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ABCON: 2,500 BDCs scale hurdle


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Nigeria

August.11.2014

After the storm over the new registration modalities introduced by the Central Bank of Nigeria for participation in the foreign exchange activities last month, President, Association of Bureau de Change Operators in Nigeria, Aminu Gwadabe, said 2,500 operators were registered, saying however that negotiation with the apex bank is ongoing on the possibility of a review of some of the provisions of the new policy, reports Festus Akanbi

As the Central Bank of Nigeria (CBN) ruled out any soft landing for any bureau de change operator that failed to meet its July 31 deadline on new registration exercise, there are indications that only 2,500 BDCs were able to scale through.

Data from the apex bank had showed that there were about 3,208 BDCs in operation as at May 2014. It was also gathered that before the introduction of new capital threshold in the bureau de change sub-sector of the foreign exchange market, 1,417 were at the verge of getting new approvals apart from 252 additional applications  which were received between May 30 and June 22, 2014. However, as the apex bank shut its doors to operators who failed to meet the deadline, effort to extract information on the number of BDCs that scaled the hurdle from the CBN met a brick wall as the bank was not ready to release any figure yet, President, Association of Bureau de Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, told THISDAY last week that tentatively, about 2,500 BDC operators have been able to register with the CBN.
Although he did not give a comprehensive breakdown of the spread of the registered operators in the various parts of the country, he said, however that Lagos, with about 1000 registered operators has the largest concentration of BDCs in the country.

He disclosed that the failure of a greater percentage of his members to meet the deadline has begun to put pressure on the market, saying the situation was responsible for the fall in naira value at the foreign exchange market.

Implications
He said, “The implication is that a greater percentage of operators missed the deadline and this development will put more pressure on the CBN. And secondly, like we predicted, the dollar has started going up because right now we are talking of N171 to a dollar and it is still very scarce. It will put pressure on the CBN because the demand is going to be beyond their expectation. The policy is to considerably reduce the number of operators but unfortunately that couldn’t happen. That is already a misnomer and secondly, the rate has started going upward.”

When asked if the clause in the registration guideline that exempts operators from compulsory membership of ABCON will take toll on the association, Gwadabe said, “As an association, our members have trust and confidence in us and they believe in what we are doing. Our understanding of putting that clause that the membership of ABCON is voluntary is to kick against the position of a united front and that is not affecting the leadership and membership of the association. We are still one, still a united front and then, we believe in ourselves. We believe the CBN too cannot do it alone and after some time they will change that clause, they will definitely invite us for partnership.
“Our association is a professional association. All our members are compliant because they came from the platform of the association. Now, Lagos CBN cannot even provide IT forum for the association members where we had about 1,500 before and now with the new policy we have about 900-1000. It was the association that provided that platform. So tell me if you are not a member of that association, how can you access that platform and this is a platform you need to render returns to the CBN and if you fail, it is a contravention that can lead to the revocation of one’s licence. So we are confident that we are in control of our members.”

Gwadabe said ABCON is still talking with the CBN and expressed the hope that the apex bank might soften its stance on its current policy, saying “We are still dialoguing with the CBN. Like I said, there is a lot of understanding taking place now. The governor recently invited us, so there is a lot of understanding that is happening.”
The CBN had on June 23 issued new regulatory requirement for BDC operations in the country, increasing their capital base by 250 per cent from N10 million to N35 million. Also, the mandatory cautionary non-interest deposit was pegged at N35 million from the initial N1 million, giving them a 21-day ultimatum to comply or have their licences withdrawn.
However, amidst the various outcries from the BDC operators and pressures from the National Assembly which had summoned the CBN governor, the apex bank had extended the deadline from the initial July 15 to July 31, giving the BDCs 36 days to recapitalise. Also, the apex bank said the cautionary deposit which initially meant to be non-interest would now attract an interest at the current savings deposit rate.
The BDCs on the other hand, under the auspices of the Association of Bureau de Change Operators in Nigeria (ABCON), had rejected the new terms of the CBN, calling for the reduction of the capital base to N15 million, a one-year timeframe to recapitalise and the cancellation of the mandatory cautionary deposit.
The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act 17 of 1995 and the BOFI Act of 1991 empowers the CBN to license and regulate Bureaux de Change (BDC) operations in Nigeria. The major objectives include providing access to foreign exchange to small-scale end-users – for instance those requiring below $5,000 for Basic Transport Allowance (BTA) for short trips abroad like holidays, official purposes etc.

According to head of research at Sterling Capital Limited, Sewa Wusu, the move is one that is well over due because of the foreign exchange markets particularly the BDC end, saying as elections are fast approaching; BDCs may come in handy for politicians who want to launder funds.
He stressed the need for the CBN to closely monitor the activities of the BDCs as part of moves to stabilise the economy. “What the central bank is trying to do is to monitor and ascertain the legitimate demand in the BDC segment so that they will not be spending so much in defending the naira.
“The premium between the BDC and official rate is still very wide and the CBN wants to bridge the gap and curtail the excesses of operators. Also, the CBN is being proactive in monitoring money laundering ahead of the 2015 elections,” Wusu said.
He noted that the move by the regulator clearly shows that it’s resolved to defend the naira at all cost , saying that the depletion of the country’s forex reserves calls for serious concern by all stakeholders. The foreign reserves have in the past month gradually gained strength, recording over $1.3 billion rise in one month to $38.3 billion.

Exchange Rate Management
In his explanation, the CBN Governor, Godwin Emefiele, said the new measure would also serve as tools for the management of exchange rate while assisting in the fight against illegal financial activities; facilitate economic activities; and provide economic data for policy decisions. But rather than achieve these goals, the BDCs have turned to money milling machines of some sort to the operators and beneficiaries of their often illicit acts.
All over the world, BDCs play a crucial part in the economy, satisfying the foreign exchange needs of tourists and small end-users of foreign currency. Traditionally and as obtained all over the world, BDCs source their foreign currency from tourists, vacationers as well as from banks, but this changed in Nigeria as in 2006, the CBN began to sell foreign exchange to BDCs directly.
In 2006, the CBN introduced the Wholesale Dutch Auction (WDAS) to achieve the convergence of the official exchange rate and the interbank exchange rate. But while the interbank rate declined and converged with the official exchange rate at N130 per dollar, the parallel market exchange rate rose from N142 per dollar on February 20, when WDAS was introduced to N152 per dollar on March 26.
To correct this anomaly, the CBN, under Professor Charles Soludo, introduced the policy titled, “Further Measures To Liberalise the Foreign Exchange Market.” The aim of the policy was to address the widening gap between the official exchange rate and the parallel market rate.
With the gap or premium between the official/interbank exchange rate and the parallel market rate having widened to N20 from N10, the apex bank intervened by increasing supply of foreign exchange in the parallel market and at the same time reduce demand in the market.
To achieve the former, the CBN admitted BDCs into the official market through direct dollar sale, and also allowed them to act as brokers in the interbank market. To achieve the later, the CBN removed restrictions on foreign exchange purchases by widening the scope of transactions that can be funded by official foreign exchange.

 

Article Credit: Businessnews

Updated 3 Years ago
 

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