January 4, 2021

The recent remittance policy introduced by the Central Bank of Nigeria (CBN) may likely boost the inflow of forex into the country. BUKOLA IDOWU writes.

The Central Bank of Nigeria’s (CBNs) policy on diaspora remittance became effective early last month, a situation that enhanced the services of bankers on the foreign exchange transfers, deposit and withdrawal desks.
Access to foreign exchange has also improved as banks commenced the payment of diaspora remittances in line with the options of the customers and demand for foreign exchange, which had pushed the value of the naira beyond the N500 benchmark, giving the local currency a breathing space.

However, with the COVID-19 pandemic exposing critical issues like the need for diaspora remittances to the development of emerging economies, government officials have stepped up their actions to increase remittances.


Recall that the World Bank had predicted that inflow of diaspora remittances to Nigeria would drop by $2 billion in 2020 to $21.7 billion, as against the $23.8 billion the country recorded in 2019. The decline in remittances from Nigerians living abroad was however hinged on the double challenges imposed by the COVID-19 pandemic and its attendant economic crisis.
Globally, banks had also anticipated that the amount of money that migrant workers send home would decline by 14 per cent by 2021, compared to the pre-COVID-19 levels in 2019. According to the World bank, remittances are helping to address the impact on African households, as Nigeria remains the largest recipient of remittances in the region and seventh largest recipient among Low and Middle-Income Countries (LMIC).

Earlier in May, a report by the United Nations Economic Commission for Africa (UNECA) and NEPAD agency, at the request of African Heads of State, stated that Illicit Financial Flow (IFF) from the continent was estimated at $854 billion over 10 years, with $50 billion yearly. The report also stated that Africa has the potential to create $400 billion in international reserves, $40 billion and $2.88 billion in diaspora remittances and diaspora excess remittance costs respectively.

The decline in remittances didn’t affect Nigeria alone as LMIC was projected to fall by seven per cent to $508 billion in 2020, followed by a further decline of 7.5 per cent to $470 billion in 2021.

Factors driving the decline in remittances include weak economic growth and employment levels in migrant-hosting countries, weak oil prices and depreciation of the currencies of remittance-source countries against the dollar.

.Asides these, shortcomings in remittances administration had created a situation that senders abandoned the official channels and resorted to informal channels of sending money despite its implications.

To address some of these challenges, the CBN had made critical changes for receiving remittances in the country, a move that improved the value of the naira and remittance collections.

The value of the naira, which had crashed to N500 to a dollar, immediately firmed up and is now hovering around N475 to the dollar as it’s now easier to access foreign exchange in the country.

Given a situation where remittances sent in foreign exchange are received in naira, the CBN had also directed that beneficiaries of diaspora remittances through International Money Transfer Operators (IMTOs) shall henceforth, receive such inflows in foreign currency through the designated bank of their choice, with the option of receiving their funds in foreign currency or through their ordinary domiciliary account.

This policy, according to the CBN, would help 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.

Providing details on International Monetary Transfer Operators (IMTOs) in the country, the governor of CBN, Godwin Emefiele had explained that they were licensed to increase remittance inflows and improve the number of formal channels that Nigerians in the diaspora could remit funds.

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

“Based on this premise, we analysed the data on IMTO inflows into the country over the past year, and through our investigations, we discovered that some IMTOs, rather than compete on improving transaction volumes and creating more efficient ways for Nigerians in the diaspora to remit funds, engaged in arbitrage arrangements on the naira-dollar exchange rate, which to a large extent, led to a significant drop in flows into the country” Emefiele added.

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

This, had made the apex bank to come up with the latest policy, which stated that IMTO’s must ensure that all funds in favour of beneficiaries/ recipients in Nigeria must be deposited into the agent banks’ correspondent account.

Also, commercial banks in the country will have the responsibility of paying beneficiaries either in foreign currency or into the recipients’ domiciliary account in Nigeria. The directive stemmed from the fact that beneficiaries have unfettered access and utilisation to such foreign currency proceeds, either in cash and/or in their domiciliary accounts.

These changes according to the CBN, 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.

According to the president, Association of Bureau de Change Operators in Nigeria (ABCON), Alhaji Aminu Gwadabe, several factors like the CBN’s policy on remittance would lead to increased inflow of foreign exchange into the economy towards the end of the year.

He explained that with the policy, more liquidity should be injected into the market, as all the receipts of the diaspora remittances will be available in the country and circulate in the forex market.

He noted further that, “It will further increase competition within the market and once there is competition, we will achieve market equilibrium”.

A bank customer, who is a diaspora remittance recipient that spoke with SUNDAY LEADERSHIP said that, “Prior to now, I didn’t get the full value of whatever was sent home by my brother, who resides in the United Kingdom. However, with the latest policy, I can receive money transfers from him through my pounds sterling account with one of the two-tier banks in the country without much hassle”..

In line with the directive of the CBN, commercial banks had made efforts to ensure that beneficiaries of diaspora remittances received their funds seamlessly and have the option of collecting dollars from their domiciliary accounts.

Managing director of Ecobank Nigeria, Patrick Akinwuntan, explained that the bank is taking steps for the immediate implementation of the policy.

Encouraging Nigerians in the diaspora and their loved ones in Nigeria to take advantage of the policy by opening a domiciliary account or reactivating their inactive domiciliary accounts, he said, “We are leaving no stone unturned to ensure that our customers instantly receive their transfers as cash (USD) or transfers into their domiciliary accounts. Our customers have the flexibility to choose the mode of receipt that suits them. It is strictly on their terms.”.

“Our proprietary money transfer platform, Rapidtransfer, available on the App Store and Play Store, makes it possible for Nigerians abroad to remit home instantly at a very affordable charges. We have also just launched a new version of the Rapid transfer International, specifically meant for Nigerians living in Europe. The functionality of both apps is being enhanced to meet this new requirement”.

The MD stated that the bank is collaborating with other remittance partners like the Western Union, MoneyGram, Ria, Small World and among others on the new development, in a bid to deliver maximum value to its customers.
On his part, Partner & Head, Tax, Regulatory & People Services at KPMG Nigeria, Wole Obayomi noted that the Nigeria economy is in a dicey situation, which requires appropriate policy measures, noting that the foreign exchange market has been particularly challenged, with the exchange rate escalating to slightly above N500 to the dollar in the parallel market.

He added, “It is gratifying to note that the CBN’s intervention in terms of forex supply helped to calm the market, with the naira to dollar exchange rate now averaging between N460 and N470.”

The MD disclosed that Nigeria needed to look beyond oil for its forex needs, as well as steering the economy on the path of growth.

“The recovery of crude oil prices in 2017 helped to boost our forex reserves and drove down the parallel market rate from N520 high to an average of N360 to N365 until COVID-19 pandemic broke out and crude oil prices crashed again”.
“To break this vicious cycle, we need to look beyond oil for most of our forex inflows and launch a new liberalised forex regime that will make Nigeria attract forex inflows from other sources, boost our forex reserves and stabilise the naira exchange rate,” he concluded.

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