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International money transfer providers are adjusting to recent changes to Nigeria’s rules, which limit inbound payments to naira and ban banks and fintech firms from offering transfer services.
Licensed international money transfer operators (IMTOs), such as WorldRemit and Sendwave, have started to issue customer notices indicating that they can only transfer naira as the Central Bank of Nigeria (CBN) has prohibited US dollar transfers.
WorldRemit states on its website that it “now offers money transfers in Nigerian Nairas (NGN)” and has removed its page prompting users to send transfers to Nigeria in US dollars.
“The Central Bank of Nigeria (CBN) has directed that it’s no longer possible for any money transfers to be paid out in USD in Nigeria. So that, of course, includes WorldRemit money transfers,” a notice to customers stated.
According to local media reports, a notice from Sendwave said: “In compliance with a recent directive from the Central Bank of Nigeria, we regret to inform you that Sendwave, along with all money transfer operators, is no longer able to support USD transfers to Nigeria. We’d encourage you to switch to sending Naira transfers instead.”
A notice from Ecobank Nigeria pointed to Western Union, MoneyGram, Rapidtransfer and Ria as among the operators affected and added: “Furthermore, transfers exceeding the Naira equivalent of $200 must be credited to the recipient’s bank account. Naira cash payment equivalent for amounts below $200 will require an acceptable means of identification.”
Nigeria announces rule changes
The CBN announced major changes to its international money transfer rules on January 31, which it said aim to stabilise the currency.
The major changes include:
- Ban on banks and fintechs. The new guidelines prohibit banks and fintech companies from obtaining IMTO licences. They do not provide an explicit definition of fintechs and it is unclear how this applies to firms that already have licences. Fintechs will still be able to partner with IMTOs for remittance products.
- Outbound transfer restrictions. The CBN has restricted the operations of IMTOs to inbound transfers, implying that they can no longer transfer funds out of Nigeria to other countries.
- Payment methods. IMTOs were previously permitted to transfer remittances to bank accounts, mobile money wallets and cash in Nigeria. Transfers to mobile wallets are no longer permitted. In addition, payments must be made to the recipient in naira.
- Expanded customer base. Previous guidelines restricted IMTOs to peer-to-peer payments to prevent corporate customers from splitting transactions into smaller amounts to avoid statutory reporting requirements. The new guidelines allow IMTOs to offer business-to-person and business-to-business services without prior permission from the CBN.
- IMTO definition. IMTOs are defined as service providers approved by the CBN to facilitate the payment of funds from individuals or entities abroad to recipients in Nigeria through a clearing network to which they belong. There was previously no express definition; it was implied from IMTO activities.
- Application fee increase. The fee for an IMTO licence application has been raised to 10m naira from NGN500,000. This is higher than the fees for other types of payment service provider licences and is in addition to a minimum share capital requirement of $1m for foreign IMTOs and the naira equivalent for domestic IMTOs, lifting the barrier to entry.
- Removal of allowable limit on exchange rate. The CBN has also removed the allowable limit of -2.5 percent to +2.5 percent on the closing rate of the Nigerian Foreign Exchange Market for IMTO foreign exchange transactions. The applicable or reference exchange rate will now be the prevailing rate at the Nigerian foreign exchange market on a willing buyer, willing seller basis.
There are more than 60 IMTOs licensed by the central bank that will be affected by the changes.
Mitigating currency volatility
The move by the CBN aims to stabilise the volatile naira, which has been devalued twice in less than a year — most recently at the end of January. The currency dropped to a record intraday low against the US dollar on February 9.
The central bank has taken steps to improve the dollar supply but is attempting to moderate foreign exchange demand for this to be sustainable. It has also recently cautioned commercial banks against hoarding US dollars.
Nigeria received an estimated $60.22bn in personal remittances between 2019 and 2022, World Bank data shows. The country receives more than a third of the total remittances to sub-Saharan Africa. Remittances can have an impact on Nigeria’s economic growth and affect its currency volatility. Most of the funds do not flow through the official channels, so the revised rules aim to increase supply and limit volatility on the official market.
“The changes introduced by the New Guidelines and the Allowable Limit Removal Circular are generally understood to be part of the wider FX reforms aimed at liberalising the FX market, ensuring transparency, boasting diaspora remittances and by extension foreign capital inflows in Nigeria.”
“However, there will be significant implications for the fintech sector as regards the ability to play within the very lucrative remittances space,” said African law firm Templars.
