Licensed currency traders have revealed that the International Money Transfer Organizations (IMTOs) are no longer diverting forex proceeds, especially diaspora remittances, outside the system due to the elimination of profit margin in such transactions.
They have listed the non-diversion of these forex proceeds as one of the reasons for the recent good performance of the naira and stability in the forex market.
These forex traders also linked the stability of the forex market to other factors such as increase in oil proceeds, which is Nigeria’s biggest foreign exchange earner, increased diaspora remittances, confidence of foreign investors, among others.
IMTOs are companies approved by the Central Bank of Nigeria (CBN) to facilitate the efficient transfer of funds from individuals or entities residing abroad to recipients in Nigeria, and the payment of a corresponding sum to a beneficiary through a clearing network to which the IMTO belongs.
The Bureau De Change (BDC) operators had always accused some IMTOs of diverting diaspora remittances, noting that even the commercial banks revealed that they don’t see most of these remittances.
This seems to corroborate the earlier assertion by the then acting CBN Governor, Folashodun Shonubi, who linked the crash of the naira and crisis in the foreign exchange market to the diversion of diaspora remittances to unofficial channels.
The licensed currency traders said that most of these funds are diverted to unofficial markets, including fintechs and some unlicensed online firms. They noted that there are a lot of fintech companies to which these remittances are being diverted, noting that they buy them at very high rates.
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, had earlier disclosed that a mere 10% of the $20 billion 2023 diaspora remittances reached the Nigerian foreign exchange market.
Recall that the World Bank had, in a report, said that Nigeria received about $21 billion in diaspora remittances through official sources from Nigerians living abroad, about four times the value of Nigeria’s Foreign Direct Investment (FDI) for the same period.
As part of measures to achieve a stable and strong exchange rate and boost liquidity in the forex market, the BDCs had asked the CBN to allow them to carry out online dollar operations and have access to diaspora remittances, like receiving IMTOs proceeds.
In light of this, the CBN had instituted some reforms as well as issued some new licenses in the IMTO industry. This and some reforms in the foreign exchange market have resulted in increased remittances from the IMTOs.
Speaking exclusively to Naijaonpoint, the President of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe, had expressed optimism, stating that he believes that the foreign exchange market would continue to be stable as the factors driving it remained strong.
He said that there has been a considerable drop in speculative and hoarding activities by some of these forex traders due to the non-existence of profit margin, as the parallel market rate is sometimes even lower than the official rate.
He said, ‘’Well, the driving factors look still good. So for me, I think it’s going to continue to be stable. Because the driving factors favoring stability are still strong in terms of confidence, in terms of oil proceeds, diaspora remittances, so all these things, and then confidence, most especially. Confidence.
‘’You know, with the willing buyer, willing seller, I think the market is open, so it’s attracting even the IMTO proceeds. Gone are the days when you see a margin of N50, N100, between the official and the unofficial market.
‘’So that margin is almost not there. Sometimes you even see the parallel market lower than the official market. So, a lot of speculative and then hoarding activities have really reduced. Because there is not any profit. There is not any reason for you to do that.’’
‘’So that margin is almost not there. Sometimes you even see the parallel market lower than the official market. So, a lot of speculative and then hoarding activities have really reduced. Because there is not any profit. There is not any reason for you to do that.’’
On the diversion of export proceeds by the IMTOs, the ABCON President said, ‘’They don’t have reasons. Why? Of course, yes, we still need to work more to attract more forex because the volumes received are still low compared to what is expected.
‘’Yes, they don’t divert anymore because there is no profit margin. So, there is no margin now. The reason they were attracted to do it was because the other market would give them higher rates. Now, it’s a willing buyer, willing seller. So, yeah, I think it has really helped us a lot. Let’s see if things will get better. People can plan for their children’s school fees.’’
Also, chatting with Naijaonpoint, another BDC operator, Abu Ardo, pointed out that he was not too sure about whether the IMTOs still divert forex. He, however, believes that some of these IMTOs still engage in diversion.
He said, ‘’Yes, to be honest, some of these International Money Transfer Operators (IMTOs) still divert forex. Instead of bringing all their dollars into the official market as expected, they find ways to channel part of it through parallel routes where the rates are higher.’’
On sustaining the recent good performance of the naira and stability in the forex market, Ardo said, ‘’The naira has been performing well lately mainly because of increased supply — the CBN has been more active, oil companies are selling more dollars, and government inflows have supported liquidity. At the same time, speculators have been more cautious since the CBN started cracking down on hoarding. That combination has given the naira breathing space.
‘’But sustaining it depends on consistency. If oil revenue and diaspora inflows keep coming in, and if the government maintains discipline in supply management, the naira will remain stable. However, if demand picks up sharply or if supply slows down again, the pressure will return.’’
The CBN had, on January 31, 2024, issued new guidelines for international money transfer operators (IMTOs), prohibiting Fintechs from obtaining IMTO licenses, removing the fixed limit on exchange rates to allow for market-driven rate determination.
The revised guidelines outlined permissible activities, a new organisational structure, and corporate governance standards for IMTOs. It also, among other provisions, expanded the scope of targeted users to “person” to “person”, “business to person” and “business to business”. The implication of this is that licensed IMTOs can now make Payouts to both individuals and business entities.
In a related development, ABCON had, in October 2023, asked the CBN to allow BDCs to carry out online dollar operations and Point of Sale (POS) agency as part of measures to boost liquidity in the forex market and ensure exchange rate liquidity.
It also urged the apex bank to give regulatory approvals to allow BDCs have access to diaspora remittances, like receiving International Money Transfer Operators (IMTOs) proceeds.