According to a report by PwC, the Nigerian diaspora sent around $25 billion in remittances back home in 2018, a figure that would only have grown in the subsequent year given that many Nigerians continue to work and build businesses that have operations in their home country and countries abroad. PwC projects that the numbers could hit close to $35 billion by 2023. Nigeria remains a force to reckon with in many sectors of the African economy, with Egypt alone beating it to the top position for these remittance numbers in 2018. The impact of remittances cannot be understated, especially when they represent 6.1% of the GDP.
While the domestic payments market continues to witness strides in innovation at a speed that is greater than that of any other African country, the remittance sector has been left behind. NIBSS is the revolutionary instant payments system that allows Nigerians to send bank transfers in minutes. Companies like Interswitch, Paystack, and Flutterwave are enabling businesses to process payments in minutes to and from millions of people around the country. Innovation in the remittances sector is also evident, but due to foreign exchange complexities, it does not always move at the same speed.
The new CBN regulations
For a start, the remittance numbers stated above might be higher, but since a lot of inflows also take place within informal channels, disparities are expected. The Central Bank of Nigeria is very aware of this fact and has always been working to streamline the sector. In November 2020, the regulator released a circular in which it announced that receipt of remittances would only be in USD cash or to domiciliary (US dollar) accounts.
In subsequent circulars to clarify the first, the CBN made it clear that:
- Only licensed IMTOs (International Money Transfer Operators) can facilitate transfers into these domiciliary accounts,
- All remittances have to be in foreign currency
- No IMTO would be allowed to send remittances in Naira
The impact of these regulations was instant and continues to send shock waves across the formal financial system. So much so that CBN has had to come up with ways to encourage remittances with its announcement of the Naira 4 Dollar Scheme in March 2021. According to this new circular, “all recipients of diaspora remittances through CBN licensed IMTOs shall henceforth be paid 5 Naira for every 1 USD received as remittance flow.” This means that a dollar fetching 412 at the official rate last week will instead now pay 417. This scheme has been designed to encourage the inflow of diaspora remittances and forms part of the CBN’s continued efforts to improve remittance inflows into the country through official sources.
Future outlook for Nigerian Remittances
So what does this mean for the future of remittances to Nigeria? While COVID-19 events had a big impact on the numbers, causing an unexpected dip, we believe the only way is up from here. More circulars are going to be released as the market adapts to the current regulations and the Naira situation changes. More innovation is going to be seen. The regulators are also open to ongoing conversations with fintech stakeholders which is always a good thing in a progressive economy. Nigeria stands to reap the benefits of faster, more secure fintech cross-border payment channels which would be instrumental in bridging the gap between the formal and informal remittance networks.
At AZA, we continue to participate in conversations with both regulators and partners to ensure that we contribute to the growth of the booming Nigerian economy. And with the AfCTA (African Continental Free Trade Area) slowly falling into place, innovation in the remittance space will not only benefit Nigeria but Africa as a whole. Businesses and individuals alike will enjoy seamless cross-border payments supported by friendly policies that put the customer first.