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Why Is The CBN Raising N183 Billion Under Guise Of Reforming Bureaux De Change Industry? By Edward Egbabare

July 21, 2014

If we are to believe that the new CBN law has good intentions, the space of time given between the announcement and deadline clearly sends a red flag and paints the whole exercise as a desperate measure with political undertones. The question then is who is this fund being put together for especially as the fundraising is coming at a time politicians are warming up for 2015.

The recent decision by the Central Bank of Nigeria (CBN) to increase the minimum capital requirement for Bureau de Change (BDC) operators from N10 million to N35 million as well as raising the cautionary fee among other new regulations is an exercise inspired by a political move to destroy the foreign exchange business in Nigeria considering the space given to BDC’s to comply with the new policy.

New CBN Governor

The CBN said that it made the modifications in order to ensure that only genuine companies operate as BDCs in Nigeria but they have in no way helped in sanitizing the industry all this while so what guarantees will they be making to convince Nigerians that this new policy is not self serving.

The original objective of introducing BDC operators was to check the encroachment of unauthorized dealers in the sector. Unfortunately, the security agents who have the duty of enforcing the law and preventing unlicensed BDC operators from the industry have done a very poor job at sanitizing the industry.

The unproven allegations

The CBN claims that the need for the new policy arose from some observations the apex bank has made over the years concerning the industry. Some of the practices they listed include observing a, “avalanche of rent-seeking operators interested in widening margins and profits from the foreign exchange market, regardless of prevailing official and interbank rates leading to weak and ineffective operational structure, resulting in the subsector completely abandoning the objectives for its establishment; depletion of the country’s foreign reserves caused by large number of BDCs; potential financing of unauthorized transactions with foreign exchange procured from the CBN Window and the gradual dollarization of the Nigerian economy with attendant adverse consequences on the conduct of monetary policy and subtle subversion of cashless policy initiative.

Some clarifications need to be made on the allegations that the CBN have heaped on BDC operators hence their new approach. The CBN made all these assertions and blames BDC operators for causing these malpractices when it never regulated the industry adequately by failing to adhere to the required licensing procedures for BDC operations. 

The CBN never made any effort to screen persons applying for license. As of today, the existing number of BDC operators registered with the Association of Bureaux De Change Operators of Nigeria (ABCOM) is put at 3840 while 1417 are awaiting approval to get their license. The CBN should explain to Nigerians what efforts they have made whatsoever in supervising the industry to rid it of illegal operators than the grandstanding being exhibited under the guise of the Foreign Exchange Monitoring and Miscellaneous Provision Act 17 of 1995 and the BOFI Act of 1991.

One of the requirements for obtaining license for a new BDC by the CBN includes depositing a minimum share of N10million only in a bank draft made payable to the CBN during the first stage of application.

The capital thus deposited together with the interest is expected to be released to the promoter on granting of final license, can the CBN confidently come out and explain to Nigerians why it cannot even function within the statutes of the Constitution of the Federal Republic of Nigeria and follow laid sown rules.

The CBN should as a matter of urgency publish the names of BDC operators granted license who went through the required process; that will be a better way to scrutinizing the industry and ridding it of illegal dealers than slapping a N35million capital base increment.

Capitalization and the desperate deadline

Another worrisome aspect of the new policy is the speed at which the deadline for compliance with the new law was given. The announcement on the new modification was made on June 3 and a deadline of July 14 was set which leaves BDC operators 42 days to cough out N70million of which N35million will be deposited at the CBN. Due to the uproar that followed the ungodly deadline, CBN had to retrace their steps and extended the deadline to July 31st.

If we are to believe that the new CBN law has good intentions, the space of time given between the announcement and deadline clearly sends a red flag and paints the whole exercise as a desperate measure with political undertones. The questions that need answers in this regard are; what does Emefiele really want to do with a large sum of money in so short a time? If all the 5257 registered licensed BDC operators and those waiting licensing pay N35million, a total of N183, 995,000,000 will be raised. The question then is who is this fund being put together for especially as the fundraising is coming at a time politicians are warming up for 2015 elections. One then wonders if the new CBN boss is all of a sudden being creative in raising funds for a secret purpose since his predecessor raised alarm over some missing $20 billion.

Is this move aimed at replenishing the controversial $20 billion which the former CBN Governor and now Emir of Kano, Alhaji Sanusi Lamido Sanusi alleged was meant for 2015 elections? The CBN needs to answer the question of why now and why being so desperate about the new policy. When banks recapitalized and had to move from a capital base of N2 billion to N25 billion minimum as shareholders’ funds; insurance underwriters move from N50 million to N150-N200 million as well as when mortgage banks, financial houses, discount houses, pension fund administrators, stockbrokers and microfinance banks   had to recapitalize, they were given ample time to put the funds needed for the exercise. Why then is that of BDC operators different even when they do not accept deposits from customers as banks do? BDC does not require huge capital because they don’t give loans to people; they only buy currencies in accordance to CBN approval.

