In a surprise (?) move, the Central Bank of Nigeria has clamped down on money transfer operators by restricting the movement of legal money transfers to three companies only, namely Western Union, MoneyGram and Ria. CBN has now forced all other money transfer operators as illegal and has issued notification to banks to suspend money transfer operations of all operators other than the above-mentioned MTOs. Read a feature on this issue by Ian Allison at IBTimes.
To understand why the CBN took such drastic measures, one has to understand the mindset that’s prevalent in Nigeria with respect to money transfers. There are literally tens of dozens of money transfer operators working in Nigeria. However, as is the policy of taking inward foreign exchange and then surrendering the same to the central bank for Nigerian naira, most MTOs are selling their currency notes in the Lagos Parallel Market (open market) and then crediting the beneficiary’s account via a local deposit.
This is hindering the central bank’s reserves because they’re not seeing this currency being accounted for in their foreign exchange reserves, while the bureaux de change operators are netting off the proceeds (i.e. selling the foreign exchange currency) to those who wish to buy it (for purposes of investment/savings or those wanting to bypass the currency outflow limits as set by the central bank).
This parallel market (as it’s rightly called) created appreciating pressure on the foreign currencies against the naira, hence the Lagos Parallel Market rate, which is much higher than the official rate.
The disparity in pricing between the official and open market (or parallel market) rate is significant, which results in preference for the latter rather than the former.
By essentially shutting down operations of all other MTOs, there’s no sure shot method for MTOs outside Nigeria to send money to the bureaux de change operators. The only method of receiving money is by a person sending foreign currency directly into a Forex account in Nigeria to that of another person. Presumably, this channel will also be overly misused and then clamped down.