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Published On: Wed, Jul 9th, 2014

CBN and the controversial bid to strengthen BDCs

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Mr Godwin EmefieleThe Central Bank of Nigeria (CBN), recently reviewed upwards the operating capital requirement for Bureau de Change (BDCs) in the country in a bid to achieve sanity and financial stability within the financial service sector. A development which has become a source of worry for BDCs. Our correspondent Ngozi Onyeakusi, weighs issues surrounding this move.

As days draw nearer to July, 15, many BDC operators hardly sleep. The decision whether to close shops or remain in business in line with CBN directives which attracts unexpected huge sum of money has become a source of worry for many. Many of them were of the view that upwards review of their capital base by 25 per cent by the apex bank was a polite way of telling them to quit the business. They agitated that if CBN really want them to recapitalize, it would have given them enough time to do that.

The CBN, on Monday, 23rd of last month issued fresh guidelines to BDCs operators on ownership and requirements for licensing.

The guideline thus announced upward review of their capital requirement from N10 to N35 million and mandatory cautionary deposit fees to N35 million.

The apex , in the statement stated that the rationale behind the new development was to ensure that only genuine companies operate as BDCs in the country .

It further stated that the review becomes necessary to correct observed deficiencies in the operational effectiveness of the BDCs which include avalanche of rent-seeking operators only interested in widening margins and profits from the foreign exchange market, regardless of the official and interbank rate and Weak in effective operational structure resulting in the subsection completely abandoning the objective of its establishment, depletion of the country’s foreign reserves, in view of the unusual large number of BDCs.

Others include 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 suitable subversion of cashless policy initiative among others.

It added that Ownership of multiple BDCs is no longer permissible even as it declared that compulsory membership of the association of Bureau De Change Operators of Nigeria (ABCON) was no more requirements for licensing of BDCs.

In addition to hiking the minimum capital requirement for the operation of BDCs and the mandatory cautionary deposit to N35 million, the new requirements also reviewed BDCs’ application and licensing fees to N100,000 and N1million respectively. It further fixed the annual renewal fee for the firms at N250,000 while also give existing BDCs and those currently operating with a Final Approval Letter a July

15 2014 deadline to comply with the requirement on mandatory cautionary deposit.

Reacting to the development, an operator of a Lagos-based BDC who spoke on condition of anonymity insisted that the apex bank focusing on only BDCs in an attempt check money laundering is unfair. He noted money laundering related activities being perpetrated in this country are carried out through banks and not BDCs.

“Blaming BDCs for money laundering and the problems of the naira is not a new thing. The issue has always been there. The only way out is not just by focusing on only the operations of the BDCs. In most countries where you have money laundering, it is always from the banks not the BDCs. The BDCs are just agents of both the banks and the CBN.

Focusing on the BDCs alone will not solve the problem. How much are they (BDCs) getting? You are only given $50,000 in a week and by the time you get about 12 clients the money is exhausted. But it is the banks that are buying much both from the oil companies and the CBN. So attention should be shifted from the BDCs to the banks.”

In his view, a lawmaker, Mr. Ibrahim Shehu-Gusua, stated that the move by the CBN paralysis the economic in the country, bring about employ (should many BDCs operators quit business) which will in turn enhance corruption in the financial service sector.

He accused the CBN of deliberately planning to compound the unemployment problems in the country by introducing the policy. As he put it, “This policy will send many youths engaged in the informal sector out of jobs.

“This policy has no human face and it is difficult to understand the purpose it will serve the Nigerian masses.” Also a Chief Executive of another BDC, who asked not to be named, said, “The new CBN Governor is trying to blame BDC for the trouble it is having in defending the naira. The fact is that the CBN does not want to admit publicly that the country is having serious financial challenges. Whether they admit it or not, they know that BDC operators are not the primary source of foreign exchange leakages. The CBN knows that the banks are the ones that are guilty of this practice but it has not been able to stop them.”

According to him, “The BDCs provide invaluable service in the sense they are the ones that supply the bulk of the foreign exchange needs of traders in the informal sector. Most business people do not have the time and patience for the processes and documentation required for accessing foreign exchange in the banks so they rely a lot on us.”

He contended that contrary to allegations that BDCs’ activities weaken the naira, they played a key role in bringing about the convergence of the official and parallel markets exchange rates in 2007.

He predicted that if the BDCs are forced to close shop, the naira would plunge sharply in value with catastrophic consequences for the economy.

As he put it, “Let’s face it; without the BDCs we will only have the official market and the black market. And you know what would happen.

BDCs’ processes are quite simple compared to banks’.

Another BDC operator who spoke with PEOPLSDAILY stated that immediately CBN introduced the new requirement, the naira weakened against the US dollar by 1.4 per cent or N0.20k at the inter-bank market in spite of the supply of dollars by the CBN and two oil companies.

According him, Forex dealers attributed the naira depreciation to scarcity of dollar owing to the new foreign exchange policy of the CBN.

He recalled that same thing happened last year when the CBN placed restrictions on the sale of forex to BDCs. The naira quickly depreciated but soon appreciated when the restrictions were lifted.

However the CBN maintained that the new guideline for BDCs must prevail, believing that it will assist in narrowing down their number which will in turn fish out fake operators. But it is unfortunate that those BDCs which are perceived to be fake may pass the recapitalization hurdle at the expense of the poor genuine ones.

A source from the apex bank told our correspondent that an audit carried out the bank prior to the release of the guideline showed that several BDCs used multiple addresses and some of their owners owned multiple BDCs, which are all licensed with the CBN. The source noted that another new reason why CBN will not go back with the new requirement was because some BDCs are used to procure foreign exchange from the central bank on a daily basis which is in turn used to buy arms and ammunition as well as for the funding of other terror related activities adding that the increase in the capital requirement was to curb foreign reserves depletion.

“So the increase in the capital requirement was necessary to stop the foreign reserves depletion and clampdown on BDCs that serve as conduits to finance terrorism in the country,” the sources explained.

 

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