Nigeria Shakes Up Money Transfer Landscape: Banks & Fintechs Out, IMTO Fees Skyrocket #CBNTightensGrip
The Central Bank of Nigeria (CBN) sent shockwaves through the financial sector on January 31st, 2024, with a double-barreled policy change impacting international money transfers. In a revised guideline, the CBN announced:
1. Banks Barred from Direct Money Transfers: No longer can traditional banks directly handle international money transfers. They can, however, act as agents for licensed International Money Transfer Operators (IMTOs).
2. Fintech Freeze-Out: Aspiring fintech companies were dealt a harsh blow. Obtaining new licenses for international money transfer services is now off the table, effectively shutting the door on new entrants in this space.
3. Fee Frenzy: Existing IMTOs face a staggering 1,900% increase in application fees, jumping from N500,000 to N10 million. This steep hike raises serious questions about accessibility and potential market consolidation.
The directive, which was contained in the revised guidelines for the operations of International Money Transfer Operators (IMTOs) released on January 31, 2024, states that "all banks are prohibited from operating International Money Transfer services but can act as agents" and that "financial technology companies are not allowed to obtain approval for IMTO".
The CBN also stipulates that the provisions of the Banks and Other Financial Institutions Act (BOFIA) 2020 on the prohibition of employment of certain persons in banks shall also apply to IMTOs, effectively excluding individuals from the management, shareholding, and officership of a bank or an IMTO.
The new guidelines are a departure from the previous ones issued in 2014, which only prohibited deposit money banks from operating international money transfer services. The CBN has now extended the ban to fintechs, which have been growing rapidly in the Nigerian financial sector and offering innovative solutions to customers.
According to the CBN, the new directive is aimed at ensuring compliance with the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regulations, as well as safeguarding the integrity of the Nigerian financial system.
However, some analysts have expressed concern that the directive could stifle the growth of the fintech industry and limit the access of Nigerians to cheaper and faster remittance services, especially in the wake of the COVID-19 pandemic, which has increased the demand for digital payments.
The CBN has also raised the application fee for an IMTO license from N500,000 to N10 million, representing a whopping increase of about 1,900% over the past decade.
The CBN says that any IMTO intending to operate in Nigeria shall submit its application to the Director, Trade and Exchange Department with the following documents, among others:
-A non-refundable application fee of N10,000,000.00 (Ten Million Naira only) or such other amount that the Bank may specify from time to time; payable to the CBN through electronic transfer or bank draft.
- Approval to operate in other jurisdictions or agency agreement (for all IMTOs).
- Evidence of tax clearance and incorporation documents in Nigeria (for indigenous IMTOs) to include Memorandum and Articles of Association (Certified True Copy), of which the primary object clause shall indicate provision of money transfer services.
Reasons for the Ruckus: While the full picture remains hazy, possible motives driving the CBN's decision include:
Centralized Control: The move could be an attempt to centralize control over foreign exchange flows and stabilize the exchange rate.
Combating Illicit Activity: Tighter regulation of IMTOs might be aimed at curbing money laundering and other illegal financial activities.
Boosting Specialized Players: The policy could be seen as encouraging the growth of dedicated IMTO companies with a singular focus on international money transfers.
Impact Analysis: The long-term impact of these changes is still unfolding. Here are some key questions to consider:
Effect on Existing Fintechs: Are existing fintech companies with previous licenses grandfathered in, or will they be affected?
Market Consolidation: With new entrants blocked, will the increased fees lead to consolidation among existing IMTOs, potentially reducing competition and driving up prices for consumers?
Informal Channels: Could these restrictions push people towards informal channels for international money transfers, raising concerns about transparency and potential risks?
The CBN also requires an annual renewal fee of N10 million or any amount that the Bank may specify from time to time, payable to the CBN through electronic transfer or bank draft on or before January 31 of the year. The renewal of IMTO approval shall be completed within the first quarter of every year, and failure to do so will result in the cessation of any further transaction with the IMTO by its agent bank.
The CBN has also established a minimum operating capital requirement for IMTOs at $1 million for foreign entities and an equivalent amount for local IMTOs. The CBN says that this is to ensure that only serious and committed operators are granted licenses to operate in Nigeria.
The CBN's directive has drawn mixed reactions from stakeholders in the financial sector, with some applauding the move as a necessary step to protect the Nigerian economy from illicit financial flows, while others criticizing it as a retrogressive and anti-competitive measure that will hurt the fintech industry and the Nigerian diaspora.
Beyond the Headlines:
The policy has sparked mixed reactions, with some industry experts criticizing it as stifling innovation and competition, while others see it as a necessary step towards greater control and regulation.
The impact on individuals and businesses relying on international money transfers remains to be seen.
Only time will tell if the CBN's gamble will achieve its intended goals or have unintended consequences for the Nigerian financial landscape.
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