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There are now 2 tiers of BDCs –
Tier 1 will have a national presence, branches and franchises.
Tier 2 restricted to 1 state with max 3 locations.
Recapitalization of BDC:-
Minimum capital for Tier 1 is N2 billion.
Minimum capital for Tier 2 is N500 million.
Other fees and deposits to be specified.
Business restriction :- The new regulation makes it illegal for certain entities like banks, government agencies, NGOs etc to own stakes in BDCs.
In terms of permissible activities :- BDCs can buy and sell foreign currencies, issue prepaid cards, serve as cash points for money transfer operators( to receive diaspora remittance) .
However, they cannot take deposits, grant loans, deal in gold or engage in capital market activities. They must verify customer’s identity, keep transaction records, connect to CBN “real time” systems and display rates.
Regarding the sale of foreign currencies:- BDCs can sell forex for purposes such as travel, medical bills, and school fees, up to specified limits per customer annually.
At least 75 % of the sales must be conducted through electronic transfers, while the remaining 25% can be in cash.
In terms of sourcing foreign currencies:- BDCs can obtain forex from authorized dealers, travelers, hotels, embassies, and other sources. For large transactions exceeding $10,000, a declaration of the source is required.
Newly approved BDCs will also have automated reporting and returns rendering systems integrated with CBN, NIBSS & NFIU for live auditability and Real-time monitoring.
BDC are also expected to now publish audited financials in national dailies.
Finally the is a ban on offshore accounts operated by BDCs. Closing the offshore accounts may increase forex supply/inflow in the short term.
It’s important to make the distinction that street traders of forex aren’t BDCs as we like to use them interchangeably. Street trading of forex has been outlawed and I expect security agencies to continue the clamp down. But more importantly, outlawing street trading now incentivizes BDCs operation due to less competition and more forex to accrue. Expect more branches.
Nigeria has never lacked sound regulations on paper. The problem has always been with enforcement by the regulators and justice system.
Don’t we have regulation for ways and means ?. Was it followed?.
We have seen Court upturn fines and tell a regulator it has no right to fine
The above to me are the issues.
Personally I am indifferent. I see why people want BDC to stay because of “convenience” and they also help the “supply side of forex”. I also see why people want them outlawed because remaining will increase the surveillance burden on CBN. Surveillance system in Nigeria, everywhere, is subpar so it’s hard betting on CBN to be effective with their surveillance at this moment.
Nonetheless, I want to be hopeful and trust CBN at this moment.
Head or tail, Cardoso seem to have his head in this right place. He is following through with his plans backed by his gut, knowing fully well he has no reserve to fall back on should things go south.
I wish him the best
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