BDCs grapple with fresh challenges

Just when it seemed that Bureaux De Change (BDCs) were beginning to achieve some sort of success in their long quest to have access  to  adequate foreign exchange supplies from the Central Bank of Nigeria (CBN), the operators are now  facing a new challenge in the form of unfair competition from banks. TONY CHUKWUNYEM writes

In the wake of the Central Bank of Nigeria’s (CBN) unveiling of its foreign exchange liberalisation policy on June 15 last year, which was aimed at giving market forces a greater role to play in determining the value of the naira, there was intense speculation in industry circles about how the move would impact Bureaux De Change (BDC) operators in the country.

This was in view of the fact that the CBN had, last January, stopped dollar sales to BDCs due to what it said was a scarcity of the greenback and abuse of operating guidelines by BDC operators. Although the Association of Bureaux De Change Operators of Nigeria (ABCON) had protested the CBN’s action and seemed to be making progress in getting the regulator to allow its members to participate in the interbank market, the CBN Governor, Mr. Godwin Emefiele, in announcing the forex liberalisation policy, had not spelt out any specific role for BDCs.  He only stated that

under the new measure there will be a single market operating through the inter-bank/autonomous window, adding that the exchange rate would be purely market-driven using the Thomson-Reuters Order Matching System as well as the Conversational Dealing Book.

However, at an interactive session with BDC operators on the issue, Deputy Director, Financial Policy and Regulation Department, CBN, Mr. Anthony Ikem, affirmed that their proposal to participate at the interbank market was under consideration.

He stressed that the Banking watchdog recognised the BDC sub-sector as a critical segment of the market and was working on how to accommodate them in the new forex regime.

“The CBN is asking the BDCS to exercise patience. The new policy is still being tested to see how it would be better. Even as the policy is being tested, the CBN still understands the role of the BDCs in the country. They are still relevant in the scheme of the affairs of the country,” he stated.

Resumption of dollar sales to BDCs

Indeed, the following month, the CBN issued a circular lifting the ban on dollar sales to BDCs. It explained that this was to ensure stability of the exchange rate and boost participation of all critical stakeholders in the foreign exchange market.

However, instead of the apex bank directly selling forex to BDCs, it directed all authorised dealers (mainly banks) who are agents to approved International Money Transfer Operators (IMTOs) to sell foreign currency accruing from inward money remittances to licenced BDCs. 

It explained that the IMTOs were required to remit foreign currency to the agent banks for disbursement in naira to the beneficiaries while the foreign currency proceeds should be sold to only BDCs that have been cleared by the compliance department of the banks as fully compliant with the Know Your Customer (KYC) requirement were allowed to buy. The CBN later issued a follow-up circular to all the banks, asking them to sell $50,000 weekly to BDCs.

  Analysts pointed out at the time that the CBN introduced this policy because it was targeting huge dollar supplies from the Diaspora estimated at over $21 billion yearly.

Banks fail to meet demand

However, when the implementation of the policy actually commenced in August last year,  it quickly became obvious that banks were not complying with the CBN’s directive to sell $50,000 from Diaspora remittances to the about 3,000 licenced BDCs in the country on a weekly basis.

For instance, three weeks after implementation of the policy began, ABCON President, Aminu Gwadabe, revealed that only 10 per cent of BDCs from the Lagos market had accessed dollar from banks.

Gwadabe regretted that BDCs in Port Harcourt, Kano, Abuja, Onitsha, Maiduguri, Benin and Enugu were yet to get a single dollar from lenders as directed by the CBN.

In addition, he said that the BDCs were also selling the dollar between N345 and N355 per dollar,  which was far above the interbank rate of N305 to dollar. 

“Our members across the country have funded their accounts since two weeks ago but the banks are not selling to them. The BDCs that met the CBN’s policy guidelines on the disbursement and cleared by the banks have still not received a dime from the banks,” he said.

Gwadabe therefore called on the CBN to outsource the dollar distribution role to an independent distributor since, according to him, the banks had failed in their assigned role.

Travelex takes over

Interestingly, the CBN seemed to have agreed with the ABCON boss as it quickly gave approval to Travelex, a global foreign exchange dealer, to commence the disbursement of forex to BDCs.  Significantly, however, according to Gwadabe, although the BDCs were happy with Travelex’s performance they would still want the CBN to open more windows for them to operate.

“We want more windows to be opened for BDCs instead of restricting it to Diaspora funds. We are happy we can now access the Diaspora funds, but we want the CBN to do more,” he said.

In fact, the consensus among BDC operators was that the $15,000 they were getting from Travelex weekly was grossly inadequate as they were hardly able to meet clients’ dollar demand.

N362/$1 directive

Clearly, the shortfall in forex supply was responsible for the wide gap between the parallel and official markets’ exchange rates of the naira to the dollar recorded in the country in the last quarter of 2016 and early this year. The development resulted in the CBN commencing a fresh forex liberalisation strategy from February 20, which included directing BDCs, on March 28, to sell the dollar at N362 to end-users.

Explaining the directive, the acting Director of Corporate Communications at the CBN, Mr. Isaac Okorafor, stated, that under this policy, the regulator will sell forex to the licenced BDCs at the rate of N360/$1, while they would in turn sell to customers at a rate not more than N362/$1.

He emphasised that the objective was to ensure a convergence of the rates in the interbank and BDC, adding that the CBN remained committed to ensuring transparency in the market as well as fairness to end-users, many of who hitherto experienced challenges in accessing foreign exchange.

Hindered by low patronage

However, while the CBN has received a lot of commendation in recent months over the success of the fresh forex liberalisation measures (they have resulted in increased availability of forex in the system as well as a near convergence between the official rates and the parallel markets’ rates), the BDCs have cried out that their business is now severely threatened.

A few days ago, for instance, ABCON President, Gwadabe, disclosed that more than 700 BDC operators had in recent months been rendered inactive in the CBN forex window.

He explained that the BDC business has been badly affected by uncompetitive rate as the CBN sells dollars to BDCs at higher rate compared to what the regulator sells to commercial banks, yet both institutions target the same market segment and customers.

The BDCs, he said, buy dollar from the CBN at N360/$1 and sell to end users at N362/$1 while the regulator sells to commercial banks at N358/$1 and the banks sell to end users at N360/$1.

Describing the buying rate for the BDCs as uncompetitive and a big disincentive for many forex users to patronize the operators, Gwadabe argued that the banks and the BDCs operate and service the same market segment, and should therefore get dollars at the same rate to allow fair competition between both parties.

According to the ABCON boss, the banks enjoy large customer base, pointing out that lenders’ customers are able to carry out their transactions by having their accounts debited to cover the cost of purchase. He said such convenience coupled with a lower rate put the banks at an advantage to attract more customers than BDCs.

He also called on the CBN to increase the volume of Personal Travel Allowances (PTAs) from $4,000 to $8,000; Business Travel Allowances (BTAs) from $5,000 to $10,000; school fees from $5,000 to $20,000 and medicals from $5,000 to $15,000 quarterly to deepen liquidity in the market.

He warned that the rate challenge faced by BDCs, if not checked, could trigger a liquidity crisis that may derail the ongoing recovery of the naira against the dollar.

Last line

Indeed, industry watchers stress that the CBN will do well to address the issues raised by the BDCs if it does not want to jeopardize the significant gains it has recorded in the forex market in recent months.

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