC sub-sector over quality of BDCs, plugging in assessed lapses leading to inefficiency and ensuring corporate structure, may have appeared tenable to some, punitive to others, with many still indifferent.
Of course, issues pertaining groups and sectors that directly impact the economy’s monetary policy should be capable of raising such mixed feelings, after all, $50,000 being sold to over 3000 registered BDCs weekly, is substantial and can make or mar the policy directions.
“There are avalanche of rent-seeking operators, only interested in widening margins and profits from the foreign exchange market, regardless of prevailing official and interbank rates; weak and ineffective operational structure, resulting in the subsector completely abandoning the objectives for its establishment; and depletion of the country’s foreign reserves, in view of the unusually large number of BDCs,” CBN said in a statement announcing the release of the new guideline.
The cases, rumours and assessed lapses bedeviling the sector have long been in existence with various leaderships at CBN trying to solve them, perhaps, getting some, while others were left without success. In fact, recent leaderships ranging from Prof. Chukwuma Soludo; Malam Sanusi Lamido Sanusi; to the incumbent, Godwin Emefele, have taken major policy shift in the sub-sector. Specifically, Sanusi axed nearly 300 in less than two years now, yet the sub-sector has known no sanity.
A source close to CBN had hinted that at present, the ownership structure of BDCs and names of the promoters are not given attention. The revelation came as the insider source was trying to clear the new policy of being bias or targeted at some sections of the operators, but a point worth noting has been raised as well– governance issues. But the new guideline offered a straightforward direction in that regard.
The cause for the alarm presently, is centred on the capital base requirement, which were raised to N35 million each, from N10 million, while the caution fee was moved up to N35 million, from N3 million. Already, the legislators– the House of Representatives, through its committee on Currency and Banking have registered their displeasure and championed the course of opposition to the issue.
But sources said the new capital requirements were targeted at reducing the number to a manageable size and pruning down ”weak feathers” among the ranks of BDCs as well. It is also meant to place a responsibility on the sizeable number that will scale the hurdle. Perhaps, the large size and weak ones among the ranks were possible leakages in the system, an opportunity for unsavoury behaviours that has enmeshed the sub-sector in inefficiencies. Of course, the reform pattern is not a totally new terrain, as similar reform has taken place in the banking industry severally, perhaps, part of the success story of the industry presently.
Another source also said it will ensure that surviving ones are adequately capitalised for the business– making the operators capable of standing by themselves, not being spontaneously funded by unknown persons whenever they are bidding for foreign exchange, a development that has encouraged the perennial round tripping and money laundering.
Indications also emerged that some of the BDCs were just a conduit pipe and used as accessory to the foreign exchange. The ones who appears to be the operator is not the real owner. During bidding period, the money will be paid into the account, while supposed operator will fill in all manners of names and amounts dispensed in the Returns Form, but in reality, the real owner has scooped the foreign exchange and paid his emissary commission. Whatever the dollar is used for may not be known.
“There is also the potential financing of unauthorized transactions with foreign exchange procured from the CBN Window; gradual dollarization of the Nigerian economy with attendant adverse consequences on the conduct of monetary policy and subtle subversion of cash-less policy initiative; and inadequate level of minimum paid-up capital,” CBN said in a statement.
A closer look at the way transactions are done by these “money changers” revealed that government lost and is still losing revenues as well. According to a relaible source, the nation’s foreign exchange Act predisposed the country to several ills. The Act is not concerned about how much one is with, but only with the declaration. In Ghana, you cannot carry more than $10,000, but in Nigeria, you can carry as much as you can, provided it has been declared. This is a dangerous precedent.
In India, the source explained, you cannot exchange the currency without proper documentations- Visa (for foreigners). But foreigners who have mastered the act in the country work down the street to exchange their currencies without record, even when some of the amounts exchanged could possibly earn the country a tax revenue.
Still, another source said that the new rule will ensure that BDCs operate in the confines of their offices, not the usual roadside hawking. Of course, the new rule has provisioned mechanisms for enforcement and supervision. Certainly, it would beat any imagination to see a business with such huge capital outlay and painstaking procedures without office or dependent on roadside hawking of currency. In organised society, it does not work that way.
Sometimes as well, people have come up with various complaints after the transactions that the exchanged amount got missing, shortchanged or outright disappearance immediately they leave the scene of the transactions. Beside, no one knows the source of the foreign exchange, as terrorists can have their way through it, because no proper structure is in place.
Recently, an intelligent report from the government’s major agencies said part of the foreign exchange are used in financing terrorism, while others were laundered. Even the recent past CBN Governor, Sanusi, once said that some of our foreign exchange was found in Saudi Araba. How can these emerging challenges be curtailed without a proper structure and measures, even stringent ones?
Ali Madaki, a member of the House of Representatives, had argued that the new requirement, if allowed to stay, would cause unemployment kill the informal sector, which had provided job opportunities for a large section of the population, even as the unemployment situation was already high in the country. But how many jobs are created by the sub-sector? What is the comparative advantage between the jobs created and the looming economic instability as envisioned by the economy manager? But the measure seems not to eliminate the BDCs, rather structure its operations so that it would not be counter-productive. Beside, the issue of foreign exchange and liquidity management has never been taken lightly in any economy.
It really appeared that CBN has finally braced up to sanitise the segment, which have long been fingered for malpractices and inefficiencies.
According to the apex bank, the move was to correct observed deficiencies in the operation of BDCs, which have led to gross inefficiencies and sharp practices in the foreign exchange market and the growing incidence of rent-seeking, depletion of external reserves, financing of unauthorized transactions and dollarization, among others.
CBN said the new guideline will be enforced to ensure that BDCs stick to their mandates and provide access to foreign exchange to small-scale end-users; serve as tools for the management of exchange rate; assist in the fight against illegal financial activities; facilitate economic activities; and provide economic data for policy decisions.
It noted that before now, the required minimum paid-up capital of BDCs is set at N10 million and while the capital requirements of all other CBN-regulated entities have been reviewed upwards over the years, it has remained the same.
The statement, said: “To ensure that only genuine companies operate as BDCs in Nigeria, the minimum capital requirement for the operation of BDCs in Nigeria is reviewed to N35 million; while the mandatory cautionary deposit is reviewed to N35 million and shall be deposited in a non-interest yielding account in the CBN upon the grant of approval-in-principle.
“The following fees shall apply to the licensing of BDCs- application fee, N100,000.00; licensing fee, N1 million; and annual renewal fee, N250,000.00; while ownership of multiple BDCs is not permissible, and would be punishable if detected.”
It noted that all existing BDCs and those currently operating with a Final Approval Letter are required to comply with the requirement on mandatory cautionary deposit by July 15, 2014, while all current applications are expected to comply with these new requirements.
It however, nullified the compulsory membership of the Association of Bureau De Change Operators of Nigeria as no a requirement for the licensing of BDCs, adding that this deliberate approach by CBN is expected to have BDCs that are properly structured, effectively regulated, and well-capitalised to meet the objectives for which operators are licensed.
“The emergence of well-capitalised and structured entities that can effectively perform the roles of Bureau De Change in the economy; and partnership between BDCs and renowned companies engaged in inward and outward money transfers in Nigeria,” it added.
Courtesy: The Guardian