In the last few hours, I have received questions on why the Central Bank of Nigeria (CBN) asked banks to close the naira accounts of money transfer operators (IMTOs, international money transfer operators) in Nigeria. As an investor in a new startup, M-Naira, which holds the trademark for mNaira , m-naira and similar, in Nigeria, and which just received licenses to run remittance in US and Canada, this is something of importance to me.
To some of our members at Tekedia, I have asked them to wait for our banking and finance experts like Azeez Lawal to return from the holidays to explain.
But from my understanding, this is what CBN is doing here: in the past, when you wired USD, Euro or any foreign currency from abroad to Nigeria, you were paid in Naira, determined by the CBN official exchange rate. The IMTOs maintained a special purpose naira account to work on that reconciliation between the USD, etc they had received, say in the US and UK. and the naira they have settled in Nigeria.
But under the new CBN policy, where the USD or Euro is paid in the same currency in Nigeria to the recipient, there is practically no need for IMTOs to run a naira account. In other words, they have been disintermediated in the system locally. What happens is this: it is now between CBN and IMTOs offshore offices, and CBN and local banks since one currency is involved. The IMTOs local naira accounts are now redundant and of no value. (They can of course run the usual current and saving accounts).
This is a clear indication that CBN is committed to this policy: send the money in USD, and your recipient can pick it up in USD or have it deposited into a local USD domiciliary account. As I have noted, this is a good policy: you are essentially increasing the supply of USD in the nation and that would give naira a breathing space.
The Central Bank of Nigeria has directed the Deposit Money Banks to close all naira accounts of International Money Transfer Operators. It disclosed this on Friday in a circular tilted ‘Receipt of diaspora remittances: Additional operational guidelines 2 addressed to all Deposit Money Banks, Payment Service Providers and International Money Transfer Operators. …
The circular read, “DMBs are to close all naira accounts for IMTOs. This is to ensure that diaspora remittances are received by beneficiaries in foreign currency only (cash and/or transfers to domiciliary accounts of recipients).
“DMBs are permitted to open new opex accounts for the purpose of the IMTO operations, such as salary payments and other operating expenses excluding diaspora remittance receipts.
“DMBs must ensure that proper audit of IMTO accounts is done to forestall further use of naira accounts for diaspora remittances purposes.”
And CBN wants to deal with the operators who continue to pay naira instead of the foreign currency: “However and regrettably, a few operators continue to pay remittances in local currency contrary to regulatory directive. The CBN frowns on this practice.” So, if you close their naira accounts, that “illegal” playbook becomes impossible.