BDCs: Not yet the requiem

In most countries, the Bureau De Change (BDC) operations have played critical roles and remained strategic stakeholders in the economic development and wealth creation. But in Nigeria, their operations have been attracting controversies, sometimes condemnations in respect of operational practice. CHIJIOKE NELSON writes that they can still be used for positive developments

Despite the end of foreign exchange intervention by the Central Bank of Nigeria (CBN) in the BDC segment, the apex bank still has a collaborative partnership with the group. At least, their respective licenses, for those who wish to continue have remained operational. The last time, CBN even granted them access to autonomous sources of foreign exchange, particularly those companies operating in the nation’s oil and gas sector.

For operators in the group, they have expressed desire to now cooperate more fully to achieve the target objectives of the monetary policy and build an industry that contributes its quote to the National Gross Domestic Product. The currency auctioneers, as they would presently prefer to be known, need regulatory and government backings and policy framework that will deepen their operations.

Not only in Nigeria, their activities have remained critical in the development and economic growth transformation worldwide. For example, BDC operation is a critical factor in CBN’s plan to achieve price and exchange stability, as well as a contributor to government’s revenues. With over N250 billion worth of investments in the economy, the BDCs have enhanced employment generation and contributed to the CBN’s revenues streams through the one per cent commission charged on dollar sale to the operators.

The over 3,000 BDCs in the country have especially since CBN started the direct sale of dollars to the industry in 2006, helped in the implementation of the historic convergence of exchange rates for the first time on July 6, 2006 which have so far led to increased investment spending in the economy. Perhaps, this explains stakeholders’ worries over their imminent extinction. Some are asking: could there not be another strategy to their assessed challenges?

CBN Governor, Godwin Emefiele had last January announced the stoppage of weekly dollar sales to BDCs, listing several issues against the operators.

“Operators in this segment of the market would now need to source their foreign exchange from autonomous source. They must however, note that the CBN would deploy more resources to monitoring these sources to ensure that no operator is in violation of our anti-money laundering laws,” Emefiele said.

But the Acting President of the Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, affirmed that as law abiding citizens and partner in progress with the CBN, the operators respect the decision of the apex bank as the regulator of the banking industry and foreign exchange market where they operate.

“While we are not totally surprised by the decision, we however, believe there are better ways of addressing the challenges in the foreign exchange market,” he said.

He was actually saying that there could be another strategy to their assessed challenges and regretted that the BDCs are always blamed whenever there is naira volatility.

Corroborating CBN’s argument that they have grown over time from 270 in 2006 to over 3000 in a space of 10 years, Gwadabe said that the BDC segment was created by the CBN to fill a critical gap in the retail segment of the foreign exchange market even as the decision to sell  dollars to them was because they have the capacity to counter the effect of the illegal currency traffickers and the continued depreciation of the Naira in the parallel market.

He said that while BDCs have put the sudden stoppage of dollar sales to them behind, they have continued to seek plausible avenues to deepen dollar liquidity in the market, sustain their members businesses and make their contributions to Nigeria’s economic growth and development.

Yet, he said that BDCs can be strengthened to operate across the value chain of the retail foreign exchange sector- remittances and payments space, as well as local and international travel insurance brokerage deals. This, he said, can help turn them into a booming industry that can employ more millions of Nigerians.

“The BDCs do not depend on exchange rate to make profit and therefore, will not benefit from a depreciated naira. Depreciation affects operators’ working capital as they are more interested in turnover than the exchange rate. The BDCs do not also determine exchange rate and the ABCON has continually worked closely with the CBN to ensure that dollar supply increases so as to restore calmness in the currency market,” he said.

The BDCs can also explore opportunities in Diaspora remittances. For instance, the World Bank Migration and Remittances Fact-book 2016, showed that Nigerians living abroad sent home $20.8 billion in 2015. The figure, it said, is by far the largest volume of remittances to any country in Africa and the sixth largest in the world.

“The United States is the biggest remittance sending country to Nigeria, followed by the United Kingdom. Nigerians will receive $5.7 billion in remittances sent from friends and family members in the US and $3.7 billion from the UK in 2015. Nigeria is also the third largest destination country for migrants from other African nations,” the report said.

The Senior Mobile Analyst at WorldRemit, Alix Murphy,   aid the World Bank’s latest report shows that countries have now hit two significant milestones – quarter of a billion migrants globally and $600 billion of remittances sent annually.

She believes that despite being the biggest economy in Sub-Saharan Africa, Nigeria’s financial system is still deeply fragmented, making sending and receiving money very challenging for ordinary Nigerians.

For Gwadabe, the proposal from ABCON to the CBN, asking the regulator to allow BDC operators operate correspondent bank accounts that would allow currency auctioneers receive the average $20.8 billion Yearly Diaspora remittances, just like the Western Union, MoneyGram, among others, will enable them achieve the objective.

The proposal, which Gwadabe says is still being assessed by the CBN, will enable operators open forex account with Bank of America or Barclays Bank or any other international bank,through which Nigerians living abroad can send funds home through the foreign bank accounts run by BDCs,  while the recipients claim their money at home.

This practice, when approved, Gwadabe said, would not only boost dollar liquidity in the market, but help the country navigate through raging currency risks and believes that integrating BDCs into the money transfer business will ease the challenges faced in the industry and deepen Nigeria payment system.

While the apex bank had agreed to allow BDCs to source dollar from International Oil Companies, the operators said they have also accepted to ensure that their members follow the regulatory guidelines and not sell dollars obtained through the autonomous sources over the required margin. But they seem to have another challenge accessing the dollars. “BDCs do not have the capacity to deal directly with the IOCs because of the intricate nature of the transactions, but will rely on the CBN’s expertise and experience to handle the transactions’” the group noted.

Obviously, the nation’s external reserves have not only fallen, but its accretion drive has also suffered great setback. Gross external reserves stood at $28.33 billion at end-June 2015, compared with $34.24 billion at end-December 2014, representing a decrease of 17.3 per cent. The end-June 2015 level of reserves was equivalent to 5.8 months compared with seven months of imports at end-December 2014. The fall in reserves was due to the sharp decline in foreign exchange inflow from $23.66 billion in the second half of 2014 to $15.28 billion at end-June 2015. The development reflected a decrease of $8.38 billion or 35.4 per cent. Total foreign exchange outflow was $21.07 billion in the first half of 2015, compared with $26.33 billion in the second half of 2014, indicating a decrease of 20 per cent. The reserves are currently at $27.8 billion.

Brighter prospects for the sector operators and their ability to contribute to the economy have been hinged on the regulator’s goodwill in tackling the increasing challenges arising from assessed over-regulation and complex documentation requirements that licensed BDCs face in carrying out their daily legitimate operations.

The ABCON chief said that six units within the CBN are involved with BDC regulations, supervision, licensing and monitoring, saying this constitutes multiple regulation of a unit of the financial sub-sector that is only involved as a small market player.

“A BDC operator is expected to render daily, monthly, quarterly, half yearly and annual returns to these various departments of the same corporate body, which could be very cumbersome, repetitive and time consuming for both the operator and the regulator. Additionally, the BDC is also under obligation to render same returns to the Economic and Financial Crimes Commission /Nigeria Financial Intelligence Unit, while at the same time reporting to other statutory government establishments, including the Federal Inland Revenue Service and Corporate Affairs Commission respectively”.

Perhaps, a seamless procedure, more training and less direct control points might bring out the best expected of them and those inherent in them.