Another question CBN needs to respond to is why they are demanding for cash payment of N35m despite having approved a cashless policy in the country. Why did the apex bank not move prefer a bank guaranty from these operators than asking each of the over 5000 operators go chasing N35m in cash and within a short time- this leaves more questions than it answers because in demanding for cash deposits, the CBN is going contrary to its own policy in inculcating a cashless regime in Nigeria.

It is also pertinent to note that the terms of the license does not include depository of any amount of money. Equivocally no BDC buying and selling here in Nigeria can boast of making more than 3 to 4 kobo at most per dollar, after the harsh conditions attached to the BDCs, not to talk of between 1-3 months changing of policies every now and then, thereby causing instability in the FOREX market.

Hitting the Economy

The new policy introduced by the CBN on the operations of BDC operators is already taking its toll on the Nigerian economy. Already, since the law was announced, operators are no longer selling and are watching the industry with caution because many will be out of business after the expiration of the deadline.

The impact this will have on pricing of the dollar and other foreign currencies in both the long and short runs will be devastating for the economy.  What this policy will do to the labour market looms very large because the new requirement will send many operators out of business as it had provided millions of Nigerians with job opportunities. Creating unemployment for thousands of people especially from the Northern part of the country is not really what Nigeria will want to deal with now considering the security challenges the country is passing through. What CBN is planning to achieve is to create more idle minds for recruitment into the fold of insurgency going on in the North.

Speculations that the BDC’s makes huge profits is falsehood and malicious and can be described as an unprecedented allegation by the present CBN governor that the BDC’S are sponsoring terrorism, honestly he should be called to prove this damaging and unpardonable falsehood and be able to grasp the monster he will be creating with this new policy.

Unwholesome treatment meted out to BDC operators and misdirection for banks

If the CBN is thinking of organizing the industry, can they explain why BDC personnel numbering between 3-to 5000 persons are usually lined up in the hall provided by a company, Travelex, appointed by CBN at certain times and date on a weekly basis for the collection of their bids/purchases. This strategy exposes them to robbery terrorist attacks leading to loss of lives, monies and etc. This situation can be avoided by CBN allowing BDC to have a direct account with CBN as mini banks. This suggested medium would have saved huge sums of money, considering that high interest is being paid to the Travelex Company and at the same time eradicate the exposure to risks.  

The issue of collecting ticket/passport copies, visa copies and etc. for making returns to CBN weekly and the unrealistic condition of $4000 USD per person yearly it is unrealistic, cost defective and very unreasonable since it promotes and patronize racketeers of passports, air tickets and visa etc. against the background of taking details of customers approved IDS like driver’s license. National ID and related ones, for any approved amount purchased within a reasonable time frame but not yearly. But the CBN and banks are selling out huge sums every week/daily.

This policy will also affect the responsibilities and focus of commercial banks as they stand to gain from this unrealistic policy.  With all the allegations made against BDCs, who secure FOREX under the weekly bidding at the CBN, stands at just   13 per cent while the  banks are the getting the higher percentage of FOREX. With this development, the banks will surely lose focus and abandon funding real sectors like agriculture and manufacturing to deal mainly on FOREX. They will still offload what they get from the CBN to BDC operators to sell to the public.

Nigeria banks are only out to monopolize every sphere of the economy greedily like they did in travels, hotels, manufacturing to say the least as they have to be checked and stopped as to find some kind of sanity in the nation’s economy.

But instead of putting a stop to these practices, the licensed BDC operator is being made to suffer even after buying the FOREX with borrowed monies from banks/finance companies with such high interest rates, paying staff and rent and other costs will need to pay N35million.

In fairness to the National Assembly are always at hand to defend the oppressed masses, as they have already started on this epileptic policy of CBN against BDCs. But is it the executives that are not implementing/enforcing their report/findings. It is time we get an answer to what is happening in this country so that people will decide their fate!

Why is CBN still withholding N12,450,000,000 cautionary deposits of operators in a New York JP Morgan account?

One of the statutory requirements handed to operators before they could obtain their license was the payment of mandatory cautionary deposit of $20,000, over 3500 of ABCON members complied.  The initial mandatory deposit of N500, 000 was also initiated by the CBN for over 2500 members of ABCON, which amounts to N1, 250, 000,000. This money was meant to be refunded to the any member on the acquiring the license but sadly, this huge sum of money has been with the CBN for over 10 years and nobody is asking questions.

The mandatory cautionary fee of $20,000 for 3500 amounts to $70,000,000 (N11, 200,000,000) is posted on the balance sheet of the CBN with JP Morgan Chase Bank in New York.  Why has the CBN not refunded the monies to their respective owners, as they ought to have done? Why is the CBN withholding N12, 450,000,000 of BDC operators monies for a period over 10 years and they are demanding for N35m within some days; can’t the CBN deduct this amount from the interest these monies withheld illegally have been yielding over the years in a foreign account? 

Enough should be enough as there is an adage which says: “that there is a limit to every human endurance” as these happenings may one day snow ball into uncontrollable heights. It is wise to learn not to ignore anything.

Long live the Federal Republic of Nigeria!

Edward Egbabare, Network of Patriots and Protectors of Nigeria Posterity.

Corruption Money