The President of the Association of Bureau De Change (BDC) Operators of Nigeria, Aminu Gwadebe, has revealed that most diaspora remittances are diverted by some fintech and unlicensed companies. Aminu said a significant portion of diaspora remittances is being redirected away from the official market, including the parallel market.
Earlier in August, Olashodun Shonubi, the Acting Governor of the Central Bank of Nigeria (CBN), attributed the diversion of remittances from the diaspora to the parallel market for the collapse of the naira versus the dollar, and the CBN’s inability to control the foreign exchange market. As they end up on the black market, many diaspora remittances sent to Nigeria in dollars did not have formal documentation, according to Shonubi.
Speaking on this, the President of the Association of Bureau De Change Operators of Nigeria (ABCON) stated in a report by Nairametrics that although a meeting was held with banks to address the issue and bring more liquidity through appropriate channels, these banks did not appear to cooperate with the association.
He mentioned that the remittances are not being recorded in the country, as they are being used to fund activities like the trade of 41 banned items and other illegal speculative practices. Although people are sending money, these funds are not passing the regulated and legitimate channels, which is causing them to be diverted away from their intended purpose.
Speaking on some accusations that BDCs are part of the parallel market and involved in illegal activities, the ABCON President said there are various types of Bureau De Change (BDCs). He acknowledged that there are BDCs receiving diaspora remittances but not officially reporting them. He added that any BDC that doesn’t provide accurate returns for its transactions will face immediate consequences, and this warning is aligned with the Central Bank of Nigeria’s (CBN) intentions.
How fintech companies are allegedly diverting diaspora remittances
The statement suggested that certain fintech companies are redirecting diaspora remittances through channels other than the parallel market. Gwadebe acknowledged that these remittances are being channelled to platforms operating in various jurisdictions, lacking standardized regulations. He provided Binance as an example, an online platform with no clear geographical presence, highlighting the challenge of tracking such borderless entities.
“Yes, to some other channels that operate under different jurisdictions all over and lack standardized regulations. Can you tell me about Binance that is not in Nigeria, Nigerians are not doing transactions of Binance. These are borderless platforms, they don’t have borders, they don’t have offices, you don’t even know where they are, are they operating in Kenya, South Africa, Nigeria or Ghana
Gwadebe said these platforms just don’t transfer money through an agent. He complained that there are a lot of online platforms that are being advertised in countries with heavy concentrations of Nigerians and they are highly speculative. He said sometimes the interest rates of these companies are higher than what is obtainable in the parallel market.
He emphasized that numerous fintech companies involved in diverting these remittances acquire them at elevated rates.
The roles of the Federal Government in this
The ABCON President suggested implementing stricter measures for market players engaged in such activities. He emphasized the need for a favourable environment for licensed players, advocating for an expansion of the BDC business model beyond the conventional cash model.
According to him, these measures would involve allowing them to adapt and evolve, fostering healthy competition and transparency to enhance the market’s depth.
The statement pointed out a disparity between online fintech and licensed BDCs. Many online fintechs operate without regulation and are not required to seek approval from the Central Bank of Nigeria (CBN) to conduct online business. However, licensed BDCs face restrictions and hurdles if they intend to explore similar avenues. Gwadebe highlighted the need for a more level playing field, where BDCs can participate in online activities under appropriate regulations.
The response of CBN
Days ago, the Central Bank of Nigeria (CBN) announced additional guidelines for Bureau De Change (BDC) operators as it moves to reduce the dollar exchange rate and improve the efficiency of the Nigerian foreign exchange market.
The decision, contained in a circular dated 17 August, comes two years after the apex bank, under the leadership of Godwin Emefiele, banned the sale of dollars to BDCs in August 2021 amid efforts to stabilize the market. The former governor said the parallel market had become a conduit for illicit forex flows and graft.
CBN has now altered the method for submitting returns, incorporating new components into the previously submitted data. It recognized that some licensed BDCs falsely claim to be non-operational due to the absence of CBN interventions, resulting in zero transaction returns being sent to the Central Bank.
The new framework marks the reentry of BDCs into the market. It enforces a specific spread range for buying and selling activities conducted by BDC operators. This spread is now constrained to a permissible range of -2.5% to +2.5% of the Nigerian Foreign Exchange market window’s weighted average rate from the preceding day.
Furthermore, a noteworthy modification involves the mandatory requirement for BDC operators to submit regular financial reports. This measure aims to enhance oversight and accountability within the BDC sector, contributing to a more regulated and transparent foreign exchange landscape.
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